<PAGE>
As filed with the Securities and Exchange Commission on April 30, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
----------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------------
PERFICIENT, INC.
(Name of small business issuer in its charter)
Delaware 7371 74-2853258
- ------------------------------- ---------------------------- ----------------
(State of other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification
Number)
7600-B NORTH CAPITAL OF TEXAS HIGHWAY, SUITE 340
AUSTIN, TEXAS 78731
(512) 306-7337
(Address and telephone number of principal executive offices and principal
place of business)
JOHN T. MCDONALD
CHIEF EXECUTIVE OFFICER
PERFICIENT, INC.
7600-B NORTH CAPITAL OF TEXAS HIGHWAY, SUITE 340
AUSTIN, TEXAS 78731
(512) 306-7337
(Name, address and telephone number of agent for service)
-----------------------------
COPIES OF COMMUNICATIONS TO:
Jeffrey A. Baumel, Esq.
Gibbons, Del Deo, Dolan,Griffinger & Vecchione
One Riverfront Plaza
Newark, New Jersey 07102
(201) 596-4500
----------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE
SECURITIES 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, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. /X/
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. / /
1
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If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================================
Proposed Proposed
Title of Maximum Maximum
Shares Amount Offering Aggregate Amount of
to be To be Price Offering Registration
Registered Registered(1) Per Share(2) Price (2) Fee (2)
- ---------- ---------- -------- ---------- ------------
<S> <C> <C> <C> <C>
Common Stock 580,000 Shares(3) $17.875 $10,367,500 $2,737.02
($.001 Par Value)
</TABLE>
(1) All of the shares of our common stock being registered hereby are being
offered for the account of selling stockholders who acquired such shares from
our company and certain stockholders in a private placement of shares of our
common stock. No other shares of our common stock are being registered pursuant
to this offering.
(2) Estimated solely for the purpose of calculating the registration fee.
Pursuant to Rule 457(c) of the Securities Act of 1933, as amended, (the
"Act"), the registration fee for the common stock has been calculated based
upon a price of $17.875 per share, the last sale price as reported in the
Nasdaq SmallCap Market for our common stock on April 27, 2000.
(3) Pursuant to Rule 416 of the Act, there are also being registered
hereunder such additional shares as may be issued to the selling stockholders
because of future stock dividends, stock distributions, stock splits or
similar capital requirements.
----------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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SUBJECT TO COMPLETION DATED APRIL ___, 2000
PROSPECTUS
580,000 SHARES OF COMMON STOCK
PERFICIENT, INC.
Certain of our stockholders (the "Selling Stockholders") are selling
shares of our common stock, $.001 par value, under this prospectus. See "Selling
Stockholders and Plan of Distribution." Our common stock is listed on the Nasdaq
SmallCap Market System under the symbol "PRFT" and on the Boston Stock Exchange
under the symbol "PRF". On April 27, 2000, the last reported sale price of our
common stock on the Nasdaq SmallCap Market was $17.875 per share.
Our common stock being offered through this prospectus may be offered
from time to time by the Selling Stockholders through ordinary brokerage
transactions in the over-the-counter markets, in negotiated transactions or
otherwise, at market prices prevailing at the time of sale or at negotiated
prices. We will not receive any of the proceeds from the sale of our common
stock by the selling stockholders. See "Selling Stockholders and Plan of
Distribution."
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. PLEASE READ THE "RISK
FACTORS" SECTION BEGINNING ON PAGE 5 TO READ ABOUT CERTAIN RISKS THAT YOU
SHOULD CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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 AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
THE DATE OF THIS PROSPECTUS IS APRIL ____, 2000
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SUMMARY
YOU SHOULD READ THIS SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION, INCLUDING OUR FINANCIAL STATEMENTS AND RELATED NOTES, APPEARING
ELSEWHERE IN THIS PROSPECTUS. IN THIS PROSPECTUS, "WE", "US", AND "OUR" REFER TO
PERFICIENT, INC. AND ITS SUBSIDIARIES UNLESS THE CONTEXT REQUIRES OTHERWISE.
PERFICIENT
We provide virtual professional services organizations to Internet
software companies.
RECENT DEVELOPMENTS
ACQUISITION OF LOREDATA, INC. On January 3, 2000, we consummated the
acquisition by way of merger of LoreData, Inc., a Connecticut corporation, with
and into our wholly-owned subsidiary, Perficient Acquisition Corp., a Delaware
corporation. Perficient Acquisition Corp. was the surviving corporation to the
merger and continues its existence under the name, "Perficient LoreData, Inc."
LoreData, Inc. was a 17 person Internet professional services firm based in New
London, Connecticut. We acquired LoreData for an aggregate purchase price of (i)
$385,000 in cash that was paid at closing, (ii) 30,005 shares of our common
stock, par value $.001 per share, also paid at closing, and (iii) 131,709 shares
of Perficient common stock that are being held in escrow for disposition by the
escrow agent in accordance with an Escrow Agreement dated as of January 3, 2000.
We utilized proceeds from our initial public offering of common stock to fund
the cash portion of the purchase price of LoreData.
PRIVATE PLACEMENT. On February 7, 2000, we completed an $8.1 million
private placement of common stock. We intend to use the proceeds from the
private placement to further accelerate our previously announced acquisition
program including the cash portion of the purchase price for Compete, Inc. and
for other corporate purposes. A total of 400,000 shares of common stock were
issued and sold by us, resulting in gross proceeds to us of $5.6 million. John
T. McDonald and Bryan R. Menell, each an officer and a director of our
company, and David S. Lundeen, a director of our company, sold the remaining
180,000 shares of common stock in the private placement. The private placement
was priced at $14 per share. Gilford Securities Incorporated acted as
placement agent in connection with the private placement. In addition, we
entered into Registration Right Agreements with each of the purchasers
pursuant to which we agreed to file a registration statement with the
Securities and Exchange Commission covering the shares of common stock sold in
the private placement by no later than April 30, 2000.
ACQUISITION OF COMPETE INC. On February 16, 2000, we entered into an
Agreement and Plan of Merger with Compete Inc. ("Compete"), an Illinois
corporation, our wholly-owned subsidiary, Perficient Compete, Inc., a Delaware
Corporation, and the Shareholders of Compete (the "Merger Agreement"). Under the
Merger Agreement, Compete will merge with and into Perficient Compete, Inc.,
(the "Merger"), which will be the surviving corporation to the merger. Compete
is an internet consulting firm that employs over fifty professionals from four
locations in the United States and abroad.
The consideration for the merger consists of (i) $3,500,000 in cash,
(ii) $2,527,500 in promissory notes to be repaid within six months following the
closing, and (iii) 2,200,000 shares of common stock,
<PAGE>
of which 1,100,000 shares are subject to adjustment or forfeiture and which
will be held in escrow for disposition by the escrow agent in accordance with
an escrow agreement to be executed at closing. In addition, options to
purchase up to 448,349 shares of Compete common stock will be converted into
options to purchase up to approximately 393,415 shares of common stock of
Perficient (assuming a price per share for Perficient common stock of
$21.50). We expect to close the merger with Compete on May 1, 2000, provided
we obtain the consent of our stockholders at a special meeting of
stockholders to be held on May 1, 2000.
THE OFFERING
<TABLE>
<S> <C>
Shares of common stock offered 580,000
Use of Proceeds We will not be receiving any
proceeds from this offering.
Certain selling stockholders are
offering to sell shares of our
common stock that they acquired
from our company and certain
stockholders in a private
placement of shares of our common
stock.
Nasdaq SmallCap Market Symbol "PRFT"
Boston Stock Exchange Symbol "PRF"
</TABLE>
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SUMMARY FINANCIAL INFORMATION
The following table summarizes the financial data for our business:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
---------- ----------
DECEMBER 31, DECEMBER 31,
------------ ------------
1998 1999
---- ----
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Consulting revenues................ $825,800 $3,154,936
Operating costs and expenses:
Cost of consulting revenues... 400,977 1,541,389
Selling, general and administrative 357,014 2,197,560
Stock compensation............ - 956,000
Interest Expense --- 13,380
Interest Income................. --- (127,518)
Income (loss) from operations...... 67,809 (1,425,875)
Net income (loss).................. 40,228 (1,404,963)
Basic net income (loss) per share (1) 0.02 (0.47)
Shares used in computing pro forma basic net income 1,750,000 3,000,556
(loss) per share...........................
</TABLE>
The following table summarizes our balance sheet at December 31, 1999:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1999
----
<S> <C>
BALANCE SHEET DATA:
Working capital.................................................... $6,171,264
Total assets....................................................... 6,616,417
Total liabilities.................................................. 364,326
Total stockholders' equity......................................... 6,252,091
</TABLE>
- -----------
(1) See Note 3 of Notes to Financial Statements for the determination of
shares used in computing basic net income (loss) per share.
OUR OFFICES
Our principal executive offices are located at 7600-B North Capital of
Texas Highway, Suite 340, Austin, Texas 78731, and our telephone number is
(512) 306-7337. Our Internet address is www.perficient.com. THE INFORMATION
ON OUR WEB SITE IS NOT INCORPORATED BY REFERENCE INTO, AND DOES NOT CONSTITUTE
PART OF, THIS PROSPECTUS.
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TRADEMARKS
The name "Perficient" and the Perficient logo are our trademarks. All
other trademarks, trade names or service marks appearing in this prospectus
belong to other companies.
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RISK FACTORS
An investment in shares of our common stock involves a high degree
of risk and should not be made by persons who cannot afford the loss of their
entire investment. Prospective investors, prior to making an investment
decision, should consider carefully, in addition to the other information
contained in this Prospectus and the documents and filings incorporated by
reference into this Prospectus (including the financial statements and notes
thereto), the following factors. This Prospectus contains, in addition to
historical information, forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially. Factors that could
cause or contribute to such differences include, but are not limited to,
those discussed below, as well as those discussed elsewhere in this
Prospectus.
In addition to considering risks that our inherent to our business,
prospective investors should also consider carefully additional risks that
are associated with our pending acquisition by way of merger of Compete Inc.
("Compete"), an Illinois corporation (the "Merger"). On February 16, 2000, we
entered into an Agreement and Plan of Merger with Compete, the Shareholders
of Compete, and our wholly-owned subsidiary, Perficient Compete, Inc., a
Delaware Corporation, (the "Merger Agreement"). Under the Merger Agreement,
Compete will merge with and into Perficient Compete, Inc., which will be the
surviving corporation to the merger. Compete is an internet consulting firm
that employs over fifty professionals from four locations in the United
States and abroad.
The consideration for the Merger consists of (i) $3,500,000 in cash,
(ii) $2,527,500 in promissory notes to be repaid within six months following
the closing, and (iii) 2,200,000 shares of common stock, of which 1,100,000
shares are subject to adjustment or forfeiture and which will be held in
escrow for disposition by the escrow agent in accordance with an escrow
agreement to be executed at closing. In addition, options to purchase up to
448,349 shares of Compete common stock will be converted into options to
purchase up to approximately 393,415 shares of common stock of Perficient
(assuming a price per share for Perficient common stock of $21.50). The
shares of Perficient common stock held by Perficient stockholders immediately
prior to the merger will remain unchanged by the Merger. If the Merger is
completed, former Compete stockholders will hold a significant number of
shares of Perficient common stock and several Compete officers will assume
management positions with Perficient.
We expect to close the Merger with Compete on May 1, 2000. The
closing of the Merger, however, is conditioned upon, among other things,
obtaining the consent of Perficient's stockholders. A special meeting of the
stockholders of Perficient will be held at our offices on May 1, 2000 (the
"Special Meeting") at which the stockholders will be asked to (i) approve the
issuance of 2,200,000 shares of our common stock to the shareholders of
Compete in connection with the Merger, and (ii) approve an amendment to our
1999 Stock Option/Stock Issuance Plan to increase the number of shares
authorized under the plan from 700,000 to 1,850,000.
5
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RISKS PARTICULAR TO OUR BUSINESS
WE HAVE LOST MONEY DURING MOST OF THE QUARTERS DURING WHICH WE HAVE BEEN IN
BUSINESS AND WE EXPECT TO LOSE MONEY IN THE FUTURE.
We have incurred operating losses in most of the quarters during
which we have been in business. We cannot assure you of any operating results
and we will likely experience large variations in quarterly operating
results. In future quarters, our operating results may not meet public market
analysts' and investors' expectations. If that happens, the price of our
common stock may fall.
We expect to incur net losses at least through the end of 2000. We
plan to increase our expenditure on sales and marketing, infrastructure
development, personnel and general and administrative in connection with our
efforts to expand our business. As a result, we will need to generate
significant revenues to achieve profitability. Even if we 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, you should not view our historical growth rates as
indicative of our future revenues.
OUR LIMITED OPERATING HISTORY MAKES EVALUATING OUR BUSINESS DIFFICULT.
We began our business in September 1997. We only began providing
services on any significant basis in mid-1998 and primarily to only one
partner. As a result, we have a limited operating history upon which you may
evaluate our business and prospects. Companies in an early stage of
development frequently encounter greater risks and unexpected expenses and
difficulties. Our success will depend on our ability to rapidly expand the
number of partners and teams of information technology professionals.
However, we may not grow as planned or at all. Many of our current and
potential competitors have longer operating histories, more established
reputations and potential partner relationships and greater financial,
technical, industry and marketing resources than we do. If we do not
experience substantial growth, this would place us at a disadvantage to our
competitors.
THE LOSS OF SALES TO VIGNETTE CORPORATION WOULD SERIOUSLY HARM OUR BUSINESS.
Vignette Corporation accounted for 91% of our revenue during 1998
and 96% of our revenue during 1999. Any termination of our relationship with
Vignette would have a material adverse effect on our operating results and
financial condition. Vignette only retains our services on a case-by-case
basis and may choose at any time to use any other firm or to provide the
services that we performs for itself. Therefore, any downturn in Vignette's
business or any shift in its decisions to continue to use our services could
also result in substantially reduced sales by us.
OUR PARTNERS ARE NOT OBLIGATED TO USE OUR SERVICES.
Our contracts with our partners do not obligate them to use our
services. A partner may choose at any time to use another consulting firm or
to perform the services we provide through an internal services organization.
Any termination of a relationship with a partner, or a partner's decision to
employ other consulting firms or perform services in-house, could seriously
harm our business.
6
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WE MAY ALIGN OURSELF WITH PARTNERS THAT FAIL.
In selecting our partners, we seek to identify Internet software
companies that we believe will develop into market leaders. However, our
partners compete in new and rapidly changing markets. In certain of these
markets, only a few companies will survive. If we align ourselves with
companies that fail to become market leaders, our business may suffer because
our partners will not have significant demand for our services. We invest
substantial resources to train our information technology professionals
regarding the use and features of our partners' software, and we will lose
this investment if our partners fail.
WE HAVE AGREED NOT TO PERFORM SERVICES FOR COMPETITORS OF OUR PARTNERS, WHICH
LIMITS OUR POTENTIAL MARKET.
We have generally agreed with our partners not to perform services
for their competitors. These non-compete agreements substantially reduce the
number of our prospective partners. In addition, these agreements increase
the importance of our partner selection process, because many of our partners
compete in markets where only a limited number of companies gain significant
market share. If we agree not to perform services for a particular partner's
competitors and our partner fails to gain meaningful market share, we are
unlikely to receive future material revenues in that particular market.
OUR SUCCESS WILL DEPEND ON RETAINING OUR SENIOR MANAGEMENT TEAM AND KEY
TECHNICAL PERSONNEL.
We believe that our success will depend on retaining our senior
management team, key technical personnel and our Chief Executive Officer,
John T. McDonald. This dependence is particularly important in our business,
because personal relationships are a critical element of obtaining and
maintaining our partners. If any of these people stop working for us, our
level of management, technical, marketing and sales expertise could
significantly diminish. These people would be difficult to replace, and
losing them could seriously harm our business.
OUR QUARTERLY OPERATING RESULTS WILL BE VOLATILE AND MAY CAUSE OUR STOCK
PRICE TO FLUCTUATE.
Our quarterly revenue, expenses and operating results have varied
significantly in the past and are likely to vary significantly in the future.
Although we have limited historical financial data, we expect that we will
experience seasonal fluctuations in revenues. We expect that revenues in the
quarter ending December 31 will typically be lower than in other quarters
because there are fewer billable days in this quarter due to vacations and
holidays. This seasonal trend may materially affect our quarter-to-quarter
operating results.
WE FOCUS SOLELY ON COMPANIES IN THE MARKET FOR INTERNET SOFTWARE AND COULD BE
DAMAGED BY ANY DOWNTURN IN THIS INDUSTRY.
Our business is dependent upon continued growth in the use of the
Internet to fuel the growth in the amount of Internet software sold by our
partners and prospective partners and used by their end-user customers. If
use of the Internet does not continue to grow, or grows more slowly than
expected, our growth would decline and our business would be seriously
harmed. Any downturn in the market for Internet software would harm our
business, financial condition and operating results.
7
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WE ARE, AND WILL CONTINUE TO BE, CONTROLLED BY OUR OFFICERS AND DIRECTORS,
WHICH COULD RESULT IN US TAKING ACTIONS THAT OTHER STOCKHOLDERS DO NOT
APPROVE.
Our executive officers, directors and existing 5% and greater
stockholders beneficially own or control approximately 68% of the voting power
of our common stock. Following the Merger, our executive officers, directors
and 5% and greater stockholders will own or control approximately 46.3% of the
voting power of our common stock. These persons, if they were to act together,
are in a position to elect and remove directors and control the outcome of
most matters submitted to stockholders for a vote. Additionally, these persons
are able to significantly influence any proposed amendment to our charter, a
merger proposal, a proposed sale of assets or other major corporate
transaction or a non-negotiated takeover attempt. This concentration of
ownership may discourage a potential acquirer from making an offer to buy us,
which, in turn, could adversely affect the market price of our common stock.
You should read "Management," "Principal Stockholders" and "Description of
Perficient Capital Stock" for more information on control of us.
OUR COMMON STOCK COULD BE DELISTED FROM THE NASDAQ SMALLCAP MARKET AND THE
BOSTON STOCK EXCHANGE, WHICH WOULD MAKE TRADING IN OUR STOCK MORE DIFFICULT.
Our shares are listed on the Nasdaq SmallCap Market and the Boston
Stock Exchange. However, our shares could be subsequently delisted, which
would force us to list our shares on the OTC Bulletin Board or some other
quotation medium, such as "pink sheets," depending upon our ability to meet
the specific listing requirements of those quotation systems. As a result, an
investor would find it more difficult to dispose of, or to obtain accurate
quotations for, the price of our shares. Delisting may also reduce the
visibility, liquidity and price of our common stock.
If our common stock is delisted from the Nasdaq SmallCap Market and
does not trade on another national securities exchange, we may become subject
to "penny stock" regulations that impose additional sales practice disclosure
and market making requirements on broker-dealers who sell or make a market in
our stock. In such instance, the rules of the Securities and Exchange
Commission would generally define "penny stock" to be common stock that has a
market price of less than $5.00 per share. If our stock becomes subject to
penny stock regulations, it would adversely affect the ability and
willingness of broker-dealers who sell or make a market in our common stock
and of investors to sell our stock in the secondary market.
RISKS PARTICULAR TO THE ACQUISITION OF COMPETE
THE CONSIDERATION BEING PAID BY US IN THE MERGER WILL REMAIN FIXED DESPITE
ANY INCREASE OR DECREASE IN THE STOCK PRICES OF PERFICIENT OR COMPETE.
Upon completion of the Merger, each share of Compete common stock
will be converted into the right to receive (i) $1.24 in cash, (ii) $0.89 in
a promissory note to be repaid within six months following the closing, and
(iii) 0.78 shares of Perficient common stock. In addition, options to
purchase a total of 446,912 shares of Compete common stock will be converted
so that an option to purchase one share of Compete common stock and any
additional options issued by Compete with our consent prior to the Merger
will be converted into an option to purchase 0.78 shares of Perficient common
stock plus the number of shares of Perficient common stock purchasable for
$2.13, calculated in the manner set forth
8
<PAGE>
in the Merger Agreement. This exchange ratio is a fixed number and will not
be adjusted in the event of any increase or decrease in the price of either
Compete common stock or Perficient common stock. The prices of Compete common
stock and Perficient common stock when the Merger takes place may vary from
their prices at the date of this Prospectus. Such variations may be the
result of changes in the business or operations of Compete or Perficient,
market assessments of the likelihood that the acquisition will be
consummated, the timing thereof, and the prospects of Compete, Perficient, or
the combined company, regulatory considerations, general market and economic
conditions and other factors. Because the completion of the acquisition may
occur at a date later than the date of this Prospectus, there can be no
assurance that the prices of Compete common stock and Perficient common stock
on the date of this Prospectus will be indicative of their respective prices
at the completion of the Merger.
COMPETE IS DEPENDENT UPON A CONTINUING RELATIONSHIP WITH IBM AND A LIMITED
NUMBER OF CLIENTS.
Compete has developed an important relationship with IBM.
Substantially all of its consulting projects involve IBM-based systems and
technologies. IBM accounted for 33% of Compete's revenue during 1998 and 12%
of its revenue during 1999. Any termination of the relationship with IBM
would have a material adverse effect on our operating results and financial
condition after the Merger. IBM only retains the services offered by Compete
on a case-by-case basis and may choose at any time to use any other firm or
to provide the services that Compete performs for itself. Therefore, any
downturn in IBM's business or any shift in its decisions to continue to use
the services offered by Compete could also result in substantially reduced
sales by us after the Merger. During 1999, approximately 57% of Compete's
sales were derived from services provided to three customers (including IBM).
Although Compete generally provides services on a project-to-project basis,
any losses of the relationships with any of these three service providers
would have a material adverse effect on Compete's results of operations.
WE MAY HAVE DIFFICULTY INTEGRATING THE BUSINESS OF COMPETE INTO OUR EXISTING
OPERATIONS.
The acquisition of Compete involves the integration of two companies
that have previously operated independently, with focuses on different
geographical markets and software products utilizing different personnel. We
cannot assure you that we will be able to integrate the operations of Compete
without encountering difficulties or experiencing the loss of key Compete
employees, customers or suppliers, or that the benefits expected from such
integration will be realized. In addition, we cannot assure you that the
management teams of Perficient and Compete will be able to satisfactorily
work with one another.
PERFICIENT STOCKHOLDERS WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION OF
THEIR PERCENTAGE EQUITY AND VOTING INTEREST.
We will issue up to 2,200,000 shares of common stock in connection
with the Merger, of which one-half of the shares of common stock issued will
be reserved and withheld in escrow to cover possible indemnification
obligations. We will also convert additional Compete options into options to
purchase approximately 393,283 shares of Perficient's common stock (assuming
a value of Perficient's common stock of $21.50 per share as of February 29,
2000). The 2,200,000 shares would represent approximately 31% of the number
of shares of our common stock outstanding on a fully-diluted basis as
9
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of February 29, 2000. Accordingly, the Merger will have the effect of
substantially reducing the percentage equity and voting interest held by each
of our stockholders.
THE COMPETE STOCKHOLDERS MAY BE ABLE TO SIGNIFICANTLY INFLUENCE US FOLLOWING
THE MERGER.
The substantial ownership of our common stock by Compete's current
stockholders after the Merger will provide them with the ability to exercise
substantial influence in the election of directors and other matters
submitted for approval by Perficient's stockholders. Following the closing of
the Merger, the beneficial ownership of our common stock by the nine Compete
stockholders and holders of options to purchase shares of Compete common
stock that have vested ("Vested Option Holders"), including those who will
become directors and/or executive officers of Perficient will represent
approximately 31% of the outstanding shares of Perficient. This concentration
of ownership of our common stock may make it difficult for other Perficient
stockholders to successfully approve or defeat matters which may be submitted
for action by our stockholders. It may also have the effect of delaying,
deterring or preventing a change in control of Perficient without the vote of
the Compete stockholders. In addition, sales of our common stock by the
Compete stockholders to a third party may result in a change of control of
Perficient.
WE MAY LOSE RIGHTS UNDER CONTRACT WITH CUSTOMERS AND OTHER THIRD PARTIES AS A
RESULT OF THE MERGER.
Perficient and Compete each have contracts with suppliers,
customers, licensors, licensees and other business partners. Our issuance of
shares in connection with the acquisition of Compete may trigger requirements
under some of these contracts to obtain the consent, waiver or approval of
the other parties. If we cannot do so, we may lose some of these contracts or
have to renegotiate the contracts on terms that may be less favorable. In
addition, many of these contracts are for a short term or can be terminated
following a short notice period. A loss of any of these contracts would
reduce our revenues and may, in the case of some contracts, affect rights
that are important to the operation of our business.
WE WILL FACE ADVERSE ACCOUNTING CONSEQUENCES BY COMPLETING THIS MERGER.
The Merger will be accounted for under the purchase method of
accounting. Compete's assets would be recognized at their fair value and any
excess of the purchase price over such fair value, other than amounts charged
to in-process research and development costs, if any, will be recognized as
goodwill on Perficient's balance sheet. The goodwill will be amortized as an
expense over its anticipated useful life. Since the amount of goodwill will
be substantial, the application of purchase accounting treatment could
materially adversely affect the combined company's financial results
throughout the amortization period.
COMPETE WILL FACE MANY OF THE SAME RISK FACTORS AS WE DO.
Because Compete's business is very similar to ours, it faces many of
the same risks as we do. Our investment in Compete is subject to, among
others, the following risk factors:
- Compete's limited operating history makes evaluating its
business difficult.
- Compete's partners are not obligated to use its services.
10
<PAGE>
- Compete may align itself with partners that fail.
- Compete's success will depend upon retaining its management
team.
- Compete's quarterly operating results will be volatile and may
cause our stock price to fluctuate.
- Compete focuses solely on companies in the market for Internet
software and could be damaged by any downturn in this industry.
------------------------------------
SPECIAL CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains many forward-looking statements that
involve substantial risks and uncertainties. You can identify these
statements by forward-looking words such as "may", "will", "expect",
"anticipate", "believe", "estimate", and "continue" or similar words. You
should read statements that contain these words carefully because they
discuss our future expectations, contain projections of our future operating
results or of our financial condition or state other "forward-looking"
information.
We believe that it is important to communicate our future
expectations to our investors. However, we may be unable to accurately
predict or control events in the future. The factors listed in the sections
captioned "Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," as well as any other
cautionary language in this Prospectus, provide examples of risks,
uncertainties and events that may cause our actual results to differ
materially from the expectations we describe in our forward-looking
statements. Before you invest in our common stock, you should be aware that
the occurrence of the events described in the "Risk Factors" section, the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" section and elsewhere in this prospectus could seriously harm our
business.
11
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from this offer by the Selling
Stockholders. The principal reason for this offering is to allow for the
resale of the shares currently held by the Selling Stockholders that were
acquired from our company and certain stockholders in a private placement of
shares of our common stock.
CAPITALIZATION
The following table sets forth our actual capitalization as of
December 31, 1999.
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1999
----
ACTUAL
------
<S> <C>
Stockholders' equity:
Preferred Stock, $0.001 par value, 5,000,000 shares authorized; none outstanding............. -
Common Stock, $0.001 par value, 20,000,000 shares authorized; 3,503,333 shares outstanding... 3,503
Additional paid-in capital................................................................... 7,777,392
Unearned stock compensation.................................................................. (152,000)
Retained deficit............................................................................. 1,376,804
Total stockholders' equity.............................................................. 6,252,091
Total capitalization.............................................................. $6,252,091
</TABLE>
Our outstanding number of shares of common stock does not include
128,750 shares of common stock reserved for issuance upon exercise of
warrants, and 849,834 shares of common stock issuable upon exercise of
options outstanding as of March 30, 2000 at a weighted average exercise price
of $7.16 per share.
WE DO NOT INTEND TO PAY DIVIDENDS
We have not declared or paid any cash dividends on our common stock
and do not intend to pay any cash dividends on the common stock in the
foreseeable future. We currently intend to retain future earnings, if any, to
fund the development and growth of our business. Future dividends, if any,
will be determined by our board of directors.
12
<PAGE>
MARKET PRICE AND DIVIDEND INFORMATION
MARKET INFORMATION: Shares of Perficient common stock are listed on the
Nasdaq SmallCap Market under the symbol "PRFT" and on the Boston Stock
Exchange under the symbol "PRF". On April 27, the closing price of our common
stock on the Nasdaq SmallCap Market was $17.875.
The table below sets forth, for the calendar quarters indicated, the
reported high and low closing prices of Perficient common stock as reported
on the Nasdaq SmallCap Market.
<TABLE>
<CAPTION>
1999 MARKET PRICE
HIGH LOW
<S> <C> <C>
Third Quarter 12.00 6.25
Fourth Quarter 17.88 6.50
2000
First Quarter 26.50 12.00
</TABLE>
HOLDERS: As of March 30, 2000, we believe there are in excess of 400
beneficial owners of our common stock.
DIVIDENDS: We have not declared any dividends on our common stock
during any period covered by the table and we do not intend to pay dividends
in the foreseeable future. We intend to retain future earnings, if any, to
fund the development and growth of our business. Future dividends, if any,
will be determined by our Board of Directors.
13
<PAGE>
PRO FORMA SELECTED FINANCIAL DATA
The following unaudited pro forma data gives effect to the acquisition
of LoreData, Inc. and the Merger with Compete as if all such transactions had
been consummated on December 31, 1999 in the case of balance sheet data and
January 1, 1999 with respect to financial data and operations data. The pro
forma information gives effect to the acquisition of LoreData, Inc. and the
Merger under the purchase method of accounting and to the assumptions and
adjustments described in the accompanying notes to the pro forma combined
condensed financial statements.
The pro forma combined condensed financial statements are based on the
historical financial statements of Perficient, LoreData and Compete and their
related notes thereto included elsewhere herein. These pro forma statements are
presented for informational purposes only and may not necessarily be indicative
of the results that actually would have occurred had the merger been consummated
at the dates indicated, nor are they necessarily indicative of future operating
results or financial position. The data presented below 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
thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERFICIENT INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of December 31, 1999
Perficient LoreData Compete Adjustments Pro Forma
------------ ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash $5,818,918 $0 $43,172 ($385,000) (a)
(3,500,000) (b)
5,317,000 (c)
(366,638 (d)
(150,000) (e)
(77,000) (f) $6,700,452
Accounts receivable, net 563,334 128,148 1,149,214 --- 1,840,696
Other assets 142,422 --- --- --- 142,422
Income tax receivable 10,916 --- --- --- 10,916
----------------------------------------------------------------------------
Total current assets 6,535,590 128,148 1,192,386 838,362 8,694,4867
Property and equipment 114,640 114,792 541,603 (35,535) (g)
(296,070) (h) 439,430
Accumulated depreciation (33,813) (35,535) (296,070) 35,535 (i)
296,070 (j) (33,813)
Goodwill, net --- --- 90,000 58,498,826 (k)
2,352,472 (l)
(90,000) (m)
55,000 (n) 60,906,298
Accumulated amortization --- --- (35,000) 35,000 (o) 0
Other assets --- 2,729 8,724 --- 11,453
----------------------------------------------------------------------------
Total assets $6,616,417 $210,134 $1,501,643 $61,689,660 $70,017,854
============================================================================
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
PERFICIENT INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of December 31, 1999
Perficient LoreData Compete Adjustments Pro Forma
------------ ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Liabilities and stockholders' equity
Liabilities
Current liabilities:
Accounts payable $165,176 $33,279 $164,558 $ --- $363,013
Short term borrowings 0 43,776 400,000 2,419,690 (p)
107,810 (q) 2,971,276
Other current liabilities 199,150 34,015 150,649 --- 383,814
----------------------------------------------------------------------------
Total current liabilities 364,326 111,070 715,207 2,527,500 3,718,103
Note payable to related party, less --- 48,968 --- --- 48,968
current portion
Capital lease obligation --- --- 119,515 --- 119,515
----------------------------------------------------------------------------
Total liabilities 364,326 160,038 834,722 2,527,500 3,886,586
Stockholders' equity:
Common Stock 3,503 1,000 20,495 2,200 (r)
162 (s)
(1,000) (t)
(20,495) (u)
400 (v)
17 (w) 6,282
Treasury Stock --- --- (243,696) 243,696 (x) 0
Additional paid-In capital 7,777,392 12,668 4,595,413 52,619,392 (y)
1,940,406 (z)
(12,668) (aa)
(4,595,413) (bb)
5,316,600 (cc) 67,653,790
Note receivable from stockholder --- (53,828) --- 53,828 (dd) 0
Unearned stock compensation (152,000) --- (4,593,413) 4,593,413 (ee) (152,000)
Retained earnings (deficit) (1,376,804) 90,256 888,122 (90,256) (ff)
(888,122) (gg) (1,376,804)
----------------------------------------------------------------------------
Total stockholders' equity 6,252,091 50,096 666,921 59,162,160 66,131,268
----------------------------------------------------------------------------
Total liabilities and stockholders' $6,616,417 $210,134 $1,501,643 61,689,660 70,017,854
equity ============================================================================
</TABLE>
See notes to unaudited pro forma condensed consolidated balance sheet.
15
<PAGE>
PERFICIENT, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
The following pro forma adjustments to the unaudited condensed consolidated
balance sheet assume the mergers had been consummated on December 31, 1999
The LoreData, Inc. and Compete, Inc. acquisitions will be accounted for using
the purchase method. The cost of the acquisition will be allocated to the fair
value of the assets acquired as of the closing dates, January 3, 2000 for
LoreData, and an assumed Effective Date of February 29, 2000 for Compete, based
upon valuations which are not yet complete. Accordingly, the allocations of the
purchase price may change upon completion of the valuation.
Following are the pro forma adjustments referenced in the unaudited condensed
consolidated balance sheet:
<TABLE>
<CAPTION>
LoreData * Compete*
------------------ ---------------
The estimated acquisition purchase price and preliminary allocations are as
follows:
<S> <C> <C>
Purchase price of acquisition $2,402,568 $59,165,747
================== ===============
Net equity of the Acquisitions at December 31, 1999
(book value of net assets):
Common Stock 1,000 (t) 20,495 (u)
Additional paid in capital 12,668 (aa) 4,595,413 (bb)
Note receivable from stockholder (53,828)(dd) ---
Unearned stock compensation --- (4,593,413)(ee)
Treasury stock --- (243,696)(x)
Retained earnings 90,256 (ff) 888,122 (gg)
------------------ ---------------
50,096 666,921
Eliminate intangible assets previously recorded by:
Goodwill --- (90,000)(m)
Accumulated amortization --- 35,000 (o)
Adjustments to record assets at fair value:
Fixed assets (35,535)(g) (296,070)(h)
Accumulated depreciation 35,535 (i) 296,070 (j)
Goodwill 2,352,472 (l) 58,498,826 (k)
--- 55,000 (n)
------------------ ---------------
$2,402,568 $59,165,747
================== ===============
Record cash note payable and stock for acquisitions:
Cash $ 385,000 (a) $ 3,500,000 (b)
Cash (Broker fee) --- $366,638 (d)
Cash (estimated transaction costs) 77,000 (f) $150,000 (e)
Short term borrowing --- 2,419,690 (p)
Imputed interest payable** --- 107,810 (q)
Additional paid in capital 1,940,406 (z) 52,619,392 (y)
Common Stock issued to shareholders of acquisitions 162 (s) 2,200 (r)
Common Stock issued to brokers --- 17 (w)
------------------ ---------------
$2,402,568 $59,165,747
================== ===============
Record proceeds of February 7, 2000 private placement, on pro forma basis, to
provide cash to complete acquisitions. Perficient sold 400,000 shares for $14
per share and raised $5.3 million, net of costs.
Cash $ --- $ 5,317,000 (c)
Common stock --- (400)(v)
Additional paid in capital --- (5,316,600)(cc)
</TABLE>
* The references in this column correspond to the references on the Unaudited
Condensed Consolidated Balance Sheet
** The note payable to Compete shareholders is non-interest bearing, interest is
imputed using the Company's cost of capital (8.75% as of February 29, 2000.)
16
<PAGE>
<TABLE>
<CAPTION>
PERFICIENT, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
For the year ended December 31, 1999
Perficient, Inc. LoreData, Inc. Compete, Inc. Adjustments Pro Forma
---------------------------------------------------------------- ---------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Consulting revenues $3,154,936 $1,348,480 $6,643,577 $ --- $11,146,993
Cost of consulting revenues 1,541,389 968,584 4,087,063 --- 6,597,036
-------------- ------------- --------------- --------------- ---------------
Gross margin 1,613,547 379,896 2,556,514 0 4,549,957
Selling, general and administrative 2,197,560 371,421 2,149,642 107,810 (a) 4,826,433
Stock compensation 956,000 --- --- 956,000
Intangibles amortization --- --- --- 19,463,672 (b)
784,157 (c) 20,247,829
-------------- ------------- --------------- --------------- ---------------
Income (loss) from operations (1,540,013) 8,475 406,872 (20,355,639) (21,480,305)
Interest income (expense) 114,138 (7,265) (23,694) 83,179
Income (loss) before income taxes (1,425,875) 1,210 383,178 (20,355,639) (21,397,126)
Other expense --- --- 30,000 --- 30,000
Provision (benefit) for income taxes (20,912) --- 3,135 --- (17,777)
-------------- ------------- --------------- --------------- ---------------
Net Income (loss) ($1,404,963) $ 1,210 $ 350,043 ($20,355,639) ($21,409,349)
============== ============= =============== =============== ===============
</TABLE>
See notes to unaudited pro forma condensed consolidated statement of operations.
17
<PAGE>
PERFICIENT, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
For the year ended December 31, 1999
<TABLE>
<CAPTION>
Perficient, LoreData, Inc. Compete, Inc. Adjustments Pro Forma
Inc.
---------------------------------------------------------------- ---------------
<S> <C> <C> <C> <C> <C>
Supplemental Data:
Net income (loss) per share:
Basic and diluted (1) ($0.47) $12.10 $0.13 $ --- ($4.14)
============== ============= =============== =============== ===============
Shares used in computing net
income (loss) per share (2) 3,000,556 100 2,668,952 --- 5,166,138
============== ============= =============== =============== ===============
Diluted supplemental weighted average
shares outstanding ----- 100 2,728,696 --- 5,577,380
============== ============= =============== =============== ===============
Supplemental Data:
Net Income (Loss) as reported ($1,404,963) $1,210 $350,043 ($20,355,639) ($21,409,349)
Non-cash charges (3) 978,950 28,814 158,737 20,247,829 21,414,330
Provision (benefit) for income taxes (20,912) 0 3,135 (3,135) (20,912)
(4)
-------------- ------------- --------------- --------------- ---------------
Supplemental net income before non-cash
charges ($405,101) $30,024 $505,645 ($104,675) $25,893
============== ============= =============== =============== ===============
Supplemental net income before non-cash
charges per share - basic ($0.14) $300.24 $0.19 $ --- $0.01
============== ============= =============== =============== ===============
Supplemental net income before non-cash
charges per share - diluted $ --- $300.24 $0.19 $ --- $0.00
============== ============= =============== =============== ===============
</TABLE>
(1) The computation of net loss and diluted supplemental net loss per share
excludes Perficient Common Stock issuable upon exercise of certain employee
stock options, as their effect is antidilutive.
(2) Pro Forma diluted supplemental shares outstanding include estimate of
1,231,709 shares for contingent consideration issuable to certain selling
shareholders under the terms of the merger agreements.
(3) Non-cash charges include stock compensation, amortization of intangible
assets, including goodwill, and depreciation expense.
(4) Supplemental net income and supplemental income per share data include a tax
provision at an assumed effective rate of 37% for all periods presented.
This information is not necessarily indicative of the results we would have
obtained had we owned and operated these businesses as of the beginning of the
period discussed. We have based these supplemental adjustments on estimates and
available information we deem appropriate.
18
<PAGE>
PERFICIENT, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
As of December 31, 1999
The accompanying Unaudited Pro Forma Condensed Consolidated Statements of
Operations for the year ended December 31, 1999 reflect the pro forma
adjustments described below as if the acquisitions occurred on January 1, 1999.
The Unaudited Pro Forma Condensed Consolidated Statements of Operations combine
the historical results of operations of Perficient with those of LoreData and
Compete. The statements reflect the following adjustments:
(a) Represents imputed interest expense on the 6-month Note Payable to
Compete shareholders. The imputed interest is calculated using
Perficient's cost of capital (our bank's prime rate as of February 29,
2000 or 8.75%, the most recent rate available before the date of the
preliminary proxy materials). The imputed interest expense is
charged to income and reduces Purchased Goodwill
<TABLE>
<S> <C>
Imputed interest expense on Note payable to Compete
Shareholders $107,810
==================
</TABLE>
(b) Represents Goodwill amortization associated with the Compete
Acquisition using an assumed amortization period of 3 years and an assumed
price of Perficient stock of $21.50 per share (closing price on February
29, 2000, the most recent price practicable before the date of the
preliminary proxy materials. The calculation of Goodwill is as follows:
<TABLE>
<S> <C>
Component of purchase price for Compete, Inc.
Cash $3,500,000
Note 2,527,500
Stock (2,200,000 shares) 47,300,000
Assumption of Existing Stock Option Plan * 4,954,972
Transaction Broker Fees: 733,275
Estimated acquisition costs (Legal, accounting, 150,000
etc.)
------------------
Total purchase price 59,165,747
Less: Net assets of Compete, Inc. (666,921)
Less: Imputed interest on Note payable to Compete shareholders (107,810)
------------------
Total Goodwill 58,391,016
------------------
Goodwill amortization (using 3 year amortization $19,463,672
period)
==================
</TABLE>
* Assumes the assumption of current outstanding options of Compete.
The cost is measured by the difference in the aggregate exercise price
of all unvested options and the fair market value of Perficient common
stock of $21.50 on February 29, 2000 per share, the most recent price
practicable before the date of the preliminary proxy materials.
(c) Represents Goodwill amortization associated with the LoreData
Acquisition using an assumed amortization period of 3 years and the actual
closing price of price of Perficient stock of $12.00 per share on the
Effective Date of January 3, 2000. The calculation of Goodwill is as
follows:
<TABLE>
<S> <C>
Component of Purchase Price for LoreData, Inc.
Cash $385,000
Stock (161,714 shares) 1,940,568
Estimated acquisition costs (Legal, accounting, 77,000
etc.)
------------------
Total purchase price 2,402,568
Less: Net assets of LoreData, Inc. (50,096)
------------------
Total Goodwill 2,352,472
------------------
Goodwill amortization (using 3 year amortization $784,157
period)
==================
</TABLE>
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PERFICIENT
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with our financial
statements and notes thereto and the other financial information included
elsewhere in this filing. In addition to historical information, this
management's discussion and analysis of financial condition and results of
operations and other parts of this filing contain forward-looking information
that involve risks and uncertainties. Our actual results could differ materially
from those anticipated by such forward-looking information as a result of
certain factors, including but not limited to, those set forth under "Risk
Factors" and elsewhere in this filing.
We were incorporated in September 1997 and began generating revenue in
February 1998. We generate revenues from professional services performed for
end-user customers of our partners and associated reimbursable out-of-pocket
expenses. We refer to the Internet companies with which we work as our
"partners." To date our limited number of partners have consisted of Internet
software companies and we expect that Internet software companies will comprise
our partners for the foreseeable future. Our contractual relationships are with
our partners rather than their end-user customers. We perform services on a
time-and-materials basis and are reimbursed for expenses. We recognize revenue
for fees as services are performed and reimbursable expenses as incurred.
We established our first partner relationship with Vignette
Corporation, an Internet relationship management software company, in February
1998. During 1999, we established partner relationships with four additional
internet software companies. Most of our revenues for the near future are
expected to be derived from Vignette with smaller portions derived from these
newer partner relationships. In December 1999, we began providing services to
Plumtree, Inc. Total revenue during 1999 from partners other than Vignette was
approximately $102,000. As a result, our revenues and operating results are
subject to substantial variations based on Vignette's sales and the frequency
with which we are chosen to perform services for Vignette's end-user customers.
Our agreement with Vignette may be terminated at any time by Vignette or by us.
The agreement does not obligate Vignette to use our services for any minimum
amount or at all, and Vignette may use the services of our competitors.
Nevertheless, we are restricted, for as long as the agreement is in place, from
performing services for Vignette's competitors.
Our plan is to establish additional partner relationships with Internet
software companies and increase our number of information technology
professionals. In connection with our planned expansion, we expect to incur
substantial expenses in anticipation of identifying and being retained by new
partners. Therefore, we expect that we will continue to incur losses during
2000. We plan to spend significant amounts on:
- Recruiting, training and equipping information technology
professionals;
- Expanding our management and technology infrastructure;
- Expanding our physical facilities;
20
<PAGE>
- Sales and marketing expenses; and
- Working capital and general corporate purposes, including potential
acquisitions.
The number of information technology professionals who have agreed to
perform services for the Company has increased from zero at December 31, 1997 to
8 at December 31, 1998 and to 43 at December 31, 1999. We expect our number of
information technology professionals to grow significantly during the next 12
months. Our personnel costs represent a high percentage of our operating
expenses and are relatively fixed in advance of each quarter. Accordingly, if
revenues do not increase at a rate equal to expenses, we will incur continuing
losses and our business, financial condition, operating results and liquidity
will be materially and adversely affected.
Results Of Operations of Perficient
FISCAL YEAR ENDED DECEMBER 31, 1998 COMPARED TO DECEMBER 31, 1999
Consulting Revenues. Revenues increased from $826,000 for the twelve
months ended December 31, 1998 to $3,155,000 for the twelve months ended
December 31, 1999. The increase in revenues reflected the increase in the number
of projects performed and in the number of information technology professionals
employed. Our revenues for the twelve months ended December 31, 1998 and
December 31, 1999 consisted of $694,000 and $2,648,000, respectively, in fees
generated by our information technology professionals and $132,000 and $507,000,
respectively, of reimbursable expenses. During the twelve month period ended
December 31, 1999, 96% of our revenues came from Vignette.
Cost of Consulting Revenues. Cost of revenues, consisting of direct
costs, primarily salaries and benefits for information technology professionals
assigned to projects and of reimbursable expenses, increased from $401,000 for
the twelve months ended December 31, 1998 to $1,541,000 for the twelve months
ended December 31, 1999. The number of information technology professionals who
have agreed to perform services for the Company increased from 8 for the twelve
months ended December 31, 1998 to 43 for the twelve months ended December 31,
1999. This amount would be 94 on a pro forma basis giving effect to the Merger.
Gross Margin. Gross margin increased from $425,000 for the twelve
months ended December 31, 1998 to $1,614,000 for the twelve months ended
December 31, 1999. Gross margin as a percentage of consulting revenues was 51%
and the gross margin of consulting fees over direct costs of consulting fees,
without respect to reimbursable expenses, was 61% for the twelve months ended
December 31, 1998 and 1999.
Selling, general and administrative expenses. Selling, general and
administrative expenses consist primarily of marketing activities to solicit
partners, salaries and benefits, travel costs and non-reimbursable expenses.
Selling, general and administrative expenses increased from $357,000 for the
twelve months ended December 31, 1998 to $2,197,560 for the twelve months ended
December 31, 1999. The increase in selling, general and administrative expenses
was related to our increased marketing activities to solicit additional partners
and to increases in overhead costs necessary to support
21
<PAGE>
the growth in our workforce. We expect these expenses to increase in absolute
dollar amounts in connection with our planned expansion.
Stock Compensation. Stock compensation expense consists of non-cash
compensation arising from certain sales of stock and option grants to officers,
directors or other affiliated persons. We have recognized $880,000 in non-cash
compensation in connection with the sale of stock that occurred in January 1999.
In addition, we have recorded in stockholders' equity on our balance sheet
aggregate deferred stock compensation totaling $228,000 in connection with stock
options that were granted in January 1999. Stock option expense will be
recognized to the extent of approximately $19,000 per quarter over a three year
period ending January 2002, which is the end of the vesting period for the
related options. We have recognized approximately $76,000 in non-cash
compensation expense during the twelve month period ended December 31, 1999
relating to the vesting of these options. Total non-cash compensation expense
for the twelve month period ended December 31, 1999 was $956,000.
Results Of Operations of Compete
FISCAL YEARS ENDED DECEMBER 31, 1998 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1999
Consulting Revenues. Revenues increased from $4,181,458 for the twelve
months ended December 31, 1998 to $6,643,577 for the twelve months ended
December 31, 1999. The increases in revenues reflected the increase in the
number of projects performed and in the number of information technology
professionals employed, which increased from 25 at year end 1998 to 45 at year
end 1999. Compete's revenues for the twelve months ended December 31, 1998 and
ended December 31, 1999 consisted of $3,763,217 and $6,043,022, respectively, in
fees generated by its information technology professionals and $418,240 and
$600,555 respectively, of reimbursable expenses. During the twelve month period
ended December 31, 1999, 77% of Compete's revenues came from its five largest
customers.
Cost of Consulting Revenues. Cost of revenues, which consists
primarily of salaries and benefits for information technology professionals and
of project related expenses, which for the most part are reimbursable,
increased from $2,626,430 for the twelve months ended December 31, 1998 to
$4,087,063 for the twelve months ended December 31, 1999.
Gross Margin. Gross margin increased from $1,555,028 for the twelve
months ended December 31, 1998 to $2,566,514 for the twelve months ended
December 31, 1999. Gross margin as a percentage of consulting revenues was 38%
for the twelve months ended December 31, 1999 and the margin of consulting fees
over direct costs of consulting fees, without respect to reimbursable and
project related expenses, was 44%.
Selling, general and administrative. Selling, general and
administrative expenses consist primarily of recruiting and training costs,
salaries and benefits of management and administrative staff, office expense,
travel costs and non-reimbursable expenses. Selling, general and administrative
expenses increased from $973,525 for the twelve months ended December 31, 1998
to $2,149,642 for the twelve months ended December 31, 1999. The increase in
selling, general and administrative expenses was primarily related to increases
in overhead costs necessary to support the growth in Compete's workforce.
Compete expects these expenses to increase in absolute dollar amounts in
connection with its planned expansion.
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Operating income. Operating income decreased from $581,503 for the
twelve months ended December 31, 1998 to $406,872 for the twelve months ended
December 31, 1999. The decrease in operating income primarily reflects
additional management costs added in 1999 to support the growth in Compete's
workforce as well as a calculated investment to ramp up Compete's Websphere
capability.
Liquidity And Capital Resources
We received approximately $6.3 million in July 1999 from an initial
public offering of 1,000,000 shares of our common stock, net of underwriting
discounts, commissions and expenses. The primary purposes of the initial public
offering were to obtain additional equity capital, create a public market for
our common stock and facilitate future access to public markets. During the
fiscal year ended December 31, 1999, we used approximately $725,000 of the
proceeds for recruiting, training, and equipping information professionals,
expanding our technology infrastructure, sales and marketing expenses, expanding
our physical facilities, repayment of accounts payable, and general corporate
purposes, including working capital. A portion of the proceeds in the future may
also be used for the acquisition of businesses that are complimentary to ours.
Pending such uses, we have invested the net proceeds of the offering in
investment grade, interest-bearing securities. Prior to the offering, we
financed our operations primarily through equity financing and bank borrowings.
Through June 30, 1999, we had raised $400,000 from private sales of our common
stock.
We have a factoring agreement with Silicon Valley Bank, which allows us
to borrow up to $1,000,000 against our qualifying accounts receivables.
Borrowings under this agreement, which expires July 1, 2000, bear interest at
the bank's prime rate. In connection with this bank agreement, we issued
warrants to the Bank to acquire up to 3,750 shares of our common stock at $8 per
share. As of December 31, 1999, there were no borrowings under this loan
agreement.
Cash used in operations for the twelve months ended December 31, 1998
was $55,000 and cash used in operations for the twelve months ended December 31,
1999 was $6,171,264. As of December 31, 1999, we had $5,819,000 in cash and
working capital of $6,028,000. On August 3, 1999, our initial public offering
was completed, which increased cash by approximately $6.3 million. The timing
and amount of our capital requirements will depend on a number of factors,
including demand for our services, the need to develop new partner
relationships, competitive pressures and the availability of complementary
businesses that we may wish to acquire.
On February 7, 2000, we sold 400,000 shares of Perficient common stock
at $14 per share in a private placement. We intend to use the proceeds of
approximately $5,500,000 from the private placement to fund the cash portion of
the purchase price of Compete, for our operations and general corporate purposes
and to satisfy the promissory notes we will issue in connection with the Compete
Merger described below.
In connection with the acquisition of Compete, we agreed to pay to the
shareholders and Vested Option Holders of Compete $3,500,000 in cash and we will
agree to pay $2,527,500 six months from the date of the closing of the Merger.
We will use the proceeds of the private placement to fund the initial cash
payment and expect that we will fund the repayment of the notes from working
capital.
If our capital is insufficient to fund our activities in either the
short or long term, we may need to raise additional funds. If we raise
additional funds through the issuance of equity securities, our existing
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stockholders' percentage ownership will be diluted. These equity securities may
also have rights superior to our common stock. Additional debt or equity
financing may not be available when needed or on satisfactory terms. If
adequate funds are not available on acceptable terms, we may be unable to
expand our services, respond to competition, pursue acquisition opportunities
or continue our operations.
Recent Accounting Pronouncements
In June 1998 and 1999, the FASB issued SFAS No. 133, "Accounting for
Derivatives and Hedging Activities" and SFAS No. 137, "Accounting for
Derivatives and Hedging Activities - Deferral of the Effective Date of SFAS No.
133" ("SFAS 133"), respectively. 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. We will
adopt SFAS 133 in our quarter ending June 30, 2000 and do not expect such
adoption to have an impact on our reported results of operations, financial
position or cash flows.
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BUSINESS
YOU SHOULD READ THE FOLLOWING DESCRIPTION OF OUR BUSINESS IN
CONJUNCTION WITH THE INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS
DESCRIPTION CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER SIGNIFICANTLY FROM THE RESULTS
DISCUSSED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN OF THE
FACTORS SET FORTH IN "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We provide virtual professional services organizations to Internet
software companies. A virtual professional services organization is a dedicated
team of information technology professionals that plans, manages and executes
the installation, or implementation, of complex software products. This allows
the Internet software companies we work with to focus on their core business of
improving and selling their software by outsourcing services delivery to expert,
highly scalable Perficient teams that function as an extension of their
organization. We believe this enables our partners to bring products to market
faster and respond more quickly to their end-user customer needs, which helps
them achieve success in the marketplace.
We refer to the Internet software companies with which we work as
"partners." Our partners license their Internet software products to their
end-user customers. We then deploy a team that implements the licensed software
products by
- analyzing end-user customer goals and requirements,
- defining the scope of the implementation project,
- designing a project plan, and
- installing, configuring, implementing and integrating our
partner's Internet software products.
We established our first partner relationship with Vignette
Corporation, an Internet relationship management software company, in February
1998. In addition to Vignette, we have established partner relationships with
Motive Communications, Inc., a support chain automation software company and
Plumtree Software, the founder and leader of the corporate portal market.
INDUSTRY BACKGROUND AND LIMITATIONS OF TRADITIONAL APPROACHES
Increasing numbers of individuals and businesses now use the Internet
to search for information, communicate with others, conduct business and seek
entertainment. With the recent explosion of Internet activity, an industry of
Internet software companies has emerged. These companies develop software to
perform or support Web-enabled interaction, whether between businesses or
between businesses and
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consumers. We focus on the Internet software market because we believe that
Internet software exhibits the high-growth, intense competition and short
product lifecycles that create a demand for our services.
Internet software includes software designed to facilitate, among
others, the following tasks:
- CUSTOMER RELATIONSHIP MANAGEMENT-manages the relationship that a
consumer has with a business over the Internet.
- ELECTRONIC COMMERCE-allows people to purchase goods and services
over the Internet.
- SITE VALUE ANALYSIS-collects and analyzes customer interactions
with the Internet in order to customize the behavior of the
Web-site the next time the customer visits.
- MARKETING AUTOMATION-enables marketing campaigns over the
Internet (or through e-mail) to attract or retain potential
customers to a Web site.
- PROCESS KNOWLEDGE MANAGEMENT-manages and presents business
knowledge to Internet users.
- CUSTOMER SUPPORT-allows Internet users to support themselves and
resolve their own issues by presenting knowledge and information
to them in text, video and audio.
- E-MAIL MANAGEMENT-manages high volume e-mail traffic.
- ELECTRONIC BILLING MANAGEMENT-presents bills to customers through
the Internet, thereby decreasing billing costs and improving cash
management.
Internet software requires substantial configuration in order for the
user to realize its full benefits because each business user has its own unique
requirements, infrastructure and business processes. Emerging Internet software
companies which are focused on product innovation may not be inclined or able to
devote resources to integrate and implement their software with a customer's
existing computer systems and software. To address the need to have their
products properly implemented, software companies have tried several
alternatives:
- hire and maintain an in-house professional services organization;
- employ various individual independent contractors; and
- engage large consulting firms.
These alternatives present a variety of problems. Hiring and
maintaining an in-house staff of information technology professionals requires a
significant investment of time and money. It also increases a company's fixed
personnel costs so that any downturn in the software company's business will
result in greater losses because these costs cannot be reduced to match revenues
in the short term. Managing a group of independent contractors also requires a
significant amount of time and results may be unpredictable. Large consulting
firms may be expensive and it is our belief that these firms may only find
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it attractive to provide services when technology has become widely used.
Furthermore, we believe that large consulting firms may work with several
competing software companies, raising concerns over loyalty and confidentiality.
OUR SOLUTION
We believe that the growing markets for Internet software combined with
the limitations of these alternatives combine to create a significant market
opportunity. Our virtual professional services organizations provide the
following advantages to our partners:
- REDUCED COSTS. Each of our partners may save money by
minimizing the size of its in-house professional services
organization. We expect to be able to manage fluctuations in
services demand associated with any one partner if we can
develop a portfolio of Internet software partners. We can
reallocate its information technology professionals as our
partners' needs change.
- ALIGNED INCENTIVES. We intend to invest a significant amount
of time in each of our partners and, by virtue of our
assignments being likely to increase if their business grows,
we will have a vested interest in their success. We have
agreed in the past and may agree in the future to not work for
our partners' competitors.
- DEDICATED INFORMATION TECHNOLOGY PROFESSIONALS. We intend to
dedicate a team of information technology professionals to
master each particular partner's software products, enabling
them to provide higher quality of service to our partners and
their end-user customers. If we can provide services across a
spectrum of software customers, we can harvest best practices
knowledge, build development frameworks to increase
productivity, generate a project delivery methodology and
create a learning organization in a way that a group of
unaffiliated independent contractors cannot.
- FOCUS ON CORE BUSINESS. Our partners can remain focused on
their core business of developing and selling high-quality
software, while leveraging a small, focused internal services
organization across more customers with better success than
building and maintaining a large internal full-time staff.
OUR STRATEGY
Our objective is to become the leading provider of virtual professional
service organizations to rapidly growing Internet software companies. To achieve
this objective, our strategy is to:
FOCUS ON HIGH-GROWTH, SERVICE-INTENSIVE SEGMENTS OF THE INTERNET SOFTWARE MARKET
We view Internet software as the most attractive sector of the software
industry. Within the Internet software market, we will try to identify segments
that we believe will grow rapidly and will require significant services. We
focus on Internet software so that we can more readily acquire leading-edge
specialized skills that are in high demand in the marketplace. We intend to
leverage our accumulated
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technical talent and stay current on the best methodology for solving problems
that are consistently encountered in the Internet software arena.
ESTABLISH PARTNER RELATIONSHIPS WITH EMERGING LEADERS IN IDENTIFIED HIGH-GROWTH
SEGMENTS
Once we identify an attractive segment of the Internet software market,
we will focus on establishing a partner relationship with an emerging leader in
that segment. We will initially identify potential partners before their
products are accepted as mainstream. If any partner's products meet with
widespread success, we will have the benefit of a pre-existing dedicated team,
established working relationship and strong track record of success. We believe
these factors will allow us to compete effectively with larger consulting firms.
BUILD A NATIONAL INFRASTRUCTURE TO LEVERAGE ECONOMIES OF SCALE
Each virtual professional services organization will utilize the
services of the centralized corporate support structure. This will allow our
information technology professionals to remain focused on generating revenue.
These economies of scale include centrally-provided services such as business
development programs, partner support assistance, human resources, financial
reporting and budgeting, performance appraisals and a standardized program to
design, build and share institutional knowledge regarding the best practices for
various applications.
BUILD AND ACQUIRE A PORTFOLIO OF HIGH-GROWTH, LOW OVERHEAD DEDICATED BOUTIQUE
VIRTUAL PROFESSIONAL SERVICES ORGANIZATIONS
Our strategy is to build, through both internal growth and
acquisitions, a portfolio of boutique virtual professional services
organizations, each dedicated to deploying the products of a particular Internet
software partner. We believe that we may improve the performance of any acquired
companies by relieving them of many of the administrative burdens of running
their business, such as human resources, financial reporting and budgeting,
performance appraisals and knowledge sharing.
Our success will depend in part on our ability to identify suitable
acquisition candidates, acquire those companies on acceptable terms and
integrate their operations successfully. Acquisitions would involve a number of
potential additional risks to us, including: adverse effects on operating
results from increased goodwill amortization, acquired in-process research and
development, stock compensation expense and increased compensation expense
attributable to newly hired employees; diversion of management attention from
other aspects of our business; failure to retain acquired personnel; harm to our
reputation if an acquired company performs poorly; and assumption of liabilities
of acquired companies, including potentially hidden liabilities.
SERVICES AND SUPPORT
Our partners license their Internet software products to their end-user
customers. We then deploy a team that analyzes the end-user customer goals and
requirements, defines the scope of the implementation project, designs a project
plan and installs, configures, implements and integrates our partner's Internet
software products. In connection with providing our services, we may perform the
following activities:
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- PROJECT SCOPING-define end-user customer's broad goals for the
software.
- PROJECT DEFINITION-document in detail the specific business
requirements.
- GAP ANALYSIS-determine the gap between what the partner's
software product does when installed and the end-user customer's
specific business requirements.
- PROJECT PLANNING-create a detailed work plan that defines
specific tasks, timelines, human resources, costs and
contingencies.
- IMPLEMENTATION-configure the partner's software and write new
software programs to adapt its partner's software to the end-user
customer's needs.
- COMPONENT TESTING-test the installed software at the individual
component level.
- INTEGRATION-write new software programs to allow the partner's
software to communicate with the end-user customer's existing
information system.
- SYSTEM TESTING-test the installed software on a system-wide
level.
- TRAINING-teach the end-user customer's personnel how to operate
the partner's software.
- MONITORING-monitor the performance of the software over the
initial period following deployment.
In addition to implementation and integration services, we also provide
formal feedback to our partners. This enables them to improve their products so
they may be deployed more rapidly and with higher quality.
OUR PARTNERS
We established our first partner relationship with Vignette in April
1998. Vignette is a leading provider of Internet relationship management
software designed to enable businesses to create interactive Web sites. When
retained by Vignette, we adapt Vignette's software to its end-user customer's
needs. Vignette works with a variety of partners worldwide in the areas of
systems integration, consulting, reselling and technology integration. During
1999, Vignette accounted for 96% of our revenue.
Our arrangement with Vignette allows Vignette to issue assignment
orders to us, but they are not committed to use our services. We are paid for
time and materials and are reimbursed for expenses. The agreement may be
terminated by Vignette or us at any time upon minimal notice. Upon termination,
we remain obligated to complete any unfinished assignments. The agreement also
provides that we will not work for Vignette's competitors and neither party may
hire the other party's employees. Our Chairman of the Board, Steven G.
Papermaster, sits on the Board of Directors of Vignette.
In addition to Vignette, we have active relationships with Motive
Software, a provider of support chain automation; Ventix, a provider of
knowledge support software, and Plumtree Software, the founder
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and leader of the corporate portal market. Total 1999 revenues from partners
other than Vignette totaled approximately $102,000. Our contracts with each of
these companies are similar to our contract with Vignette, and none of these
companies are obligated to use our services.
Many of our potential partners that are in the early stages of
development may be unable to retain our services because of financial
constraints. In addition, our existing partners can generally reduce the scope
of or cancel their use of our services without penalty and with little or no
notice. If a partner defers, modifies or cancels an engagement or chooses not to
retain us for additional projects, we must be able to rapidly redeploy our
employees to other engagements in order to minimize under-utilization of
employees and the resulting harm to our operating results.
Our long-term success will depend on our ability to achieve
satisfactory results for our partners and their end-user customers and to form
long-term relationships with our partners. We have not been in operation long
enough to judge whether our partners will perceive our work as benefiting their
businesses or desire to form any long-term business relationships. Accordingly,
we cannot assure our stockholders that our partners will call upon us again in
the future. Because of our limited operating history, it is difficult to
evaluate whether we will succeed in forming long-term relationships with our
partners.
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. These factors make it difficult for us to predict our
revenues and operating results. Therefore, any sudden losses of customers could
result in unusually severe harm to our business.
SALES AND MARKETING
Since our partners sell their software and our services to their
end-user customers, our sales and marketing consists of soliciting new partners
and expanding our relationships with existing partners. Our senior management
identifies attractive segments of the Internet software market and evaluates the
emerging companies competing in that segment. Once we have identified a company
that we believe will become a market leader within that segment, our senior
management attempts to establish a partner relationship. Once a partner
relationship is established, we assign a Relationship Director to interact with
that partner. A Relationship Director is responsible for coordinating projects
on behalf of a partner and convincing a partner to use our services more often.
We typically encounter sales cycles ranging from two to six months from
our initial meeting with a prospective partner. We also market our services by
establishing informal relationships with venture capital firms, accounting
firms, law firms and other service providers that work with emerging Internet
software companies. These relationships help us identify and form partner
relationships with emerging companies.
BUSINESS OF COMPETE
Compete provides Internet consulting services including systems
development, implementation and education services to companies in a wide array
of industries, including financial services, insurance, government, automotive
and health care. Compete's services are utilized by customers that desire to
build and educate businesses or to leverage their existing operations by
incorporating into them
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elements of eBusinesses. "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, optimize supply chains, shorten cycle times and improve
communications.
Compete has established a "partner" relationship with International
Business Machines Corp. ("IBM"). As part of its partner relationship, Compete
utilizes and implements IBM's Websphere-TM-, VisualAge Generator-TM-, Java-TM-
and Smalltalk-TM- programs to enhance their customers' eBusiness strategy.
Compete is a Premier level IBM Business Partner and has deployed and assisted
in developing hundreds of references for IBM software products. Accordingly,
Compete has developed an important strategic relationship with the IBM Software
Group, including executive management, product development and field sales.
Compete has agreements with many of its end-user customers that are
typically in effect for short durations and enable the customers to modify or
terminate Compete's services on minimal prior notice. If a customer defers,
modifies or cancels an engagement or chooses not to retain Compete for future
projects, Compete must be able to rapidly redeploy its employees to other
engagements in order to minimize under-utilization of employees and the
resulting harm to its operating results.
Compete has nearly doubled its staff of technical professionals each
of the last three years. As of February 29, 2000, Compete employs 58 full-time
people, 50 as billable consultants and 8 in management and administration.
Compete has performed services across the United States and selectively around
the world, with principal locations in Chicago, San Francisco, Raleigh and
Auckland, New Zealand.
Because of its experience in enterprise applications, Compete intends
to continue to develop business to business partner relationships. Compete's
targeted businesses are those that combine the reach and accessibility of the
Internet with existing core systems and data assets.
Competition in the eBusiness services market is intense and Compete
expects the competition in this market to intensify for the foreseeable future.
Compete faces competition from companies selling eBusiness software and
services, and from the in-house development efforts of companies seeking to
engage in eBusiness. Like us, Compete's faces competition from systems
integrators, large consulting and accounting firms, outsourcing firms,
information technology staffing firms, internet service firms, and internal
information technology departments of current and potential partners of
Compete. Because relatively low barriers to entry characterize Compete's
market, Compete also expects other companies to enter its market.
Most of Compete's competitors have longer operating histories, larger
client bases, greater name recognition and possess significantly greater
financial, technical and marketing resources than Compete does. As a result,
its competitors may be able to better attract companies to which Compete
markets its services and adapt more quickly to new technologies or evolving
customer requirements. Many competitive factors are outside of Compete's
control, such as the ability of its competitors to hire, retain and motivate
qualified information technology professionals.
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Compete's most important assets are its information technology
professionals that provide Internet and software education, consulting and
systems development and implementation services to its end-user customers.
Compete's business is labor intensive. The Internet and software industries are
rapidly growing with many new companies entering the market. In addition, there
are limited persons with the experience, technological background and know-how
who are able to provide the services necessary to Compete's end-user customers.
Accordingly, Compete's future success depends in large part upon its ability to
attract, train, retain, motivate and manage highly skilled information
technology professionals. Furthermore, there is a high rate of attrition among
such personnel. Any inability to attract, train and retain highly skilled
information technology professionals would impair Compete's ability to
adequately manage and staff its existing projects and to bid for or obtain new
projects, which in turn would adversely affect its operating results.
COMPETITION
We compete in the Internet professional services market which is
relatively new and intensely competitive. We expect competition to intensify as
the market further develops and evolves. The principal competitive factors in
our market include quality of service, speed of implementation, price and
reputation. We believe that our competitors fall into several categories,
including:
- Systems integrators, such as Cambridge Technology Partners,
Sapient Corporation, Scient Corporation and Viant Corporation;
- Large consulting firms, such as Andersen Consulting and the
consulting arms of the large accounting firms;
- Outsourcing firms, such as Computer Sciences Corporation,
Electronic Data Systems and Perot Systems;
- Information technology staffing firms, such as Keane, Inc. and
Renaissance Worldwide;
- Internet service firms, such as Proxicom, Inc. and USWeb
Corporation; and
- In-house information technology and professional services and
support departments of current and potential Perficient partners.
In addition, there are relatively low barriers to entry into this
market and we expect to face additional competition from new entrants.
Most of our competitors have longer operating histories, larger client
bases, greater name recognition and possess significantly greater financial,
technical and marketing resources than we do. As a result, our competitors may
be able to better attract Internet software companies to which we market our
services and adapt more quickly to new technologies or evolving customer
requirements. Many competitive factors are outside of our control, such as the
ability of our competitors to hire, retain and motivate qualified information
technology professionals.
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EMPLOYEES
Our most important assets are our information technology professionals
that perform services for our partners' end-customers. We are dedicated to
hiring, developing and retaining these individuals. Because our partners tend to
be emerging leaders, our information technology professionals have an
opportunity to work with the latest in cutting-edge information technology. We
believe that this helps us recruit superior professionals, who actively seek
these types of assignments. We foster professional development by training our
information technology professionals in the skills critical to successful
consulting engagements such as implementation methodology and project
management. We hire information technology professionals based upon their skills
and abilities, as opposed to proximity to end-user customers. We only require
that our professionals live close to major metropolitan airports. This allows us
to hire talented people from smaller markets and gives them project
opportunities that their home city may not provide.
Our business is labor intensive. Accordingly, our success depends in
large part upon our ability to attract, train, retain, motivate and manage
highly skilled information technology professionals. Because of the recent rapid
growth of the Internet, we have found that individuals who can perform the
services we offer are scarce and we believe they are likely to remain a limited
resource for the foreseeable future. Furthermore, there is a high rate of
attrition among such personnel. Any inability to attract, train and retain
highly skilled information technology professionals would impair our ability to
adequately manage and staff our existing projects and to bid for or obtain new
projects, which in turn would adversely affect our operating results.
As of February 29, 2000, we had 58 full-time employees. Of our total
employees, 43 were information technology professionals and 15 were involved in
sales, general administration and marketing. Our employees are not represented
by any collective bargaining unit, and we have never experienced a work
stoppage. We believe our employee relations are good.
PROPERTIES
In March 2000, we entered into a lease commencing on April 8, 2000 for
approximately 5,900 square feet of office space in Austin, Texas from HUB
Properties Trust . The initial term of the lease is three (3) years, but we
have the right to extend the lease for two additional periods of three years
each. Annual fixed rent is $10,314 per month in the first year of the initial
term, $10,560 per month in the second year of the initial term, and $10,805 in
the third year. We are also obligated to pay 5.77% of our landlord's taxes and
operating costs associated with the building as additional rent, resulting in a
total monthly rental payment of approximately $15,000.
We had previously been subleasing approximately 2,700 square feet of
office space in Austin, Texas from Powershift Ventures, LLC, under a month to
month lease. The rent was $4,500 per month. Our Chairman of the Board, Steven
G. Papermaster, is the president and a beneficial owner of Powershift Ventures,
LLC. Mr. Papermaster also controls Powershift Ventures, L.P., one of our
principal stockholders. In addition, we lease approximately 800 square feet of
office space in New London, Connecticut under a lease with Thamesview West,
Inc. which terminates on December 14, 2000. The rent is currently $795 per
month. Please read "Certain Transactions" and "Principal Stockholders" for more
information.
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Compete leases approximately 4,320 square feet of office space in
Lisle, Illinois from Chicago Title and Trust Company under a lease expiring on
September 14, 2001. Compete also leases approximately 1,457 square feet of
office space in San Francisco, California from BRE/CBL, LLC under a lease
expiring on April 14, 2002.
LEGAL PROCEEDINGS
We are not currently a party to any material legal proceedings.
We received a demand letter from a company claiming that our Web Site
induces patent infringement by others and requesting that we enter into a
license agreement with the company that could require us to pay up to $150,000.
We believe the claim is without merit and intend to vigorously defend the claim.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
Our executive officers, directors and certain key employees, and their
ages as of the date of this Prospectus are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
John T. McDonald............................................. 36 Chief Executive Officer and Director
Bryan R. Menell.............................................. 34 Founder, President and Director
John A. Hinners.............................................. 43 Chief Financial Officer and Vice President
Steven G. Papermaster........................................ 41 Chairman of the Board
David S. Lundeen............................................. 38 Director
Dr. W. Frank King(1)......................................... 60 Director
Philip J. Rosenbaum(1)....................................... 50 Director
Sam Fatigato................................................. 38 Director and Chief Operating Officer(2)
CERTAIN KEY EMPLOYEES
Barry Demak.................................................. 34 Vice President of Business Development
Andrew J. Roehr.............................................. 35 Chief Technology Officer
</TABLE>
- -----------
(1) Indicates that the individual is a member of the compensation and audit
committees.
(2) Nominee for Director at the special meeting of stockholders to be held
May 1, 2000. Mr. Fatigato will also become Chief Operating Officer upon the
closing of the Merger.
EXECUTIVE OFFICERS AND DIRECTORS
JOHN T. MCDONALD joined Perficient in April 1999 as our Chief
Executive Officer. Since October 1998, Mr. McDonald has been the president of
Beekman Ventures, Inc., a New York-based firm specializing in private equity
investments in technology companies. From April 1996 to October 1998, Mr.
McDonald was president of VideoSite, Inc., a multimedia software company that
is currently a subsidiary of GTECH Corporation. GTECH acquired VideoSite in
October 1997, 18 months after Mr. McDonald became VideoSite's president. From
May 1995 to April 1996, Mr. McDonald was a Principal with Zilkha & Co., a New
York-based merchant banking firm. From June 1993 to April 1996, Mr. McDonald
served in various positions at Blockbuster Entertainment Group, including
Director of Corporate Development and Vice President, Strategic Planning and
Corporate Development of NewLeaf Entertainment Corporation, a joint venture
between Blockbuster and International Business Machines Corporation. From 1987
to 1993, Mr. McDonald was an attorney with Skadden, Arps, Slate, Meagher & Flom
in New York focusing on mergers and acquisitions and corporate finance. Mr.
McDonald received a B.A. in Economics from Fordham University in 1984 and a
J.D. from Fordham Law School in 1987.
BRYAN R. MENELL founded Perficient in September 1997 and has served as
our President since inception. In 1991, Mr. Menell founded Exact Systems, Inc.,
a similar business providing services to customer management software vendors.
Exact was acquired by BSG Corporation, a systems integrator specializing in
emerging technologies, in January 1996. Mr. Menell continued to operate Exact's
business
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as a subsidiary of BSG until July 1997. Prior to founding Exact, Mr. Menell
worked as an independent consultant and as a consultant for Andersen
Consulting. Mr. Menell studied Business and Management Information Systems at
California State University at Chico.
JOHN A. HINNERS joined Perficient in April 1999 as Chief Financial
Officer and Vice President. From March 1998 until joining Perficient, Mr.
Hinners independently provided financial consulting services primarily to
start-up software companies. From October 1994 to February 1998, he was Managing
Director-Finance and Administration of BSG Alliance/IT, Inc., a subsidiary of
BSG. During this period, Mr. Hinners was responsible for operational and
financial management of international subsidiaries and joint ventures, as well
as financial review and management of acquisitions and large transactions. From
August 1988 through September 1994, he served as Chief Financial Officer of such
subsidiary. Mr. Hinners received a B.B.A. in Finance in 1979 and an M.B.A. in
Accounting in 1981 from the University of Texas at Austin.
STEVEN G. PAPERMASTER joined Perficient in April 1998 as a director and
became Chairman in May 1999. He is also the Chairman of Powershift Group, an
Austin-based technology venture development firm, and the general partner of
Powershift Ventures, L.P., one of our principal stockholders. Mr. Papermaster is
also a co-founder and the Chief Executive Officer of Agillion.com, Inc., an
Internet business service provider. He currently serves as a member of the Board
of Directors of Vignette and various privately-held companies. From 1987 to
December 1997, Mr. Papermaster was the founder, chairman and Chief Executive
Officer of BSG. Mr. Papermaster received a B.A. in Finance from the University
of Texas at Austin in 1981 and began his career as a consultant with Arthur
Andersen & Co. in the Management Information Consulting Division.
DAVID S. LUNDEEN joined Perficient in April 1998 as a director. Since
March 1999, Mr. Lundeen has been a partner with Watershed Capital, a venture
capital firm in Mountain View, California. From June 1997 to February 1999, Mr.
Lundeen was self-employed, managed his personal investments and acted as a
consultant and advisor to various businesses including Powershift Group. From
June 1995 to June 1997, he served as the chief financial officer and chief
operating officer of BSG. Prior to that period, Mr. Lundeen served as president
of Blockbuster Technology and as vice president of finance of Blockbuster Video.
Mr. Lundeen received a B.S. in Engineering from the University of Michigan in
1984 and an M.B.A. from the University of Chicago in 1988.
DR. W. FRANK KING became a member of our Board of Directors in June 1999.
He has served as a Director of PSW Technologies, Inc., a publicly-traded
consulting services company, since October 1996. From 1992 to August 1998, Dr.
King served as President and Chief Executive Officer of PSW. From 1988 to 1992,
Dr. King was Senior Vice President of the Software Business group of Lotus, a
software publishing company. Prior to joining Lotus, Dr. King was with IBM, a
technology company, for 19 years, where his last position was Vice President of
Development for the Personal Computing Division. Dr. King currently serves on
the boards of directors of Auspex Systems, Inc., Eon Communications, Inc.,
Excalibur Technologies Corporation and Natural Microsystems Corporation. Dr.
King earned a Ph.D. in electrical engineering from Princeton University, an
M.S. in electrical engineering from Stanford University, and a B.S. in
electrical engineering from the University of Florida.
PHILIP J. ROSENBAUM became a member of our Board of Directors in June 1999.
Since May 1995, Mr. Rosenbaum has been a self-employed developer of new
businesses, investor and consultant. From
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February 1993 to May 1995, Mr. Rosenbaum was Vice President of International
Operations of Unify Corporation, a software development tool supplier. Mr.
Rosenbaum also serves on the board of directors of a privately held software
company. Mr. Rosenbaum received a B.S. from Rutgers in 1972.
SAM J. FATIGATO will become the Chief Operating Officer and a member of the
Board of Directors of Perficient upon the closing of the Merger. From 1996 until
the present time, Mr. Fatigato served as Chief Executive Officer of Compete,
Inc. Prior to co-founding Compete, Mr. Fatigato was employed by IBM for 12
years, where he held various technical, sales and operational management
positions. Mr. Fatigato received a B.A. from Northwestern University in 1983.
CERTAIN KEY EMPLOYEES
BARRY DEMAK joined Perficient in July 1998 as the Vice President of
Business Development. From May 1996 until joining Perficient, Mr. Demak was
Manager, Worldwide Sales Operations at Cadence Design Systems, Inc., a
provider of design and consulting services and technology to electronics
companies. From August 1995 to May 1996, Mr. Demak was a manager in KPMG's
Strategic Sales Automation practice. Before joining KPMG and since May 1992,
Mr. Demak was responsible for sales and marketing for Metropolis Software.
Mr. Demak received a B.B.A. in Marketing and Finance from the University of
Michigan.
ANDREW J. ROEHR became Chief Technology Officer of Perficient in May
1999. Prior to that time, Mr. Roehr had served as a consultant and advisor on
technology matters to us since August 1998. Since May 1986, Mr. Roehr has
provided consultative business and technology strategy services. From August
1998 to April 1999, Mr. Roehr served as Senior Technical Advisor to Powershift
Group, an Austin-based technology venture development firm. From May 1991 to
July 1998, Mr. Roehr was Director-Strategic Technology Services of BSG Alliance
IT, Inc., a subsidiary of BSG Corporation. Mr. Roehr received a B.A. from Tufts
University in 1987.
We have hired during the last year, many of our current executive
officers to establish a team to manage our operations. These newly hired
officers include our Chief Executive Officer, hired in April 1999, our Chief
Financial Officer, hired in April 1999, and our Chief Technology Officer, hired
in May 1999. These individuals have not worked together previously and are in
the process of integrating as a management team. Their failure to work together
effectively would seriously harm our ability to carry out our business plan.
BOARD COMPOSITION AND COMMITTEES
We currently have six directors, each serving a term until the next
Annual Meeting of stockholders. Gilford Securities Incorporated may designate
one person for election to our Board for the next three years. Gilford has not
yet designated any persons to the Board. In the event Gilford does not elect to
designate a Board nominee, then Gilford may designate one person to attend
meetings of Perficient's Board as an observer during such three year period.
Dr. King and Mr. Rosenbaum serve as the only members of the
compensation committee and the audit committee of the Board of Directors. The
compensation committee makes recommendations to the Board concerning salaries
and incentive compensation for our officers and employees and administers our
Employee Plan. The audit committee makes recommendations to the Board of
Directors regarding the
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selection of independent auditors, reviews the results and scope of audits and
other accounting-related services and reviews and evaluates our internal
control functions. At each Annual Meeting of stockholders, six directors will
be elected by the holders of the common stock, with the six nominees receiving
the greatest number of votes serving as directors. Following the Merger, the
Company has agreed to nominate and recommend Sam Fatigato as one of our
directors, so long as he and the other shareholders and accelerated option
holders of Compete and their affiliates own more than 10% of the shares of
Perficient common stock issued to them in the Merger. If Mr. Fatigato is not
elected to the Board, he will continue to have a right to attend and observe
all Board meetings.
DIRECTOR COMPENSATION
Dr. King and Mr. Rosenbaum receive an annual retainer of $15,000 to
serve on our board of directors. Other directors receive no cash remuneration
for serving on the board of directors. All directors are reimbursed for
reasonable expenses incurred by them in attending board and committee meetings.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our bylaws provide for mandatory indemnification of directors and
officers to the fullest extent permitted by Delaware law. Prior to consummation
of this offering, we intend to obtain additional directors' and officers'
liability insurance and expect to enter into indemnity agreements with all of
our directors and executive officers. In addition, our certificate of
incorporation limits the liability of our directors to us or to our
stockholders for breaches of the directors' fiduciary duties to the fullest
extent permitted by Delaware law. Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted to our directors,
officers and controlling persons pursuant to the foregoing provisions, or
otherwise, we have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
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COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning the annual and
long-term compensation earned by the individuals who served as our Chief
Executive Officer during fiscal years 1998 and 1999 for services rendered in
all capacities during those years. Bryan R. Menell served as Perficient's Chief
Executive Officer from Perficient's inception until April 1999. Currently Mr.
Menell serves as Perficient's President. Upon the closing of the Merger, Mr.
Menell will resign from his position as President and become a Managing
Director of one of our practices. John T. McDonald joined Perficient in April
1999 and assumed the duties of Chief Executive Officer. Barry Demak joined
Perficient in 1999 and serves as a Vice President of Perficient. No other
individual employed by Perficient received a salary and bonus in excess of
$100,000 during 1999.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
NAME AND PRINCIPAL ------------------- ----------------------
POSITION YEAR SALARY($) BONUS($) SECURITIES UNDERLYING OPTIONS(#)
- -------------------- ---- ---------- --------- --------------------------------
<S> <C> <C> <C> <C>
John T. McDonald, Chief 1999 50,000 -- --
Executive Officer and 1998 -- -- --
Director
Bryan R. Menell, 1999 96,667 -- --
President 1998 80,000 -- --
Barry Demak, 1999 110,400 22,000 --
Vice President 1998 45,000 -- 150,000
</TABLE>
EMPLOYMENT ARRANGEMENTS
Mr. McDonald and Mr. Menell have employment agreements that each
extend for a one - year term. Mr. McDonald's employment agreement provides for
a monthly salary of $11,250 and three months' severance pay if we terminate him
without cause following a change in control. Mr. Menell's employment agreement
provides for a monthly salary of $10,000 and three months' severance pay if we
terminate him without cause following a change in control. Additionally, Mr.
McDonald and Mr. Menell have agreed to refrain from competing with us for a
period of two years following the termination of their employment.
We have a letter agreement with John A. Hinners, Chief Financial
Officer and Vice President, concerning his employment. Under this agreement,
following a change in control of Perficient, if Mr. Hinners is terminated or
his job responsibilities are significantly reduced or if he is required to
relocate or if our then current chief executive officer is terminated or not
offered the chief executive officer position in the surviving company, Mr.
Hinners' stock options to purchase 60,000 shares of Perficient common stock at
an exercise price of $0.50 per share, 20,000 of which have vested and the
remainder of which vest at a rate of 5,000 shares at the end of each three
month period following January 1, 2000 will become fully vested within six
months after the change-in-control event. Mr. Hinners will receive six months'
severance pay for any termination without cause.
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401(k) PROFIT SHARING PLAN
We have adopted a 401(k) Profit Sharing Plan. Our 401(k) plan is
available to all employees who have attained age 21. An employee may
contribute, on a pre-tax basis, up to 20% of his or her wages, subject to
limitations specified under the Internal Revenue Code. Under the terms of our
401(k) plan, we may make a discretionary matching contribution equal to a
percentage of the employee's contribution to our 401(k) plan and a
discretionary amount determined annually by us and divided among eligible
participants based upon an employee's annual compensation in relation to the
aggregate annual compensation of all eligible participants. Contributions are
allocated to each employee's individual account and are, at the employee's
election, invested in one, all or some combination of the investment funds
available under our 401(k) plan. Employee contributions are fully vested and
non-forfeitable. Any matching or discretionary contributions vest 25% for each
year of service. To date, we have not made any matching contributions under our
401(k) plan.
1999 STOCK OPTION/STOCK ISSUANCE PLAN
Our 1999 Stock Option/Stock Issuance Plan was adopted by the board of
directors and approved by our stockholders on May 3, 1999. The plan became
effective upon its adoption by the board.
We have reserved 700,000 shares of our common stock for issuance under
our 1999 stock option plan and the options granted prior to adoption of the
1999 stock option plan. However, at the Special Meeting to be held on May 1,
2000, the stockholders will be asked to approve an amendment to the 1999 Stock
Option/Stock Issuance Plan to increase the number of shares authorized under
the plan to 1,850,000. Under the plan, in no event may any one participant in
our 1999 stock option plan receive option grants or direct stock issuances for
more than 75,000 shares in the aggregate per calendar year. The Board of
Directors, however, will amend the plan to provide that those persons receiving
options in connection with the conversion of their shares of Compete common
stock in the Merger will not be subject to this limitation.
Our 1999 stock option plan has three separate programs: (i) the
discretionary option grant program under which eligible individuals in our
employ or service, including officers, non-employee board members and
consultants, may be granted options to purchase shares of our common stock,
(ii) the stock issuance program under which such individuals may be issued
shares of common stock directly, through the purchase of such shares or as a
bonus tied to the performance of services and (iii) the automatic option grant
program under which option grants will automatically be made at periodic
intervals to eligible non-employee board members.
The discretionary option grant and stock issuance programs will be
administered by the compensation committee of our board of directors. This
committee will determine which eligible individuals are to receive option grants
or stock issuances, the time or times when such option grants or stock issuances
are to be made, the number of shares subject to each such grant or issuance, the
exercise or purchase price for each such grant or issuance, the status of any
granted option as either an incentive stock option or a non-statutory stock
option under the federal tax laws, the vesting schedule to be in effect for the
option grant or stock issuance and the maximum term for which any granted option
is to remain outstanding. Neither the compensation committee nor the board will
exercise any administrative discretion
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with respect to option grants made under the automatic option grant program for
the non-employee board members.
The exercise price for the options may be paid in cash or in shares of
our common stock valued at fair market value on the exercise date. The option
may also be exercised through a same-day sale program without any cash outlay by
the optionee. In addition, the compensation committee may allow a participant to
pay the option exercise price or direct issue price, and any associated
withholding taxes incurred in connection with the acquisition of shares, with a
full-recourse, interest-bearing promissory note.
In the event that we are acquired, whether by merger or asset sale or
board-approved sale by the stockholders of more than 50% of our voting stock,
each outstanding option under the discretionary option grant program which is
not to be assumed by the successor corporation or otherwise continued will
automatically accelerate in full, and all unvested shares under the
discretionary option grant and stock issuance programs will immediately vest,
except to the extent our repurchase rights with respect to those shares are to
be assigned to the successor corporation or otherwise continued in effect. The
compensation committee may grant options under the discretionary option grant
program which will accelerate in the acquisition even if the options are assumed
or which will accelerate if the optionee's service is subsequently terminated.
The compensation committee may grant options and issue shares which accelerate
in connection with a hostile change in control effected through a successful
tender offer for more than 50% of our outstanding voting stock or by proxy
contest for the election of board members or the options and shares may
accelerate upon a subsequent termination of the individual's service.
Stock appreciation rights may be issued under the discretionary option
grant program which will provide the holders with the election to surrender
their outstanding options for an appreciation distribution from us equal to the
fair market value of the vested shares subject to the surrendered option less
the aggregate exercise price payable for such shares. Such appreciation
distribution may be made in cash or in shares of our common stock.
The compensation committee has the authority to cancel outstanding
options under the discretionary option grant in return for the grant of new
options for the same or different number of option shares with an exercise price
per share based upon the fair market value of the common stock on the new grant
date.
Under the automatic option grant program, each individual who first
joins our board of directors after the effective date of this offering as a
non-employee board member will automatically be granted an option for 20,000
shares of our common stock at the time of his or her commencement of board
service. In addition, on the date of each annual stockholders meeting, beginning
with the 2000 meeting, each individual who is to continue to serve as a
non-employee board member and was not a member of our board prior to this
offering will receive an option grant to purchase 5,000 shares of our common
stock, provided he or she has served on the board at least six months. Each of
these options will be fully-vested upon grant.
Limited stock appreciation rights will automatically be included as
part of each grant made under the automatic option grant program and may be
granted to one or more officers as part of their option grants under the
discretionary option grant program. Options with such a limited stock
appreciation right may be surrendered to us upon the successful completion of a
hostile tender offer for more than 50% of
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our outstanding voting stock. In return for the surrendered option, the
optionee will be entitled to a cash distribution from us in an amount per
surrendered option share equal to the highest price per share of common stock
paid in connection with the tender offer less the exercise price payable for
such share.
The board may amend or modify our 1999 stock option plan at any time,
subject to any required stockholder approval. The 1999 stock option plan will
terminate no later than May 2, 2009.
OPTION GRANTS IN LAST FISCAL YEAR TO NAMED EXECUTIVE OFFICERS
None of the named executive officers were granted stock options during
fiscal year ended December 31, 1999. However, John T. McDonald was granted
options to purchase 50,000 shares of Perficient Common Stock at $14.688 per
share in January 2000.
OPTION EXERCISES AND FISCAL YEAR END VALUES
None of the named executive officers exercised stock options during
the fiscal year ended December 31, 1999.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SALES OF SECURITIES
Within the last two years, we have made the following sales of our
common stock in transactions that were not registered under the Securities Act
of 1933:
- On April 15, 1998, we sold 221,000 shares to Powershift Ventures,
LLC for an aggregate purchase price of $22,100 and 119,000 shares
to Mr. Lundeen, a director, for an aggregate purchase price of
$11,900. Mr. Papermaster, our Chairman of the Board, is the
president of Powershift Ventures, LLC and a general partner of
Powershift Ventures, L.P. Mr. Papermaster became a director and
Powershift Ventures, LLC became a 5% stockholder in connection with
this April 1998 stock purchase. Mr. Lundeen became a director and
5% stockholder in connection with his April 1998 stock purchase.
- On June 10, 1998, we sold 214,500 shares to Powershift Ventures,
LLC for an aggregate purchase price of $21,450 and 115,500 shares
to Mr. Lundeen for an aggregate purchase price of $11,550.
- On July 15, 1998, we sold 214,500 shares to Powershift Ventures,
LLC for an aggregate purchase price of $21,450 and 115,500 shares
to Mr. Lundeen for an aggregate purchase price of $11,550.
- On January 12, 1999, we sold 350,000 shares to Beekman Ventures,
Inc., a 5% stockholder, for an aggregate purchase price of
$175,000, 50,000 shares to Mr. Hinners, now our Chief Financial
Officer, for an aggregate purchase price of $25,000 and 40,000
shares to Mr. Lundeen for an aggregate purchase price of $20,000.
Mr. McDonald, our Chief Executive Officer and a director, is the
president and sole stockholder of Beekman Ventures. However, Mr.
McDonald did not become an officer and director until April 1999.
Mr. Hinners did not become our Chief Financial Officer until April
1999.
- On January 3, 2000, we consummated the acquisition by way of merger
of LoreData, Inc. a Connecticut corporation, with and into our
wholly-owned subsidiary, Perficient Acquisition Corp., a Delaware
corporation. As part of the merger consideration, we issued 30,005
shares of common stock, par value $.001 per share, to the
shareholders of LoreData, Inc. at closing. Additionally, we issued
131,709 shares of our common stock that are being held in escrow
for disposition by the escrow agent in accordance with the Escrow
Agreement dated as of January 3, 2000.
- On February 7, 2000, we completed an $8.1 million private placement
of our common stock. We issued and sold a total of 400,000 shares
of common stock resulting in gross proceeds of $5.6 million. John
T. McDonald and Bryan R. Menell, each an officer and a director of
our company, and David S. Lundeen, a director of our company, sold
the remaining 180,000 shares of common stock in the private
placement. The private placement was priced at $14.00 per share.
Gilford Securities Incorporated acted as placement agent in
connection with the private placement. We granted certain
registration rights to the purchasers of all of the shares.
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These sales were conducted in reliance upon exemptions from
registration under Section 4(2) of the Securities Act of 1933, as transactions
not involving a public offering.
POWERSHIFT SUBLEASE
From April 1998 until March 2000, we subleased office space on a
month-to-month basis from Powershift Ventures, LLC, of which Mr. Papermaster is
president and a beneficial owner. Since August 1999, we had been paying rent of
$4,500 a month, which we believe was consistent with prevailing market rates.
The monthly rental amounts were arrived at by arms' length negotiations. We have
terminated this sublease, however, and as of April 8, 2000, we now lease
approximately 5,900 square feet of office space at a total monthly rent of
approximately $15,000 from HUB Properties Trust.
VIGNETTE RELATIONSHIP
Mr. Papermaster, the Chairman of our Board, has served on the board of
directors of Vignette Corporation, our largest partner, since September 1998.
During 1999, Vignette accounted for 96% of our revenue.
BEEKMAN VENTURE LOAN
In June 1999, Beekman Ventures loaned us $100,000 to cover certain
working capital requirements. This loan was subsequently repaid at a market rate
of interest.
FUTURE TRANSACTIONS
All future transactions, including loans, if any, between the Company
and its officers, directors, principal stockholders and their affiliates, are
required by the board to be approved by a majority of the board, including a
majority of the independent and disinterested outside directors on the board,
and will be on terms no less favorable to us than could be obtained from
unaffiliated third parties.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of Perficient common stock as of April 27, 2000 for (i)
each person or entity who is known by us to own beneficially more than five
percent of our common stock; (ii) each named executive officer listed in the
Summary Compensation table below; (iii) each director of Perficient; and (iv)
all directors and executive officers as a group.
<TABLE>
<CAPTION>
Name and Address of Beneficial Owner(1) Amount and Nature Percent of Class(2)
- --------------------------------------- ----------------- -------------------
of Shares
---------
Beneficially Owned
------------------
<S> <C> <C>
Powershift Ventures, L.P. 633,750 15.6%
Beekman Ventures, Inc. 512,892 12.6
850 Third Avenue
New York, NY 10022
Bryan R. Menell(3) 492,000 12.1
John T. McDonald(4) 669,392 15.9
525 East 72nd Street
New York, NY 10021
John A. Hinners (5) (6) 75,000 1.8
Steven G. Papermaster(7) 828,750 20.4
David S. Lundeen 325,750 8.0
Dr. W. Frank King(8) 20,000 *
Philip J. Rosenbaum(8) 20,000 *
Directors and executive officers as a group (7 persons)...... 2,280,892 55.2%
</TABLE>
- -----------
* Indicates less than 1% of the outstanding shares of Perficient common
stock.
(1) Unless otherwise indicated, the address of each person or entity is 7600-B
N. Capital of Texas Highway, Austin, Texas 78731.
(2) Beneficial ownership is determined in accordance with the rules and
regulations of the Securities and Exchange Commission. In computing the
number of shares beneficially owned by a person and the percentage
ownership of that person, shares of common stock subject to options held by
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<PAGE>
that person that are currently exercisable or exercisable within 60 days of
March 30, 2000 are deemed outstanding. Such shares, however, are not deemed
outstanding for the purposes of computing the percentage ownership of any
other person. Except as indicated in the footnotes to this table and
pursuant to applicable community property laws, each stockholder named in
the table has sole voting and investment power with respect to the shares
set forth opposite such stockholder's name.
(3) Includes an aggregate of 200,000 shares of Perficient common stock that are
subject to options granted by Mr. Menell to certain employees and officers
of Perficient.
(4) Includes 512,892 shares owned by Beekman Ventures, Inc., of which Mr.
McDonald is president and sole stockholder. Mr. McDonald is deemed to be
the beneficial owner of such shares. Also includes 150,000 shares of
Perficient common stock that may be acquired from Mr. Menell upon the
exercise of a stock option granted to Mr. McDonald by Mr. Menell. Does not
include options to purchase 50,000 shares of Perficient common stock that
are not exercisable within 60 days of March 30, 2000.
(5) Includes 5,000 shares held in the name of the Aubry Smith Hinners Section
2503(c) Trust.
(6) Includes options to purchase 25,000 shares of Perficient common stock
exercisable within 60 days of March 30, 2000. Does not include options to
purchase 85,000 shares of Perficient common stock that are not exercisable
within 60 days of March 30, 2000 or 20,000 shares of Perficient common
stock that may be acquired from Mr. Menell upon the exercise of a stock
option granted to Mr. Hinners by Mr. Menell but that is not exercisable
within 60 days of March 30, 2000.
(7) Includes 633,750 shares owned by Powershift Ventures, L.P., of which Mr.
Papermaster is the sole general partner. Mr. Papermaster is deemed to be
the beneficial owner of such shares. Does not include 16,250 shares held in
various family trusts over which Mr. Papermaster has neither voting nor
dispositive power.
(8) Includes options for 20,000 shares exercisable within 60 days of March 30,
2000.
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DESCRIPTION OF PERFICIENT CAPITAL STOCK
We are authorized to issue 20,000,000 shares of common stock, par value
$.001 per share, and 5,000,000 shares of preferred stock, par value $.001 per
share. As of March 30, 2000, there are outstanding 4,065,047 shares of common
stock owned by approximately 44 holders of record. In July 1999, we completed an
initial public offering in which we sold 1,000,000 shares of our common stock
for an aggregate offering price of $8 million. In February 2000, we completed an
$8.1 million private placement of our common stock for $14 per share in which a
total of 400,000 shares were newly issued by us. John T. McDonald and Bryan R.
Menell, each an officer and a director of our company, and David S. Lundeen, a
director of our company, sold an aggregate of 180,000 shares of our common stock
(out of the 580,000 shares) sold in the private placement. As part of the Merger
with Compete, we will issue up to 2,200,000 shares of Perficient common stock to
the stockholders of Compete and assume options to purchase an additional 393,283
shares of common stock (assuming a purchase price for Perficient Common Stock
under the Merger Agreement of $21.50 per share).
COMMON STOCK
The holders of Perficient common stock are entitled to one vote for
each share held of record in the election of directors and in all other matters
to be voted on by the stockholders. There is no cumulative voting with respect
to the election of directors. As a result, the holders of more than 50 percent
of the shares voting for the election of directors can elect all of the
directors. Holders of common stock are entitled:
- to receive any dividends as may be declared by the board of
directors out of funds legally available for such purpose; and
- in the event of our liquidation, dissolution, or winding up, to
share ratably in all assets remaining after payment of
liabilities and after provision has been made for each class of
stock, if any, having preference over the common stock.
All of the outstanding shares of common stock are validly issued, fully
paid and nonassessable. Holders of Perficient common stock have no preemptive
right to subscribe for or purchase additional shares of any class of Perficient
capital stock.
PREFERRED STOCK
Our Board of Directors has the authority, within the limitations stated
in the certificate of incorporation, to provide by resolution for the issuance
of shares of preferred stock, in one or more classes or series, and to fix the
rights, preferences, privileges and restrictions thereof, including dividend
rights, conversion rights, voting rights, terms of redemption, liquidation
preferences and the number of shares constituting any series or the designation
of such series. The issuance of preferred stock could have the effect of
decreasing the market price of Perficient common stock and could adversely
affect the voting and other rights of the holders of Perficient common stock.
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WARRANTS
In July 1999, we issued warrants to purchase up to 100,000 shares of
Perficient common stock at an exercise price of $12.00 per share in connection
with our underwriting agreement with Gilford Securities Incorporated
("Gilford"). The exercise price and number of shares of common stock that may be
issued under the warrants is subject to adjustment upon the occurrence of stock
splits, stock dividends, reclassifications, reorganizations, consolidations or
mergers.
In July 1999, we issued warrants to purchase up to 3,750 shares of
Perficient common stock at an exercise price of $8.00 per share in connection
with our credit facility provided by Silicon Valley Bank.
In February 2000, we issued 3-year warrants to purchase up to 25,000
shares of Common Stock for $21.00 per share to Gilford in partial consideration
of their services in connection with our private placement of Common Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for Perficient common stock is
Continental Stock Transfer and Trust Company, 2 Broadway, New York, New York
10004.
REPORTS TO STOCKHOLDERS
As part of our initial public offering, we registered our common stock
under the provisions of Section 12(b) of the Securities Exchange Act of 1934 and
we will use our best efforts to maintain registration. Such registration
requires us to comply with periodic reporting, proxy solicitation and certain
other requirements of the Securities Exchange Act of 1934.
SHARES ELIGIBLE FOR FUTURE SALE
Pursuant to our initial public offering and assuming no exercise of
outstanding options and warrants, we have 4,065,047 shares of common stock
outstanding. However, only the 1,000,000 shares offered pursuant to the initial
public offering are freely tradable without restriction or further registration
under the Securities Act, except for any shares purchased by an "affiliate,"
which will be subject to the resale limitations of Rule 144 promulgated under
the Securities Act.
All of the remaining 3,065,047 shares of common stock currently
outstanding are "restricted securities" or owned by "affiliates," as those terms
are defined in Rule 144, and may not be sold publicly unless they are registered
under the Securities Act or are sold pursuant to Rule 144 or another exemption
from registration. The 3,065,047 restricted securities are not eligible for sale
without registration under Rule 144. As of April 3, 2000, there were outstanding
options to purchase 849,834 shares of Perficient common stock and warrants to
purchase 128,750 shares of common stock. We intend to file a registration
statement on Form S-8 under the Securities Act to register the shares of
Perficient common stock subject to outstanding stock options and shares that may
be issued under our Employee Plan, which will permit the resale of these shares
in the public market without restriction after the lock-up period expires.
48
<PAGE>
In connection with the Private Placement, we agreed to file a
registration statement by no later than April 30, 2000. We will also include in
such registration statement, 32,343 shares of Common Stock owned by the prior
shareholder of LoreData. This shareholder has agreed that in the event of a
private or public offering of Perficient common sock, he will be subject to the
same restrictions on transferability or lock-up of shares as the underwriter of
any such offering or any officer of Perficient shall require of our Executive
Officers.
LOCK-UP AGREEMENT
Holders of 2,500,000 outstanding shares of Perficient common stock and
certain option holders have agreed that until July 29, 2000 that, without the
prior written consent of Gilford, they shall not sell or otherwise dispose of
any shares of common stock in any public market transaction including pursuant
to Rule 144. In addition, the holder of 161,714 shares of common stock has
agreed with us that until August 3, 2000, he shall not sell or otherwise dispose
of any shares of common stock in any public market transaction including
pursuant to Rule 144.
RULE 144
Generally, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
Perficient or persons whose shares are aggregated with an affiliate, who has
owned restricted shares of common stock beneficially for at least one year, is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of:
- 1% of our then outstanding shares of common stock; or
- the average weekly trading volume of shares of our common
stock during the four calendar weeks preceding such sale.
A person who is not an affiliate, has not been an affiliate within
three months prior to sale, and has beneficially owned the restricted shares for
at least two years, is entitled to sell such shares under Rule 144(k) without
regard to any of the limitations described above.
MARKET FOR PERFICIENT COMMON STOCK
Shares of Perficient common stock are listed on the Nasdaq SmallCap
market under the symbol "PRFT" and on the Boston Stock Exchange under the symbol
"PRF".
CHARTER AND BYLAWS PROVISIONS AND DELAWARE ANTI-TAKEOVER STATUTE
We are subject to Section 203 of the Delaware General Corporation Law
regulating corporate takeovers. This section prevents Delaware corporations from
engaging under certain circumstances, in a "business combination," which
includes a merger or sale of more than 10% of the corporation's assets, with any
"interested stockholder," or a stockholder who owns 15% or more of the
corporation's outstanding voting stock, as well as affiliates and associates of
any such persons, for three years following the date such stockholder became an
"interested stockholder," unless:
49
<PAGE>
- the transaction in which such stockholder became an
"interested stockholder" is approved by the board of
directors prior to the date the "interested
stockholder" attained such status;
- upon consummation of the transaction that resulted in
the stockholder becoming an interested stockholder,
the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the
time the transaction commenced, excluding those
shares owned by persons who are directors and also
officers; or
- on or after the date the business combination is
approved by the board of directors and authorized at
an annual or Special Meeting of stockholders by the
affirmative vote of at least two-thirds of the
outstanding voting stock that is not owned by the
interested stockholder.
Our certificate of incorporation eliminates the right of stockholders
to act by written consent without a meeting, and our bylaws eliminate the right
of stockholders to call Special Meetings of stockholders. Our certificate of
incorporation and bylaws do not provide for cumulative voting in the election of
directors. The authorization of undesignated preferred stock makes it possible
for the Board of Directors to issue preferred stock with voting or other rights
or preferences that could impede the success of any attempt to effect a change
in our control. These and other provisions may have the effect of deferring
hostile takeovers or delaying changes in the control or management of Perficient
even if doing so would be beneficial to our stockholders.
50
<PAGE>
SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION
An aggregate of up to 580,000 shares of our common stock may be offered
and sold pursuant to this Prospectus by the Selling Stockholders. The Selling
Stockholders acquired these shares of common stock from us and from certain
stockholders in a private placement of shares of our common stock completed in
February 2000. In this private placement, we issued and sold a total of 400,000
shares of our common stock at a price of $14.00 per share, resulting in gross
proceeds to our company of $5.6 million. John T. McDonald and Bryan R. Menell,
each an officer and a director of our company, and David S. Lundeen, a director
of our company, (collectively the "Director Stockholders"), sold the remaining
180,000 shares of our common stock in the private placement. We will use the
proceeds of the sale of the shares of common stock issued by us to satisfy the
cash purchase price related to the Merger with Compete and for other working
capital purposes, including general and administrative expenses. We will not
receive any of the proceeds resulting from the sale of the shares of common
stock held by the Selling Stockholders.
Our company and the Director Stockholders entered into a Placement
Agent Agreement dated as of January 27, 2000 (the "Placement Agent Agreement")
with Gilford Securities Incorporated ("Gilford") pursuant to which Gilford
agreed to act as placement agent to our company and the Director Stockholders in
connection with the private placement. Under the Placement Agent Agreement,
Gilford was obligated to offer the shares of common stock on a "best efforts"
basis. Pursuant to the Placement Agent Agreement, Perficient and the Director
Stockholders paid Gilford a commission in the amount of 5% of the gross proceeds
from the sale of the shares of common stock offered in the private placement.
Additionally, we granted Gilford a warrant to purchase 25,000 shares of our
common stock at an exercise price of $21.00 per share. The Placement Agent
Agreement provides that we will indemnify and hold Gilford harmless from and
against certain liabilities, including certain liabilities under the Securities
Act, the Exchange Act or any rules or regulations promulgated thereunder.
In connection with the private placement, we also entered into a
Registration Rights Agreement with each of the purchasers of shares of our
common stock pursuant to which we agreed to file a registration statement with
the Securities and Exchange Commission covering all of the shares of common
stock sold in the private placement, including those sold by the Director
Stockholders, by no later than April 30, 2000. We have filed this Prospectus
pursuant to these Registration Rights Agreements.
The following table sets forth certain information with respect to the
Selling Stockholders:
<TABLE>
<CAPTION>
Beneficial Shares
Ownership of Beneficially
Shares of Common Owned
Stock Prior Shares to be Sold After the
Selling Stockholder To Sale(1) in the Offering Offering(2)
- ------------------- ---------- --------------- -----------
<S> <C> <C> <C>
William W. Bryant 3,000 3,000 0
Wilmington Trust 15,000 15,000 0
c/o Philip F. du Pont Trust # 1028-7
Argyle Capital 17,000 17,000 0
51
<PAGE>
Richard L. & F. Annette Scott 125,000 125,000 0
Family Partnership, Ltd.
F. Annette Scott Revocable Trust 125,000 125,000 0
E. Brian Harvey 5,000 5,000 0
Petros Fund L.P. 50,000 50,000 0
Nicolas Kahla 30,000 30,000 0
Andrew P. Hilliard 12,500 5,000 7,500
Daniel J. Hilliard 10,500 3,000 7,500
Hilliard Family Foundation Inc. 12,500 5,000 7,500
Julie A. Maccoux & 14,500 5,000 9,500
Neal J. Maccoux JT Ten
Flint Trust amended 6/19/98 126,475 25,000 101,475
UA DTD 12/20/97
Hilliard Limited Partnership 9,500 2,000 7,500
Wallace J. Hilliard Irrevocable Trust 12,500 5,000 7,500
UA DTD 10/26/99
F. Stephen Allen 20,000 20,000 0
Valor Capital Management, L.P. 15,000 15,000 0
Europa International Management, Inc. 15,000 15,000 0
A. Ray Barbour 5,000 5,000 0
Jerry Weslyn 5,000 5,000 0
Harvard Management Company, Inc. 245,000 100,000 145,000
</TABLE>
(1) Beneficial ownership is determined in accordance with the rules and
regulations of the Securities and Exchange Commission. In computing the number
of shares beneficially owned by a person, shares of common stock subject to
options held by that person that are currently exercisable or exercisable within
60 days of the date of this Prospectus are deemed outstanding. Except as
indicated in the footnotes to this table and pursuant to applicable community
property laws, each stockholder named in the table has sole voting and
investment power with respect the shares beneficially owned by them.
(2) Assumes all of the shares of common stock offered hereby are sold by the
Selling Stockholders.
None of the Selling Stockholders has any relationship to our company
other than as a securityholder.
52
<PAGE>
The common stock held by the selling stockholders may be offered and
sold from time to time as market conditions permit in the over-the-counter
market, or otherwise, at prices and terms then prevailing or at prices related
to the then-current market price, or in negotiated transactions. The selling
stockholders will act independently of our company in making decisions with
respect to the timing, manner and size of each sale. The shares offered hereby
may be sold by one or more of the following methods, without limitation: (a) a
block trade in which a broker or dealer so engaged will attempt to sell the
shares as agent but may position and resell a portion of the block as principal
to facilitate the transaction; (b) purchases by a broker or dealer as principal
and resale by such broker or dealer for its account pursuant to this prospectus;
(c) ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and (d) face-to-face transactions between sellers and
purchasers without a broker-dealer. In effecting sales, brokers or dealers
engaged by the selling stockholders may arrange for other brokers or dealers to
participate. Such brokers or dealers may receive commissions or discounts from
the selling stockholders in amounts to be negotiated. Such brokers and dealers
and any other participating brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended, in
connection with such sales.
The selling stockholders may also pledge shares of common stock as
collateral for margin accounts and such shares could be resold pursuant to the
terms of such accounts. We have been advised by the selling stockholders that
they have not made any arrangements relating to the distribution of the shares
covered by this prospectus.
The Registration Rights Agreement provides that we will indemnify the
Selling Stockholders against certain liabilities, including certain
liabilities under the Securities Act, the Exchange Act, or any rules or
regulations promulgated thereunder. Additionally, we will pay the expenses,
estimated to be $25,000, in connection with this offering, other than transfer
taxes, discounts, commissions, fees or expenses of underwriters, selling
brokers, dealer managers or similar securities industry professionals relating
to the distribution of the common stock, or legal expenses of any person other
than our company and the Selling Stockholders.
In addition, any shares covered by this prospectus which qualify for
sale pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to
this prospectus.
LEGAL MATTERS
The validity of the common stock offered by this Prospectus will be
passed upon by Gibbons, Del Deo, Dolan, Griffinger & Vecchione, P.C.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements at December 31, 1998 and 1999 and for the years ended December 31,
1998 and 1999, as set forth in their report. We've included our financial
statements in the prospectus and elsewhere in this registration statement in
reliance on Ernst & Young LLP's report, given on their authority as experts in
accounting and auditing.
53
<PAGE>
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, Washington,
D.C. 20549, a Registration Statement on Form SB-2 under the Securities Act with
respect to the common stock offered by this prospectus. 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 the common stock offered by this Prospectus, reference is
made to the registration statement and the exhibits and schedules filed as a
part of the registration statement. Additionally, we file annual, quarterly and
current reports, proxy statements and other documents with the Securities and
Exchange Commission. You may read and copy any document we file at the Public
Reference Section of the Securities and Exchange Commission, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, and the Securities and Exchange
Commission's Regional Offices located at 500 West Madison Street, Suite 1400,
Chicago, IL 60661, and 7 World Trade Center, 13th Floor, New York, NY 10048. You
may obtain information on the operation of the Public Reference Room by calling
the Securities and Exchange Commission at 1-800-SEC-0330. The Securities and
Exchange Commission also maintains a World Wide Web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Securities and Exchange Commission. The
address of the Securities and Exchange Commission's Web site is
http://www.sec.gov.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents that we have filed with the Securities and
Exchange Commission are incorporated herein by reference:
(i) Annual Report on Form 10-KSB for the fiscal year ended December 31,
1999; (ii) Current Report on Form 8-K for the event dated January 3, 2000; (iii)
Current Report on Form 8-K for the event dated February 7, 2000; and (iv)
Definitive Proxy Statement dated April 6, 2000.
All documents that we file pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the common stock offered hereby shall be deemed
to be incorporated by reference herein and to be part hereof on the date of
filing of such documents.
We will furnish without charge to each person to whom this prospectus
is delivered, on the written or oral request of such person, a copy of any or
all of the documents incorporated herein by reference, except for the exhibits
to such documents. Requests should be directed to Mr. John A. Hinners,
Perficient, Inc., 7600-B North Capital of Texas Highway, Suite 220, Austin,
Texas 78731, Telephone No. (512) 306 7337.
54
<PAGE>
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Section 145 of the Delaware Corporation Law provides, in effect, that
we may, and in certain cases must, indemnify any person made a party to any
action by reason of the fact that he is or was one of our directors, officers,
employees, or agents against, in the case of a non-derivative action, judgments,
fines, amounts paid in settlement and reasonable expenses (including attorneys'
fees) incurred by him as a result of such action, and in the case of a
derivative action, against expenses (including attorney's fees), if in either
type of action he acted in good faith and in a manner he reasonably believed to
be in or not opposed to our best interests. This indemnification does not apply,
in a derivative action, to matters as to which it is adjudged that the director,
officer, employee or agent is liable to us, unless upon court order it is
determined that, despite such adjudication of liability, but in view of all the
circumstances of the case, he is fairly and reasonably entitled to indemnity for
expenses, and, in a non-derivative action, to any criminal proceeding in which
such person had reasonable cause to believe his conduct was unlawful.
Article VI of our certificate of incorporation provides that no
director shall be liable to us or our stockholders for monetary damages for
breach of fiduciary duty as a director to the fullest extent permitted by
Delaware law.
Article XI of our bylaws provide that we shall indemnify, to the
fullest extent permitted by Delaware law, any and all of our directors and
officers, or former directors and officers, or any person who may have served at
our request as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise.
We have entered into Indemnity Agreements with each of our directors
and officers, a form of which was filed as Exhibit 10.6 to our previous
Registration Statement on Form SB-2 (File No. 333-78337) declared effective by
the Securities and Exchange Commission on July 28, 1999. Under these agreements,
we will be obligated, to the extent permitted by Delaware Law, to indemnify such
directors and officers against all expenses, judgments, fines and penalties
incurred in connection with the defense or settlement of any actions brought
against them by reason of the fact that they served as directors or officers or
assumed certain responsibilities at our direction. We have purchased directors
and officers liability insurance in order to limit our exposure to liability for
indemnification of directors and officers.
Insofar as indemnification for liabilities arising under the Securities
Act of1933, as amended, may be permitted to directors, officers or persons
controlling our company pursuant to the foregoing provisions, we have been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
55
<PAGE>
You should rely only on the information contained in this prospectus.
Perficient, Inc. has not authorized anyone to provide prospective investors with
any different or additional information. This prospectus is not an offer to sell
nor is it seeking an offer to buy these securities in any jurisdiction where the
offer or sale is not permitted. The information contained in this prospectus is
correct only as of the date hereof, regardless of the time of the delivery of
this prospectus or any sale of these securities.
56
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
FINANCIAL STATEMENTS FOR PERFICIENT, INC.
Report of Independent Auditors...............................................F-1
Balance Sheets...............................................................F-2
Statements of Operations.....................................................F-3
Statements of Stockholders' Equity...........................................F-4
Statements of Cash Flows.....................................................F-5
Notes to Financial Statements................................................F-6
FINANCIAL STATEMENTS FOR LOREDATA, INC.
Report of Independent Auditors..............................................F-17
Balance Sheets..............................................................F-18
Statements of Operations....................................................F-19
Statements of Stockholders' Equity..........................................F-20
Statements of Cash Flows....................................................F-21
Notes to Financial Statements...............................................F-22
FINANCIAL STATEMENTS FOR COMPETE, INC.
Report of Independent Auditors..............................................F-27
Balance Sheets..............................................................F-28
Statements of Operations....................................................F-30
Statements of Stockholders' Equity..........................................F-31
Statements of Cash Flows....................................................F-32
Notes to Financial Statements...............................................F-33
</TABLE>
57
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Perficient, Inc.
We have audited the accompanying balance sheets of Perficient, Inc. (the
"Company"), as of December 31, 1998 and 1999, and the related statements of
operations, stockholders' equity and cash flows for the years then ended.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Perficient, Inc. at December
31, 1998 and 1999, and the results of its operations and its cash flows for
the years then ended, in conformity with accounting principles generally
accepted in the United States.
Austin, Texas
February 21, 2000
Ernst & Young, LLP
F-1
<PAGE>
PERFICIENT, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1999
------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 22,996 $ 5,818,918
Accounts receivable 164,961 563,334
Other assets - 142,422
Income tax receivable - 10,916
------------------------------------
Total current assets 187,957 6,535,590
Computer equipment:
Hardware 46,442 69,442
Software 6,471 41,783
Furniture and fixtures - 3,415
------------------------------------
52,913 114,640
Accumulated depreciation (10,863) (33,813)
------------------------------------
Net property and equipment 42,050 80,827
------------------------------------
Total assets $ 230,007 $ 6,616,417
====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 18,640 $ 165,176
Income tax payable 19,219 -
Accrued liabilities 12,639 199,150
------------------------------------
Total current liabilities 50,498 364,326
Deferred income tax 1,350 -
------------------------------------
Total liabilities 51,848 364,326
Commitments and contingencies
Stockholders' equity:
Common Stock, $0.001 par value; 20,000,000 shares
authorized; 2,000,000 and 3,503,333 shares issued
and outstanding atvDecember 31, 1998 and 1999, respectively 2,000 3,503
Additional paid-in capital 148,000 7,777,392
Unearned stock compensation, net of $76,000 in amortization for
the year ended December 31, 1999 - (152,000)
Retained earnings (deficit) 28,159 (1,376,804)
------------------------------------
Total stockholders' equity 178,159 6,252,091
------------------------------------
Total liabilities and stockholders' equity $ 230,007 $ 6,616,417
====================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-2
<PAGE>
PERFICIENT, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1999
------------------------------------------
<S> <C> <C>
Consulting revenue $ 825,800 $ 3,154,936
Cost of consulting revenue 400,977 1,541,389
------------------------------------------
Gross margin 424,823 1,613,547
Selling, general and administrative 357,014 2,197,560
Stock compensation - 956,000
Interest expense - 13,380
Interest income - (127,518)
------------------------------------------
Income (loss) before income tax 67,809 (1,425,875)
Income tax benefit (expense) (27,581) 20,912
------------------------------------------
Net income (loss) $ 40,228 $ (1,404,963)
==========================================
------------------------------------------
Net income (loss) per share - basic and diluted $ 0.02 $ (0.47)
==========================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
Perficient, Inc.
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL UNEARNED RETAINED TOTAL
---------------------- PAID-IN STOCK EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION (DEFICIT) EQUITY
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock at inception 1,000,000 $1,000 $ 49,000 $ - $ - $ 50,000
Net loss - - - - (12,069) (12,069)
------------------------------------------------------------------------------------
Balance at December 31, 1997 1,000,000 1,000 49,000 - (12,069) 37,931
Issuance of common stock 1,000,000 1,000 99,000 - - 100,000
Net income - - - - 40,228 40,228
------------------------------------------------------------------------------------
Balance at December 31, 1998 2,000,000 2,000 148,000 - 28,159 178,159
Issuance of common stock 1,503,333 1,503 7,401,392 - - 7,402,895
Unearned compensation - - 228,000 (228,000) - -
Amortization of unearned compensation - - - 76,000 - 76,000
Net loss - - - - (1,404,963) (1,404,963)
====================================================================================
Balance at December 31, 1999 3,503,333 $3,503 $7,777,392 $(152,000) $(1,376,804) $ 6,252,091
====================================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
Perficient, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1999
---------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 40,228 $ (1,404,963)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation 10,530 22,950
Non-cash stock compensation - 956,000
Gain from disposal of fixed assets (822) -
Deferred income taxes 8,362 (1,350)
Changes in operating assets and liabilities:
Accounts receivable (164,961) (398,373)
Other assets 911 (142,422)
Income tax receivable - (10,916)
Accounts payable 18,640 146,536
Income tax payable 19,219 (19,219)
Accrued liabilities 12,639 186,511
---------------------------------
Net cash used in operating activities (55,254) (665,246)
INVESTING ACTIVITIES
Purchase of property and equipment (47,870) (61,727)
Proceeds from disposal of fixed assets 5,596 -
---------------------------------
Net cash used in investing activities (42,274) (61,727)
FINANCING ACTIVITIES
Proceeds from line of credit 35,000 802,673
Payments on line of credit (35,000) (802,673)
Proceeds from stock issuances 100,000 6,522,895
---------------------------------
Net cash provided by financing activities 100,000 6,522,895
---------------------------------
Increase in cash 2,472 5,795,922
Cash at beginning of year 20,524 22,996
=================================
Cash at end of year $ 22,996 $ 5,818,918
=================================
Supplemental noncash financing activities:
January 12, 1999 issuance of 500,000 common shares in exchange
for shareholder receivable $ - $ 250,000
=================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
Perficient, Inc.
Notes to Financial Statements
December 31, 1999
(Information subsequent to December 31, 1999 is unaudited)
1. BUSINESS OVERVIEW
Perficient, Inc. (the "Company") works with Internet software companies by
providing them a professional services organization to implement and
integrate the software products. The Company effectively operates as an
internal services organization. The Company was incorporated on September 17,
1997 in Texas. The Company began operations in 1997 and is structured as a
"C" corporation. On May 3, 1999 the Company reincorporated in Delaware.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
REVENUE RECOGNITION
Consulting revenues are comprised of revenue from consulting fees recognized
on a time and material basis as performed.
ADVERTISING EXPENSE
The cost of advertising is expensed as incurred. Advertising cost for the
years ended December 31, 1998 and December 31, 1999 were immaterial to the
financial statements.
F-6
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation on property and
equipment is computed using the straight-line method over the estimated
useful lives, which is three years.
SEGMENTS
The Company considers its business activities as a single segment.
STOCK BASED COMPENSATION
Financial Accounting Standards Board Statement No. 123, ACCOUNTING FOR STOCK
BASED COMPENSATION (FAS 123), prescribed accounting and reporting standards
for all stock-based compensation plans, including employee stock options. As
allowed by FAS 123, the Company has elected to account for its employee
stock-based compensation in accordance with Accounting Principles Board
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, (APB 25).
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued FAS 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES, as amended by FAS 137 which is effective for fiscal
years beginning after June 15, 2000. This statement requires companies to
record derivatives on the balance sheet as assets or liabilities measured at
fair value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. FAS 133 will be effective for the
Company's year ended December 31, 2001. Management believes that this
statement will not have a material impact on the Company's financial position
or results of operations.
F-7
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In December 1999, the Securities and Exchange Commission staff released Staff
Accounting Bulletin No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS (SAB
101), which provides guidance on the recognition, presentation and disclosure
of revenue in financial statements. The application of SAB 101 did not have a
material impact on the financial statements of the Company.
In March 1999, the FASB issued an exposure draft entitled "Accounting for
Certain Transactions involving Stock Compensation," which is a proposed
interpretation of APB 25. However, the exposure draft has not been finalized.
Once finalized and issued, the current accounting practices for transactions
involving stock compensation may need to change and such changes could affect
the Company's future operating results.
3. NET INCOME (LOSS) PER SHARE
The Company follows the provisions of SFAS No. 128, EARNINGS PER SHARE. Basic
net income (loss) per share is computed by dividing net income (loss)
available to common stockholders by the weighted-average number of common
shares outstanding during the period. Net income per share, assuming
dilution, includes the effect of dilutive potential common stock issuable
upon exercise of stock options using the treasury stock method.
Diluted net loss per share has not been presented for the year ended December
31, 1999, as the effect of the assumed exercise of stock options and warrants
is antidilutive due to the Company's net loss. Total common stock equivalents
not included in diluted net loss per share amounted to 251,750 common stock
equivalents.
F-8
<PAGE>
3. NET INCOME (LOSS) PER SHARE (CONTINUED)
Computations of the net income (loss) per share for the year ended December
31, 1999 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1999
------------------------------------
<S> <C> <C>
Numerator:
Income (loss) from continuing operations - numerator for basic
earnings per share $ 40,228 $ (1,404,963)
Denominator:
Denominator for basic earnings per share - weighted-average shares 1,750,000 3,000,556
Effect of dilutive securities:
Stock options 124,000 -
------------------------------------
Denominator for diluted earnings per share - adjusted
weighted-average shares and assumed conversions 1,874,000 3,000,556
====================================
Basic earnings per share $ 0.02 $ (0.47)
====================================
Diluted earnings per share $ 0.02 $ (0.47)
====================================
</TABLE>
4. CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Cash and accounts receivable potentially expose the Company to concentrations
of credit risk. Excess cash is placed with highly rated financial
institutions. The Company provides credit, in the normal course of business,
to its customers. The Company performs ongoing credit evaluations of its
customers and maintains allowances for potential credit losses. The Company
generally requires certain up-front payments from customers, and customers
can be denied access to services in the event of non-payment. One customer
accounted for approximately 100% and 97% of accounts receivable and 91% and
96% of revenues at December 31, 1998 and 1999, and for the years then ended,
respectively.
F-9
<PAGE>
5. EMPLOYEE BENEFIT PLAN
The Company has a qualified 401(k) profit sharing plan available to full-time
employees who meet the plan's eligibility requirements. This defined
contribution plan permits employees to make contributions up to maximum
limits allowed by Internal Revenue Code. The Company, at its discretion,
matches a portion of the employee's contribution under a predetermined
formula based on the level of contribution and years of vesting services. No
contributions were made to the plan in 1998 or 1999. The Company's related
costs for the plan during 1998 and 1999 were $1,750 and $1,564, respectively.
6. STOCK OPTIONS
Pro forma information regarding net income is required by SFAS 123,
ACCOUNTING FOR STOCK BASED COMPENSATION, which also requires that the
information be determined as if the Company had accounted for its employee
stock options granted under the fair value method prescribed by SFAS 123. The
fair value for these options was estimated at the date of grant using the
Black-Scholes pricing model with the following weighted-average assumptions:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31 1998 1999
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Risk-free interest rate 6.00% 6.00%
Dividend yield 0.00% 0.00%
Weighted-average expected life of options 5 years 5 years
Expected volatility .65 .622
</TABLE>
The Company has granted stock options to various employees under the terms of
the respective employee agreements. The stock options generally vest over
three years. The term of each option is ten years from the date of grant.
At December 31, 1998 the Company did not reserve common stock for future
issuance and no options were designated as being available for future grants.
At December 31, 1999, 2,150,000 shares of common stock were reserved for
future issuance and 1,651,666 options were available for future grants.
F-10
<PAGE>
6. STOCK OPTIONS (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma compensation expense and net income (loss) is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1999
---------------------------------------
<S> <C> <C>
Pro forma compensation expense $ 7,266 $ 63,748
Pro forma net income (loss) $ 32,962 $ (1,468,711)
Pro forma earnings per share - basic
and diluted $ 0.02 $ (0.49)
</TABLE>
A summary of changes in common stock options during 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
RANGE OF WEIGHTED-AVERAGE
SHARES EXERCISE PRICES EXERCISE PRICE
------------------------------------------------------
<S> <C> <C> <C>
------------------------------------------------------
Options outstanding at December 31, 1997 80,000 $0.05 - 0.60 $ 0.53
======================================================
Options vested, December 31, 1997 556 0.05 - 0.60 0.53
======================================================
Options granted 249,000 0.05 - 0.50 0.40
Options exercised - - -
Options canceled (56,667) 0.60 0.40
------------------------------------------------------
Options outstanding at December 31, 1998 272,334 0.05 - 0.60 0.40
======================================================
Options vested, December 31, 1998 50,222 0.05 - 0.60 0.38
======================================================
Options granted 272,000 0.05 - 8.12 4.25
Options exercised (3,333) 0.20 0.20
Options canceled (42,667) 0.20 - 8.12 3.74
------------------------------------------------------
Options outstanding at December 31, 1999 498,334 0.05 - 8.12 2.22
======================================================
Options vested, December 31, 1999 197,667 $0.05 - 8.12 1.95
======================================================
</TABLE>
F-11
<PAGE>
6. STOCK OPTIONS (CONTINUED)
The following summarizes information related to stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- --------------------------------
WEIGHTED
AVERAGE
WEIGHTED REMAINING WEIGHTED
RANGE OF AVERAGE CONTRACTUAL AVERAGE
EXERCISE PRICES OPTIONS EXERCISE PRICE LIFE OPTIONS EXERCISE PRICE
- --------------------------------------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C>
$0.05 - $0.60 372,334 $0.44 8.69 Years 157,667 $0.42
3.50 16,000 3.50 9.25 Years - -
7.50 - 8.12 110,000 8.06 9.68 Years 40,000 8.00
----------------------------------------------- --------------------------------
$0.05 - $8.125 498,334 $2.22 8.92 Years 197,667 $1.95
================================ ================================
</TABLE>
At December 31, 1998 and 1999, the weighted-average remaining contractual
life of outstanding options was 9.54 years and 8.92 years, respectively.
The weighted-average grant-date fair value of options granted is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1999
---------------------------------------
<S> <C> <C>
Granted at market prices $ 0.40 $ 1.60
Granted at below market prices $ - $ 5.40
</TABLE>
F-12
<PAGE>
7. LINE OF CREDIT
On July 1, 1999, the Company entered into an agreement with a bank to borrow
up to $1,000,000 against qualified accounts receivables with full recourse.
Under the contract, the bank shall purchase the accounts receivable under the
following terms: 80% of the balance is remitted at the sale date, the rest is
remitted upon receipt of the balance due from the customer less finance and
administrative fees charged by the bank. The agreement has a one-year term
and borrowings under the agreement bear interest at the banks' prime rate. In
connection with this agreement, the Company issued warrants to the bank to
purchase 3,750 shares at the initial public offering price of $8 per share.
As the effect of the warrants are not material to the financial statements,
the Company has not discounted the line of credit to separately account for
the warrants.
8. INCOME TAXES
As of December 31, 1999, the Company had tax net operating loss carryforwards
of approximately $274,000 that will begin to expire in 2019 if not utilized.
Utilization of net operating losses may be subject to an annual limitation
due to the "change in ownership" provisions of the Internal Revenue Code of
1986. The annual limitation may result in the expiration of net operating
losses before utilization.
Significant components of the provision for income taxes attributable to
continuing operations are as follows:
<TABLE>
<CAPTION>
1998 1999
------------------------------------
<S> <C> <C>
Current:
Federal $17,661 $(17,661)
State 1,558 (1,558)
------------------------------------
Total current 19,219 (19,219)
------------------------------------
Deferred:
Federal 7,684 (1,583)
State 678 (110)
------------------------------------
Total deferred 8,362 (1,693)
------------------------------------
$27,581 $(20,912)
====================================
</TABLE>
F-13
<PAGE>
8. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred taxes as of December 31, 1998 and 1999
are as follows:
<TABLE>
<CAPTION>
1998 1999
------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Depreciable assets $(6,292) $ (9,985)
------------------------------------
Total deferred tax liabilities (6,292) (9,985)
------------------------------------
Deferred tax assets:
Tax carryforwards - 101,265
Bad debt - 25,181
Stock Compensation - 28,121
Accrued liabilities and other 4,942 17,364
------------------------------------
Total deferred tax assets 4,942 171,931
Valuation allowance for deferred
tax assets - (161,946)
------------------------------------
Net deferred tax assets 4,942 9,985
------------------------------------
Net deferred taxes $(1,350) $ -
====================================
</TABLE>
The Company has established a valuation allowance equal to the net deferred
tax assets due to uncertainties regarding the realization of deferred tax
assets based on the Company's lack of earnings history. The valuation
allowance increased by approximately $162,000 during 1999.
F-14
<PAGE>
8. INCOME TAXES (CONTINUED)
The Company's provision for income taxes differs from the expected tax
expense (benefit) amount computed by applying the statutory federal income
tax rate of 34% to income before income taxes as a result of the following:
<TABLE>
<CAPTION>
1998 1999
------------------------------------
<S> <C> <C>
Tax at statutory rate of 34% $23,057 $(472,897)
State taxes, net of federal benefit 1,653 (14,798)
Stock based compensation - 299,200
Permanent items 2,288 5,638
Change in valuation allowance - 161,945
Other 583 -
------------------------------------
$27,581 $ (20,912)
====================================
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
The Company leases equipment under an operating lease that expires in 2000.
Future lease commitments are as follows:
<TABLE>
<S> <C>
2000 $ 84,606
2001 116,208
2002 70,878
-------------------
Total $ 271,692
===================
</TABLE>
In addition, the Company has entered into a sublease with a related party for
office rent. The agreement is month-to-month. For the years ended December
31, 1998 and 1999, the Company recorded rent expense of $16,707 and $88,666,
respectively.
10. SUBSEQUENT EVENTS
On January 3, 2000, the Company acquired LoreData, Inc., a Connecticut
corporation, and merged LoreData, Inc. into a wholly-owned subsidiary,
Perficient Acquisition Corp., a Delaware corporation. Perficient Acquisition
Corp. is the surviving corporation to the merger and will continue under the
name, "Perficient LoreData, Inc." LoreData, Inc. was a 17 person internet
professional services firm based in New London, CT. The Company acquired
LoreData for an aggregate purchase price of (i) $385,000 in cash that was
paid at closing, (ii) 30,005 shares of common stock, also paid at closing,
and (iii) 131,709 shares of common stock that are being held in escrow for
disposition by the escrow agent in accordance with an Escrow Agreement dated
as of January 3, 2000.
On January 14, 2000 the Board of Directors authorized an additional 1,100,000
shares of Common Stock to be available under the Company's Stock Option/Stock
Issuance Plan. An additional 50,000 shares of Common Stock were authorized
and added to the Plan on February 14, 2000.
F-15
<PAGE>
10. SUBSEQUENT EVENTS (CONTINUED)
On February 7, 2000, the Company completed an $8.1 million private placement
of common stock. The Company intends to use the proceeds from the private
placement to further accelerate its previously announced acquisition program
and for other corporate purposes. A total of 400,000 shares of common stock
were issued and sold by the Company, resulting in gross proceeds to the
Company of $5.6 million. The private placement was priced at $14 per share.
Gilford Securities Incorporated acted as placement agent in connection with
the private placement.
On February 16, 2000, the Company entered into an Agreement and Plan of
Merger with Compete Inc. ("Compete"), Perficient Compete, Inc., and the
shareholders of Compete. The aggregate purchase price of Compete consists of
(i) $3,500,000 in cash, (ii) $2,527,500 in promissory notes to be repaid
within six months following the closing, (iii) 2,200,000 shares of common
stock, of which 1,100,000 shares are subject to adjustment and (iv) the
assumption of Compete, Inc.'s outstanding employee options. The closing of
the acquisition of Compete is conditioned upon, among other things, obtaining
the consent of Perficient's stockholders. Accordingly, there can be no
assurance that the acquisition will be completed.
F-16
<PAGE>
Report of Independent Auditors
The Board of Directors
LoreData, Inc.
We have audited the accompanying balance sheets of LoreData, Inc. (the
"Company"), as of December 31, 1998 and 1999, and the related statements of
operations, stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of LoreData, Inc. at December 31,
1998 and 1999, and the results of its operations and its cash flows for the
years then ended, in conformity with accounting principles generally accepted in
the United States.
Austin, Texas
February 17, 2000
Ernst & Young, LLP
F-17
<PAGE>
LoreData, Inc.
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1999
------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 17,204 $ -
Accounts receivable 158,012 128,148
------------------------------------
Total current assets 175,216 128,148
Property and equipment
Computer equipment 31,410 91,534
Software 7,807 18,439
Furniture and fixtures 2,919 4,819
------------------------------------
42,136 114,792
Accumulated depreciation (6,761) (35,535)
------------------------------------
Net property and equipment 35,375 79,257
Other assets 1,455 2,729
------------------------------------
Total assets $ 212,046 $ 210,134
====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 29,229 $ 33,279
Accrued liabilities 50,103 34,015
Note payable to related party, current portion - 3,922
Obligation under line of credit 30,000 39,854
------------------------------------
Total current liabilities 109,332 111,070
Note payable to related party, less current portion - 48,968
------------------------------------
Total liabilities 109,332 160,038
Commitments and contingencies
Stockholders' equity:
Common stock, no par value; 20,000 shares authorized;
100 shares issued and outstanding at December 31,
1998 and 1999, respectively 1,000 1,000
Additional paid-in capital 12,668 12,668
Note receivable from stockholder - (53,828)
Retained earnings 89,046 90,256
------------------------------------
Total stockholders' equity 102,714 50,096
------------------------------------
Total liabilities and stockholders' equity $ 212,046 $ 210,134
====================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-18
<PAGE>
LoreData, Inc.
Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1999
------------------------------------------
<S> <C> <C>
Total revenue $ 290,409 $ 1,348,480
Cost of consulting revenue 151,527 968,584
------------------------------------------
Gross margin 138,882 379,896
Selling, general and administrative 49,586 371,421
Interest expense - 7,265
------------------------------------------
Net income $ 89,296 $ 1,210
==========================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-19
<PAGE>
LoreData, Inc.
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL NOTE RECEIVABLE RETAINED TOTAL
--------------------------- SUBSCRIPTION PAID-IN FROM EARNINGS STOCKHOLDERS'
SHARES AMOUNT RECEIVABLE CAPITAL STOCKHOLDER (DEFICIT) EQUITY
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 - $ 1,000 $ (1,000) $ - $ - $ (250) $ (250)
Issuance of common stock 100 - 1,000 - - - 1,000
Capital contribution - - - 12,668 - - 12,668
Net income - - - - - 89,296 89,296
--------------------------------------------------------------------------------------------------
Balance at December 31, 1998 100 1,000 - 12,668 - 89,046 102,714
Issuance of stockholder note - - - - (53,828) - (53,828)
Net income - - - - - 1,210 1,210
------------------------------------------------------------------------------------------------
Balance at December 31, 1999 100 $ 1,000 $ - $ 12,668 $ (53,828) $ 90,256 $ 50,096
================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-20
<PAGE>
LoreData, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1999
---------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 89,296 $ 1,210
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 6,761 28,774
Legal fees paid as consideration for capital 2,668 -
Changes in operating assets and liabilities:
Accounts receivable (158,012) 29,864
Other assets (1,455) (1,274)
Accounts payable 28,979 4,050
Accrued liabilities 50,103 (16,088)
---------------------------------
Net cash provided by operating activities 18,340 46,536
INVESTING ACTIVITIES
Purchase of property and equipment (42,136) (72,656)
---------------------------------
Net cash used in investing activities (42,136) (72,656)
FINANCING ACTIVITIES
Proceeds from line of credit 30,000 20,000
Payments on line of credit - (10,146)
Payments on related party note payable - (938)
Proceeds from contributed capital 10,000 -
Proceeds from stock issuance 1,000 -
---------------------------------
Net cash provided by financing activities 41,000 8,916
---------------------------------
Change in cash 17,204 (17,204)
Cash at beginning of year - 17,204
---------------------------------
Cash at end of year $ 17,204 $ -
=================================
Supplemental noncash financing activities:
Issuance of note receivable to stockholder $ - $ 53,828
=================================
Issuance of note payable to related party $ - $ 53,828
=================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-21
<PAGE>
LoreData, Inc.
Notes to Financial Statements
December 31, 1999
1. BUSINESS OVERVIEW
LoreData, Inc. (the "Company") offers Internet systems development, architecture
and implementation services, to companies in a wide array of industries. The
Company was incorporated on December 17, 1997 in Connecticut, at which time it
began operations, and is structured as an "S" corporation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
REVENUE RECOGNITION
Consulting revenues are comprised of revenue from consulting fees recognized on
a time and material basis as performed.
ADVERTISING EXPENSE
The cost of advertising is expensed as incurred. Advertising cost for the years
ended December 31, 1998 and December 31, 1999 were $13,562 and $14,819,
respectively.
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard ("SFAS") 130, REPORTING COMPREHENSIVE INCOME,
which requires that an enterprise report, by major components and as a single
total, the change in its net assets during the period from nonowner sources. The
Company adopted SFAS 130 during the year ended December 31, 1998. There was no
accumulated other comprehensive gain or loss during 1998 or 1999.
F-22
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation on property and
equipment is computed using the straight-line method over the estimated useful
lives, which is three to seven years.
INCOME TAXES
The Company has elected to be treated as a Subchapter S corporation under the
Internal Revenue Code of 1986, as amended, whereby federal income taxes are the
responsibility of the individual shareholders. The Company is subject to state
income taxes. Accordingly, the Company provides for state income taxes based on
statutory rates.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued Financial Accounting Standards ("FAS") 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, as amended by FAS
137 which is effective for fiscal years beginning after June 15, 2000. This
statement requires companies to record derivatives on the balance sheet as
assets or liabilities measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for depending on
the use of the derivative and whether it qualifies for hedge accounting. FAS 133
will be effective for the Company's year ended December 31, 2001. Management
believes that this statement will not have a material impact on the Company's
financial position or results of operations.
In December 1999, the Securities and Exchange Commission staff released Staff
Accounting Bulletin No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS ("SAB
101"), which provides guidance on the recognition, presentation and disclosure
of revenue in financial statements. The application of SAB 101 did not have a
material impact on the financial statements of the Company.
F-23
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In March 1999, the FASB issued an exposure draft entitled "Accounting for
Certain Transactions involving Stock Compensation," which is a proposed
interpretation of APB 25. However, the exposure draft has not been finalized.
Once finalized and issued, the current accounting practices for transactions
involving stock compensation may need to change and such changes could affect
the Company's future operating results.
3. CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Cash and accounts receivable potentially expose the Company to concentrations of
credit risk. Excess cash is placed with highly rated financial institutions. The
Company provides credit, in the normal course of business, to its customers. The
Company performs ongoing credit evaluations of its customers and maintains
allowances for potential credit losses. One customer accounted for approximately
29% and 44% of accounts receivable and 60% and 53% of revenues at December 31,
1998 and 1999, and for the years then ended, respectively.
4. EMPLOYEE BENEFIT PLAN
On January 1, 1999, the Company adopted a qualified simple profit sharing plan
for all full time employees who received a specified amount in any given year.
Eligible employees may elect to contribute to the plan based up to certain
amounts specified in the plan. The Company, at its discretion, matches 3% of
employee contributions up to $6,000 per year. Employer contributions to the plan
in 1999 were $14,182. No administrative costs were incurred in conjunction with
the plan in 1999.
5. LINE OF CREDIT
The Company has a revolving line of credit with a financial institution that
provides maximum borrowings of $50,000 with interest payable at prime plus 1.5%
(9.25% and 10.00% at December 31, 1998 and 1999, respectively). The line matures
on October 31, 2000 and is guaranteed by the primary stockholder. At December
31, 1998 and 1999, the Company had borrowings against the line of $30,000 and
$39,854, respectively.
F-24
<PAGE>
6. COMMITMENTS AND CONTINGENCIES
The Company leases equipment and facilities under operating leases that expire
ratably through 2002. Future lease commitments are as follows:
<TABLE>
<S> <C>
2000 $ 16,226
2001 7,084
2002 1,181
-------------------
Total $ 24,491
===================
</TABLE>
For the years ended December 31, 1998 and 1999, the Company recorded lease
expense of $2,478 and $27,363, respectively. During 1999, approximately $5,000
in lease expense was paid on an operating lease for an automobile used by a
shareholder and officer of the Company.
7. RELATED PARTY TRANSACTIONS
During 1998, the Company paid approximately $141,000 in subcontracted labor fees
to a related-party company which shares common ownership with the Company.
During 1999, the shareholders of the related-party company discontinued
operations and the Company hired certain employees of the related-party.
On September 1, 1999 the Company's shareholders entered into an agreement
whereby one of the shareholders sold 100% of his common stock to the remaining
shareholder for $150,000 in consideration. Consideration consists of a note
payable and guaranteed retainer fees.
In conjunction with this agreement, the Company obligated itself to pay the note
to the former shareholder. The note bears interest of 7% and specifies for
monthly payments of $625 through September 2009. At December 31, 1999 the
remaining note balance was $52,896. Future minimum commitments under this
agreement are as follows:
<TABLE>
<S> <C>
2000 $ 3,922
2001 4,206
2002 4,509
2003 4,836
2004 5,126
</TABLE>
F-25
<PAGE>
7. RELATED PARTY TRANSACTIONS (CONTINUED)
In conjunction with the agreement, the Company also issued a note receivable to
the existing shareholder. The note bears 7% interest and is to be paid by the
existing shareholder in monthly installments of $625 through September 2009. At
December 31, 1999 the remaining note balance was $53,828.
During 1999, the Company paid approximately $55,000 to a former shareholder for
consulting services performed on behalf of the Company.
8. SUBSEQUENT EVENTS
On January 3, 2000, the Company was acquired by way of merger with Perficient
Acquisition Corp., a Delaware corporation. Perficient Acquisition Corp. is the
surviving corporation to the merger and will continue under the name,
"Perficient LoreData, Inc." Perficient acquired LoreData for an aggregate
purchase price of (i) $385,000 in cash that was paid at closing, (ii) 30,005
shares of Perficient common stock, par value $0.001 per share, also paid at
closing, and (iii) 131,709 shares of Perficient common stock that are being held
in escrow for disposition by the escrow agent in accordance with an Escrow
Agreement dated as of January 3, 2000.
F-26
<PAGE>
Report of Independent Auditors
The Board of Directors
Compete, Inc.
We have audited the accompanying balance sheets of Compete, Inc. (the
"Company"), as of December 31, 1998 and 1999, and the related statements of
operations, stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Compete, Inc. at December 31,
1998 and 1999, and the results of its operations and its cash flows for the
years then ended, in conformity with accounting principles generally accepted in
the United States.
Austin, Texas
February 19, 2000
Ernst & Young, LLP
F-27
<PAGE>
Compete, Inc.
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1999
------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 84,194 $ 43,172
Accounts receivable, net of allowance for doubtful accounts of
$10,000 and $19,616 in 1998 and 1999 1,035,368 1,149,214
------------------------------------
Total current assets 1,119,562 1,192,386
Property and equipment:
Computer equipment 279,607 360,991
Software 14,183 87,364
Office equipment 58,995 93,248
------------------------------------
352,785 541,603
Accumulated depreciation (167,333) (296,070)
------------------------------------
Net property and equipment 185,452 245,533
Goodwill, net of accumulated amortization of $5,000 and $35,000 at
December 31, 1998 and 1999 85,000 55,000
Other assets 5,391 8,724
------------------------------------
Total assets $ 1,395,405 $ 1,501,643
====================================
</TABLE>
F-28
<PAGE>
Compete, Inc.
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1999
------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued liabilities $ 251,299 $ 128,968
Accrued payroll 110,794 50,892
Income tax payable 2,175 855
Deferred income tax 9,920 14,375
Deferred revenue 11,950 20,360
Short-term borrowings 315,100 400,000
Note payable to shareholder 54,133 -
Current portion of lease obligation 47,080 99,757
------------------------------------
Total current liabilities 802,451 715,207
Lease obligation, net of current portion 79,948 119,515
------------------------------------
Total liabilities 882,399 834,722
Stockholders' equity:
Common stock, no par value; 3,000,000 and 3,600,000
shares authorized; 2,700,000 and 2,634,668 shares
issued and outstanding at December 31, 1998 and
1999, respectively 21,300 20,495
Less cost of common stock held in treasury, 300,000
shares in 1998 and 365,332 shares in 1999 (200,300) (243,696)
Additional paid-in capital 2,000 4,595,413
Unearned stock compensation - (4,593,413)
Retained earnings 690,006 888,122
------------------------------------
Total stockholders' equity 513,006 666,921
------------------------------------
Total liabilities and stockholders' equity $ 1,395,405 $ 1,501,643
====================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-29
<PAGE>
Compete, Inc.
Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1999
------------------------------------
<S> <C> <C>
Revenue $ 4,181,458 $ 6,643,577
Cost of consulting revenue 2,626,430 4,087,063
------------------------------------
Gross margin 1,555,028 2,556,514
Selling, general and administrative 973,525 2,149,642
Interest and other 13,711 53,694
------------------------------------
Income before income tax 567,792 353,178
Income tax expense (8,710) (3,135)
------------------------------------
Net income $ 559,082 $ 350,043
====================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-30
<PAGE>
Compete, Inc.
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL UNEARNED TOTAL
------------------------- PAID-IN STOCK TREASURY RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION STOCK EARNINGS EQUITY
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997
(Unaudited) 3,000,000 $ 24,000 $ 2,000 $ - $ - $ 203,374 $ 229,374
Purchase of treasury stock (300,000) (2,700) - - (200,300) - (203,000)
Stockholder distribution - - - - - (72,450) (72,450)
Net income - - - - - 559,082 559,082
-------------------------------------------------------------------------------------------------
Balance at December 31, 1998 2,700,000 21,300 2,000 - (200,300) 690,006 513,006
Purchase of treasury stock (215,332) (805) - - (144,896) - (145,701)
Net income - - - - - 350,043 350,043
Issuance stock dividend 150,000 - - - 101,500 (101,500) -
Deferred stock compensation - - 4,593,413 (4,593,413) - - -
Stockholder distribution - - - - - (50,427) (50,427)
-------------------------------------------------------------------------------------------------
Balance at December 31, 1999 2,634,668 $ 20,495 $ 4,595,413 $ (4,593,413) $(243,696) $ 888,122 $ 666,921
=================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-31
<PAGE>
Compete, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1999
------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 559,082 $ 350,043
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 86,878 158,737
Deferred income tax 6,535 4,455
Changes in operating assets and liabilities:
Accounts receivable (676,736) (113,846)
Other assets (986) (3,333)
Accrued liabilities 174,863 (122,331)
Accrued payroll 54,260 (59,902)
Income tax payable 2,175 (1,320)
Deferred revenue 11,950 8,410
------------------------------------
Net cash provided by operating activities 218,021 220,913
INVESTING ACTIVITIES
Purchase of property and equipment (21,014) (24,085)
Acquisition (100,000) -
------------------------------------
Net cash used in investing activities (121,014) (24,085)
FINANCING ACTIVITIES
Proceeds from issuance of debt 1,258,100 1,733,000
Payments on debt (1,033,000) (1,648,100)
Principle payments under capital lease obligations (32,516) (72,489)
Payments of shareholder distribution (72,450) (50,427)
Purchase of treasury stock (148,867) (199,834)
------------------------------------
Net cash provided by financing activities (28,733) (237,850)
------------------------------------
Increase in cash 68,274 (41,022)
Cash at beginning of year 15,920 84,194
------------------------------------
Cash at end of year $ 84,194 $ 43,172
====================================
Supplemental noncash activities:
Purchase of treasury stock with note payable to
shareholder $ 54,133 $ -
====================================
Property and equipment acquired under capital lease
obligations $ 110,952 $ 164,733
====================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-32
<PAGE>
Compete, Inc.
Notes to Financial Statements
December 31, 1999
(Information subsequent to December 31, 1999 is unaudited)
1. BUSINESS OVERVIEW
Compete, Inc. ("the Company") offers Internet systems development and
architecture services, implementation services, and education to companies in a
wide array of industries throughout the United States and New Zealand. The
Company was incorporated on October 7, 1994 in Illinois, at which time it began
operations, and is structured as an "S" Corporation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
REVENUE RECOGNITION
Consulting revenues are comprised of revenue from consulting fees and are
recognized on a time and material basis as performed.
ADVERTISING EXPENSE
The cost of advertising is expensed as incurred. Advertising cost for years
ended December 31, 1998 and December 31, 1999 was $14,375 and $13,321,
respectively.
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard ("SFAS") 130, REPORTING COMPREHENSIVE INCOME.
The Company adopted SFAS 130 during the year ended December 31, 1998. There was
no impact to the Company as a result of the adoption of SFAS 130, as there was
no difference between net loss and comprehensive loss.
F-33
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL
Goodwill is carried at the lower of unamortized cost or fair value. Management
reviews the valuation and amortization of goodwill on a periodic basis, taking
into consideration any events or circumstances which may result in diminished
fair value. Goodwill is amortized using the straight line method over their
estimated life which has been determined to be three years. During 1998 and
1999, the Company incurred approximately $5,000 and $30,000 in amortization
expense, respectively.
INCOME TAXES
The Company has elected to be treated as a Subchapter S corporation under the
Internal Revenue Code of 1986, as amended, whereby federal income taxes are the
responsibility of the individual shareholders. The Company is subject to state
income taxes. Accordingly, the Company provides for state income taxes based on
statutory rates.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation on property and
equipment is computed using the straight-line method over the estimated useful
lives, which is three years.
SEGMENTS
Effective January 1, 1998, the Company adopted the FASB's SFAS No. 131,
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. The
adoption of SFAS 131 did not have a significant effect on the disclosure of
segment information as the Company continues to consider its business activities
as a single segment.
F-34
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK BASED COMPENSATION
Financial Accounting Standards Board Statement No. 123, ACCOUNTING FOR STOCK
BASED COMPENSATION ("FAS 123"), prescribed accounting and reporting standards
for all stock-based compensation plans, including employee stock options. As
allowed by FAS 123, the Company has elected to account for its employee
stock-based compensation in accordance with Accounting Principles Board Opinion
No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB 25").
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued FAS 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES, as amended by FAS 137, which is effective for fiscal years
beginning after June 15, 2000. This statement requires companies to record
derivatives on the balance sheet as assets or liabilities measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. FAS 133 will be effective for the Company's year
ended December 31, 2001. Management believes that this statement will not have a
material impact on the Company's financial position or results of operations.
In December 1999, the Securities and Exchange Commission staff released Staff
Accounting Bulletin No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS ("SAB
101"), which provides guidance on the recognition, presentation and disclosure
of revenue in financial statements. The application of SAB 101 did not have a
material impact on the financial statements of the Company.
In March 1999, the FASB issued an exposure draft entitled "Accounting for
Certain Transactions involving Stock Compensation," which is a proposed
interpretation of APB 25. However, the exposure draft has not been finalized.
Once finalized and issued, the current accounting practices for transactions
involving stock compensation may need to change and such changes could affect
the Company's future operating results.
F-35
<PAGE>
3. CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Cash and accounts receivable potentially expose the Company to concentrations of
credit risk, as defined by SFAS 105, DISCLOSURE OF INFORMATION ABOUT FINANCIAL
INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND FINANCIAL INSTRUMENTS WITH
CONCENTRATIONS OF CREDIT RISK. Excess cash is placed with highly rated financial
institutions. The Company provides credit, in the normal course of business, to
its customers. The Company performs ongoing credit evaluations of its customers
and maintains allowances for potential credit losses. At December 31, 1998 and
1999, three customers accounted for approximately 60% of revenues and 24% of
accounts receivable, and 57% of revenue and 54% of accounts receivable,
respectively.
4. EMPLOYEE BENEFIT PLAN
During 1998, the Company created a qualified 401(k) profit sharing plan
available to full-time employees who meet the plan's eligibility requirements.
This defined contribution plan permits employees to make contributions up to
maximum limits allowed by Internal Revenue Code. The Company, at its discretion,
matches a portion of the employee's contribution under a predetermined formula
based on the level of contribution and years of vesting service. During 1998 and
1999, the Company made contributions to the plan totaling $9,500 and $26,700,
respectively.
5. STOCK OPTIONS
Pro forma information regarding net income is required by SFAS 123, ACCOUNTING
FOR STOCK BASED COMPENSATION, which also requires that the information be
determined as if the Company had accounted for its employee stock options
granted under the fair value method prescribed by SFAS 123. The fair value for
these options was estimated at the date of grant using the Black-Scholes pricing
model with the following weighted-average assumptions:
<TABLE>
<S> <C>
Risk-free interest rate 7.00%
Dividend yield 0.00%
Weighted-average expected life of options 2.5 years
Expected volatility .65
</TABLE>
F-36
<PAGE>
5. STOCK OPTIONS (CONTINUED)
The Company has granted stock options to various employees under the terms of
the respective employee agreements. The stock options generally vest over
two-to-four years. The term of each option is ten years from the date of grant.
At December 31, 1998, the Company did not reserve common stock for future
issuance and no options were designated as being available for future grants. At
December 31, 1999, 750,000 shares of common stock were reserved for future
issuance and 184,652 options were available for future grants.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma compensation expense and net income is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1999
<S> <C> <C>
Pro forma compensation expense $ 156 $ 210,153
Pro forma net income $ 558,926 $ 139,890
</TABLE>
A summary of changes in common stock options during 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
WEIGHTED-
RANGE OF AVERAGE
EXERCISE EXERCISE
SHARES PRICES PRICE
------------------------------------------------------
<S> <C> <C> <C>
Options outstanding December 31, 1997 - $ - $ -
------------------------------------------------------
Options granted 60,000 - 0.02
Options exercised - - -
Options canceled - - -
------------------------------------------------------
Options outstanding, December 31, 1998 60,000 $ 0.02 $ 0.02
Options granted 505,348 $3.01 - $3.31 3.03
Options exercised - - -
Options canceled - - -
------------------------------------------------------
Options outstanding, December 31, 1999 565,348 $0.02 - $3.31 $ 2.71
======================================================
</TABLE>
5. STOCK OPTIONS (CONTINUED)
At December 31, 1998 and 1999, the weighted-average remaining contractual life
of outstanding options was 9.03 years and 9.79 years, respectively. The
weighted-average grant-date fair value of options granted during 1998 and 1999
was approximately $0.02 and $12.12 per share, respectively. No options were
vested as of December 31, 1998 or 1999.
F-37
<PAGE>
6. LINE OF CREDIT
During 1998 and 1999, the Company continued to borrow funds under an existing
line of credit agreement with a financial institution. The agreement allowed for
borrowings up to $500,000 and $750,000 at December 31, 1998 and 1999
respectively, which are secured by all assets of the Company. The line of credit
bears interest at the financial institution's prime rate plus one percent, which
was 8.75% at December 1998 and 1999. Interest is due monthly until the line
matures on June 30, 2000. At December 1998 and 1999, the Company had outstanding
balances under the line of credit approximating $315,000 and $400,000
respectively.
7. COMMITMENTS AND CONTINGENCIES
The Company leases its principle office under a noncancelable operating lease
agreement that expires in September 2001. Rental expense for all operating
leases was approximately $61,362and $125,000 for the years ended December 31,
1998 and 1999, respectively.
F-38
<PAGE>
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
As of December 31, 1999, minimum lease payments under all noncancelable lease
agreements were as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING LEASES
LEASES
------------------------------------
<S> <C> <C>
2000 $ 128,978 $ 147,321
2001 95,846 121,048
2002 29,721 29,764
2003 4,730 8,169
2004 - 6,127
------------------------------------
Total minimum lease payments $ 259,275 $ 312,429
==================
Less amount representing interest 40,003
-------------------
Present value of minimum lease payments 219,272
Less current portion 99,757
-------------------
Long-term capital lease obligation $ 119,515
===================
</TABLE>
In December 1999, the Company entered into capital lease agreements for
equipment that was received subsequent to year end. The present value of the
future minimum lease commitment related to these capital leases are
approximately $45,000. The leases will expire in January 2002.
As of December 31, 1998 and 1999, the Company held approximately $129,000 (net
of $41,000 in accumulated depreciation) and $212,000 (net of $122,000 in
accumulated depreciation) in fixed asset acquired under capital leases.
8. ACQUISITION
On November 13, 1998, the Company acquired Visual Software Integrations, Inc.
("VSI") for $100,000. The consideration was allocated between computer equipment
and goodwill. As a condition of the acquisition, the Company entered into
employment agreements with the former owners of VSI which specified bonus
payments contingent
F-39
<PAGE>
8. ACQUISITION (CONTINUED)
upon the successful retention of certain former VSI employees. During 1999, the
Company recognized expense of $100,000 relating to these agreements. Should
future retention goals be met, the Company could potentially be liable for an
additional $100,000.
9. INCOME TAXES
The stockholders elected to have the Company treated as a S Corporation under
the Internal Revenue Code. Accordingly, the Company does not pay federal
corporate tax on its income. The Company's stockholders include their pro rata
share of the Company's taxable income in their individual income tax returns. It
is the intent of the Company to provide distribution to its stockholders in
amounts that are at least sufficient to cover the tax effect that results from
the Company's taxable income being included in the stockholders' individual
income tax returns.
The Company is subject to state income taxes in certain states which do not
recognize S Corporation status. The Company accounts for such state income taxes
using the liability method in accordance with Statement of Financial Accounting
Standards No. 109, ACCOUNTING FOR INCOME TAXES. Under this method, deferred tax
assets and liabilities are determined based upon differences between financial
reporting and tax basis of assets and liabilities. At December 31, 1999 and
1998, deferred taxes resulted primarily from differences between the book basis
and tax basis of accounts receivable, accounts payable, and other accrued
liabilities.
F-40
<PAGE>
10. SUBSEQUENT EVENTS
ACQUISITION OF COMPETE, INC.
On February 16, 2000, the shareholders of the Company entered into an Agreement
and Plan of Merger with Perficient, Inc. ("Perficient"). The aggregate purchase
price to be paid by Perficient consists of (i) $3,500,000 in cash, (ii)
$2,527,500 in promissory notes to be received within six months following the
closing, (iii) 2,200,000 shares of Perficient common stock, of which 1,100,000
shares are subject to adjustment and iv) the assumption of the Company's
outstanding employee options. The closing of the acquisition of the Company is
conditioned upon, among other things, obtaining the consent of Perficient's
stockholders. Accordingly, there can be no assurance that the acquisition will
be completed.
F-41
<PAGE>
===============================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY OUR COMPANY, THE SELLING
STOCKHOLDERS OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY AND SECURITY OTHER THAN THE COMMON
STOCK OFFERED BY THIS PROSPECTUS, OR AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITY BY ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER
OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, IMPLY THAT THE
INFORMATION IN THIS PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
OF THIS PROSPECTUS.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
SUMMARY 1
RISK FACTORS 5
USE OF PROCEEDS 12
CAPITALIZATION 12
MARKET PRICE AND DIVIDEND INFORMATION 13
PRO FORMA SELECTED FINANCIAL DATA 14
MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 20
BUSINESS 25
MANAGEMENT 35
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS 39
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 43
PRINCIPAL STOCKHOLDERS 45
DESCRIPTION OF PERFICIENT CAPITAL STOCK 47
SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION 51
LEGAL MATTERS 53
EXPERTS 53
WHERE YOU CAN FIND MORE INFORMATION 54
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE 54
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES 55
FINANCIAL STATEMENTS 57
</TABLE>
===============================================================================
58
<PAGE>
===============================================================================
580,000 SHARES OF
COMMON STOCK
- -------------------------------------------------------------------------------
PERFICIENT, INC.
- -------------------------------------------------------------------------------
PROSPECTUS
- -------------------------------------------------------------------------------
APRIL __, 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware Corporation Law provides, in effect, that we
may, and in certain cases must, indemnify any person made a party to any
action by reason of the fact that he is or was one of our directors,
officers, employees, or agents against, in the case of a non-derivative
action, judgments, fines, amounts paid in settlement and reasonable expenses
(including attorneys' fees) incurred by him as a result of such action, and
in the case of a derivative action, against expenses (including attorney's
fees), if in either type of action he acted in good faith and in a manner he
reasonably believed to be in or not opposed to our best interests. This
indemnification does not apply, in a derivative action, to matters as to
which it is adjudged that the director, officer, employee or agent is liable
to us, unless upon court order it is determined that, despite such
adjudication of liability, but in view of all the circumstances of the case,
he is fairly and reasonably entitled to indemnity for expenses, and, in a
non-derivative action, to any criminal proceeding in which such person had
reasonable cause to believe his conduct was unlawful.
Article VI of our certificate of incorporation provides that no director
shall be liable to us or our stockholders for monetary damages for breach of
fiduciary duty as a director to the fullest extent permitted by Delaware law.
Article XI of our bylaws provide that we shall indemnify, to the fullest
extent permitted by Delaware law, any and all of our directors and officers,
or former directors and officers, or any person who may have served at our
request as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise.
We have entered into Indemnity Agreements with each of our directors and
officers, a form of which was filed as Exhibit 10.6 to our previous
Registration Statement on Form SB-2 (File No. 333-78337) declared effective
by the Securities and Exchange Commission on July 28, 1999. Under these
agreements, we will be obligated, to the extent permitted by Delaware Law, to
indemnify such directors and officers against all expenses, judgments, fines
and penalties incurred in connection with the defense or settlement of any
actions brought against them by reason of the fact that they served as
directors or officers or assumed certain responsibilities at our direction.
We have purchased directors and officers liability insurance in order to
limit our exposure to liability for indemnification of directors and officers.
II-1
<PAGE>
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to directors, officers or persons
controlling our company pursuant to the foregoing provisions, we have been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer, or controlling person of the registrant in the successful
defense of any action, suit, or proceeding) is asserted by such director,
officer, or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Expenses payable in connection with the issuance and distribution of the
securities being registered (estimated except in the case of the registration
fee) are as follows:
<TABLE>
<CAPTION>
Amount
------
<S> <C>
Registration Fee $ 2,737
Printing 5,000
Legal Fees and Expenses 20,000
Accounting Fees and Expenses 10,000
Transfer Agents and Registrars Fees 2,500
Miscellaneous
------
TOTAL $ 40,237
======
</TABLE>
The above fees will be paid by our company and not by the Selling
Stockholders.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Within the last two years, we have made the following sales of our
common stock in transactions that were not registered under the Securities
Act of 1933:
- On April 15, 1998, we sold 221,000 shares to Powershift Ventures,
LLC for an aggregate purchase price of $22,100 and 119,000 shares
to Mr. Lundeen, a director, for an aggregate purchase price of
$11,900. Mr. Papermaster, our Chairman of the Board, is the
president of Powershift Ventures, LLC and a general partner of
Powershift Ventures, L.P. Mr. Papermaster became a director and
Powershift Ventures, LLC became a 5% stockholder in connection
with this April 1998 stock
II-2
<PAGE>
purchase. Mr. Lundeen became a director and 5% stockholder in
connection with his April 1998 stock purchase.
- On June 10, 1998, we sold 214,500 shares to Powershift Ventures,
LLC for an aggregate purchase price of $21,450 and 115,500 shares
to Mr. Lundeen for an aggregate purchase price of $11,550.
- On July 15, 1998, we sold 214,500 shares to Powershift Ventures,
LLC for an aggregate purchase price of $21,450 and 115,500 shares
to Mr. Lundeen for an aggregate purchase price of $11,550.
- On January 12, 1999, we sold 350,000 shares to Beekman Ventures,
Inc., a 5% stockholder, for an aggregate purchase price of
$175,000, 50,000 shares to Mr. Hinners, now our Chief Financial
Officer, for an aggregate purchase price of $25,000 and 40,000
shares to Mr. Lundeen for an aggregate purchase price of $20,000.
Mr. McDonald, our Chief Executive Officer and a director, is the
president and sole stockholder of Beekman Ventures. However, Mr.
McDonald did not become an officer and director until April 1999.
Mr. Hinners did not become our Chief Financial Officer until April
1999.
- On January 3, 2000, we consummated the acquisition by way of
merger of LoreData, Inc. a Connecticut corporation, with and into
our wholly-owned subsidiary, Perficient Acquisition Corp., a
Delaware corporation. As part of the merger consideration, we
issued 30,005 shares of common stock, par value $.001 per share,
to the shareholders of LoreData, Inc. at closing. Additionally, we
issued 131,709 shares of our common stock that are being held in
escrow for disposition by the escrow agent in accordance with the
Escrow Agreement dated as of January 3, 2000.
- On February 7, 2000, we completed an $8.1 million private
placement of our common stock. We issued and sold a total of
400,000 shares of common stock resulting in gross proceeds of $5.6
million. John T. McDonald and Bryan R. Menell, each an officer and
a director of Perficient, and David S. Lundeen, a director of
Perficient, sold the remaining 180,000 shares of common stock in
the private placement. The private placement was priced at $14.00
per share. Gilford Securities Incorporated acted as placement
agent in connection with the private placement. We granted certain
registration rights to the purchasers of all of the shares.
These sales were conducted in reliance upon exemptions from
registration under Section 4(2) of the Securities Act of 1933, as
transactions not involving a public offering.
II-3
<PAGE>
ITEM 27. EXHIBITS
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
1.1 + Form of Underwriting Agreement
3.1 + Certificate of Incorporation of Registrant.
3.2 + Bylaws of Registrant.
4.1 + Specimen Certificate for shares of common stock.
4.2 + Representative's Warrant.
5.1 Opinion of Gibbons, Del Deo, Dolan, Griffinger & Vecchione, P.C.
10.1 + Sublease Agreement, dated April 1, 1999, between Registrant, as Lessee, and Powershift
Venture, LLC, as Lessor.
10.2 + 1999 Stock Option/Stock Issuance Plan.
10.3 + Employment Agreement between Registrant and John T. McDonald.
10.4 + Employment Agreement between Registrant and Bryan R. Menell.
10.5 + Employment Agreement between Registrant and John A. Hinners.
10.6 + Form of Indemnity Agreement between Registrant and its directors and
officers
10.7 + Contractor Service Agreement, dated December 31, 1998, between
Registrant and Vignette Corporation.
10.8 + Accounts Receivable Purchase Agreement, dated January 12, 1999, between the Registrant
and Silicon Valley Financial Services.
10.9 + Accounts Receivable Purchase Modification Agreement, dated July 12, 1999 between
Registrant and Silicon Valley Bank.
10.10 + Motive Communications, Inc. Consulting Services Subcontract Agreement dated February
27, 1999.
10.11 + Subcontract Agreement, dated March 15, 1999, between Registrant and Ventix Systems,
Inc.
10.12 + Agreement for Subcontracting Services, dated April 23, 1999, between Registrant and
Interwoven, Inc.
10.13 * Agreement and Plan of Merger, dated as of December 10, 1999, by and among the
Registrant, Perficient Acquisition Corp., LoreData, Inc. and John Gillespie.
10.14 * Amendment to Agreement and Plan of Merger dated as of January 3, 2000 by and among the
Registrant, Perficient Acquisition Corp, LoreData, Inc. and John Gillespie.
10.15 ** Agreement and Plan of Merger, dated as of February 16, 2000 by and among the
Registrant, Perficient Compete, Inc., Compete Inc., and the Shareholders of Compete,
Inc.
10.16 *** Registration Rights Agreement, dated as of January 3, 2000 between the Registrant and
John Gillespie.
10.17 *** Form of Registration Rights Agreement between the Registrant and certain purchasers of
common stock.
II-4
<PAGE>
10.18 *** Subcontract Agreement, dated as of November 4, 1999 between the Registrant and
Plumtree, Inc.
10.19 Lease by and between HUB Properties Trust and the Registrant.
21 *** Subsidiaries.
23.1 Consent of Ernst & Young, LLP
23.2 Consent of Gibbons, Del Deo, Dolan, Griffinger & Vecchione, P.C. - is made to Exhibit 5.1
24.1 Power of Atttorney. (see page II-7)
27.1 *** Financial Data Schedule for the year ended December 31, 2000.
</TABLE>
- ------------
+ Previously filed with the Securities and Exchange Commission as an
Exhibit to the Company's Registration Statement on Form SB-2 (File No.
333-78337) declared effective by the Securities and Exchange Commission and
incorporated herein by reference.
* Previously filed with the Securities and Exchange Commission as an
Exhibit to the Company's Current Report on Form 8-K filed on January 14, 2000
and incorporated herein by reference.
** Previously filed with the Securities and Exchange Commission as
an Exhibit to the Company's Preliminary Proxy Statement filed on March 16,
2000 and incorporated herein by reference.
*** Previously filed with the Securities and Exchange Commission as
an Exhibit to the Company's Annual Report on Form 10-KSB filed on March 30,
2000 and incorporated herein by reference.
ITEM 28. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
II-5
<PAGE>
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement.
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply
if the registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time to be the initial BONA FIDE
offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities which remain unsold at the termination of the
offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement 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.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
II-6
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933,
the registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form SB-2 and authorized this
registration statement to be signed on its behalf by the undersigned, in the
City of Austin, State of Texas, on April 27, 2000.
PERFICIENT, INC.
By: /s/ John T. McDonald
-------------------------
John T. McDonald
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose
signature appears below constitutes and appoints John T. McDonald and Bryan
R. Menell, and each of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement, and to sign any
registration statement for the same offering covered by this registration
statement that is to be effective upon filing pursuant to Rule 462(b)
promulgated under the Securities Act of 1933, as amended, and all
post-effective amendments thereto, and to file the same, with all exhibits
thereto and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and thing requisite
and necessary to be done in and about the premises, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or his or their
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES STATED.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Steven G. Papermaster
- --------------------------------- Chairman of the Board April 27, 2000
Steven G. Papermaster
/s/ John T. McDonald
- --------------------------------- Chief Executive Officer and April 27, 2000
John T. McDonald and Director
(principal executive officer)
II-7
<PAGE>
/s/ Bryan R. Menell
- --------------------------------- President and Director April 27, 2000
Bryan R. Menell
/s/ John A. Hinners
- --------------------------------- Chief Financial Officer and April 27, 2000
John A. Hinners Secretary
(principal financial and
accounting officer)
/s/ David S. Lundeen
- --------------------------------- Director April 27, 2000
David S. Lundeen
- --------------------------------- Director April 27, 2000
Dr. W. Frank King
/s/ Philip J. Rosenbaum
- --------------------------------- Director April 27, 2000
Philip J. Rosenbaum
</TABLE>
II-8
<PAGE>
Exhibit 5.1
April 27, 2000
Perficient, Inc.
7600-B North Capital of Texas Highway
Suite 340
Austin, Texas 78731
RE: PERFICIENT, INC. REGISTRATION STATEMENT ON FORM SB-2 FOR
580,000 SHARES OF COMMON STOCK
Ladies and Gentlemen:
We have acted as counsel to Perficient, Inc., a Delaware (the
"Company"), in connection with the proposed sale by certain stockholders of
the Company (the "Selling Stockholders") of up to 580,000 shares of the
Company's Common Stock (collectively, the "Securities") pursuant to the
Company's Registration Statement on Form SB-2 (the "Registration Statement")
filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "Act").
This opinion is being furnished in accordance with the requirements
of Item 27 of Form SB-2 and Item 601(b)(5)(i) of Regulation S-B.
We have reviewed the Company's charter documents and the corporate
proceedings taken by the Company in connection with the issuance and sale of
the Securities. Based on such review, we are of the opinion that the
Securities have been duly authorized, and if, as and when transferred by the
Selling Stockholders in accordance with the Registration Statement and the
<PAGE>
Perficient, Inc.
April 27, 2000
Page 2
related prospectus (as amended and supplemented through the date of issuance)
will be legally issued, fully paid and nonassessable.
We consent to the filing of this opinion letter as Exhibit 5.1 to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the prospectus which is part of the Registration Statement.
In giving this consent, we do not thereby admit that we are within the
category of persons whose consent is required under Section 7 of the Act, the
rules and regulations of the Securities and Exchange Commission promulgated
thereunder, or Item 509 of Regulation S-B.
This opinion letter is rendered as of the date first written above
and we disclaim any obligation to advise you of facts, circumstances, events
or developments which hereafter may be brought to our attention and which may
alter, affect or modify the opinion expressed herein. Our opinion is expressly
limited to the matters set forth above and we render no opinion, whether by
implication or otherwise, as to any other matters relating to the Company or
the Securities.
Very truly yours,
GIBBONS, DEL DEO, DOLAN, GRIFFINGER &
VECCHIONE
PCO:deg
<PAGE>
EXHIBIT 10.19
LAKEWOOD ON THE PARK
7600 Capital of Texas Highway North
Austin, Texas
LEASE
by and between
HUB Properties Trust
as Landlord
and
Perficient, Inc.
as Tenant
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
ARTICLE 1. Reference Data........................................................................................1
1.1. Introduction and Subjects Referred To..............................................................1
1.2. Exhibits...........................................................................................3
ARTICLE 2. Premises and Term.....................................................................................4
2.1. Premises...........................................................................................4
2.2. Term...............................................................................................4
2.3. Extension Option...................................................................................4
2.4. Measurement of the Premises........................................................................5
ARTICLE 3. Condition and Preparation of Premises.................................................................6
3.1. Preparation of the Premises........................................................................6
3.2. Conclusiveness of Landlord's Performance...........................................................7
3.3. Tenant Delay.......................................................................................7
3.4. Cooperation with Landlord's Contractors............................................................8
ARTICLE 4. Rent, Additional Rent, Insurance and Other Charges....................................................9
4.1. The Annual Fixed Rent..............................................................................9
4.2. Additional Rent....................................................................................9
4.3. Personal Property and Sales Taxes.................................................................14
4.4. Insurance.........................................................................................14
4.5. Utilities.........................................................................................16
4.6. Late Payment of Rent..............................................................................16
4.7. Security Deposit..................................................................................16
ARTICLE 5. Landlord's Covenants.................................................................................17
5.1. Affirmative Covenants.............................................................................17
5.2. Interruption......................................................................................19
5.3. Outside Services..................................................................................20
5.4. Access to Building................................................................................20
ARTICLE 6. Tenant's Additional Covenants........................................................................20
6.1. Affirmative Covenants.............................................................................20
6.2. Negative Covenants................................................................................23
ARTICLE 7. Casualty or Taking...................................................................................30
7.1. Termination.......................................................................................30
7.2. Restoration.......................................................................................31
7.3. Award.............................................................................................31
ARTICLE 8. Defaults.............................................................................................32
8.1. Default of Tenant.................................................................................32
8.2. Remedies in Event of Termination..................................................................32
i
<PAGE>
8.3. Other Remedies....................................................................................33
8.4. Reletting.........................................................................................34
8.5. Remedies Cumulative...............................................................................35
8.6. Landlord's Right to Cure Defaults.................................................................35
8.7. Holding Over......................................................................................35
8.8. Effect of Waivers of Default......................................................................35
8.9. No Waiver, etc....................................................................................35
8.10. No Accord and Satisfaction.......................................................................35
ARTICLE 9. Rights of Holders....................................................................................36
9.1. Rights of Mortgagees or Ground Lessor.............................................................36
9.2. Modifications.....................................................................................37
9.3. Subordination, Non-Disturbance and Attornment.....................................................37
ARTICLE 10. Miscellaneous Provisions............................................................................37
10.1. Notices..........................................................................................37
10.2. Quiet Enjoyment; Landlord's Right to Make Alterations, Etc.......................................38
10.3. Lease not to be Recorded.........................................................................38
10.4. Assignment of Rents and Transfer of Title; Limitation of Landlord's Liability....................38
10.5. Landlord's Default...............................................................................39
10.6. Notice to Mortgagee and Ground Lessor............................................................40
10.7. Brokerage........................................................................................40
10.8. Applicable Law and Construction..................................................................40
10.9. Electricity Audit................................................................................41
</TABLE>
ii
<PAGE>
LEASE
LAKEWOOD ON THE PARK
ARTICLE 1.
Reference Data
1.1. Introduction and Subjects Referred To.
This is a lease (this "LEASE") entered into by and between HUB
Properties Trust, a Maryland real estate investment trust ("LANDLORD") and
Perficient, Inc., a Delaware corporation ("TENANT").
Each reference in this Lease to any of the following terms or phrases
shall be construed to incorporate the corresponding definition stated in this
Section 1.1.
Date of
this Lease: March ____, 2000.
Building: That building in the city of Austin, Texas
known as Lakewood on the Park, Building B,
with an address of 7600B North Capital of
Texas Highway, Austin, Texas 78731.
Property: The Building, the two other office buildings
within Lakewood on the Park known as
Building A and Building C, all parking
facilities, landscaped areas and other
appurtenances, the sidewalks and driveways
adjacent thereto, and the land parcels on
which all of the same are located.
Premises: A portion of the third floor of the Building
commonly known as Suite 340,
substantially as shown on Exhibit A hereto.
Premises
Rentable Area: 5,894 rentable square feet.
Original Term: Commencing on the Commencement Date and
expiring on the day immediately preceding
the third (3rd) anniversary of the
Commencement Date, except that if the
Commencement Date shall occur on a day other
than the first day of a month, the Original
Term shall expire on the last day of the
month in which such anniversary shall occur.
Commencement
Date: April 8, 2000
<PAGE>
Annual
Fixed Rent: (i) Commencing on the Commencement Date and
continuing until and including March 31,
2001, $123,774.00 per annum ($21.00 per
square foot of the Premises Rentable Area
per annum), in equal monthly installments of
$10,314.50;
(ii) Commencing April 1, 2001 and continuing
until and including March 31, 2002,
$126,721.00 per annum ($21.50 per square
foot of the Premises Rentable Area per
annum), in equal monthly installments of
$10,560.08;
(iii) Commencing on April 1, 2002, and
continuing until and including the last day
of the Original Term, $129,668.00 per annum
($22.00 per square foot of the Premises
Rentable Area per annum), in equal monthly
installments of $10,805.67.
The above amounts are subject to adjustment
as provided in the Lease.
Tenant's
Percentage: .0577 (5.77%).
Permitted
Uses: General office uses consistent with a first
class office building, subject to the
provisions of Subsection 6.1.2.
Security
Deposit: $60,395.53
Commercial General
Liability Insurance
Limits: $5,000,000 per occurrence (combined single
limit) for property damage, bodily and
personal injury and death.
Original
Address of
Landlord: HUB Properties Trust
c/o REIT Management & Research, Inc.
6300 Bridgepoint Parkway
Building 1, Suite 325
Austin, Texas 78730-5073
Attention: Property Manager
Original
Address of
Tenant: Perficient, Inc.
-2-
<PAGE>
7600B North Capital of Texas Highway
Suite 340
Austin, Texas 78731
Attention: _______________
Address for
Payment of
Rent: HUB Properties Trust
c/o REIT Management & Research, Inc.
P.O. Box 59902
Boston, MA 02206
1.2. EXHIBITS.
The Exhibits listed below in this section are incorporated in this
Lease by reference and are to be construed as a part of this Lease.
EXHIBIT A. Plan showing the Premises.
EXHIBIT B. Rules and Regulations.
EXHIBIT C. Alterations Requirements.
EXHIBIT D. Contractor's Insurance Requirements.
EXHIBIT E. Clerk's Certificate
-3-
<PAGE>
ARTICLE 2.
Premises and Term
2.1. PREMISES. Landlord hereby leases to Tenant and Tenant hereby
leases from Landlord, subject to and with the benefit of the terms,
covenants, conditions and provisions of this Lease, the Premises, excluding
exterior faces of exterior walls, the common lobbies, hallways, stairways,
stairwells, elevator shafts and other common areas, and the escalators,
elevators, pipes, ducts, conduits, wires and appurtenant fixtures and other
common facilities serving the common areas, the Premises and the premises of
other tenants in the Building.
Tenant shall have, as appurtenant to the Premises, rights to use, in
common with others, subject to reasonable rules of general applicability to
tenants of the Building from time to time made by Landlord of which Tenant is
given notice: (a) the common lobbies, hallways and stairways of the Building,
(b) the common escalators, elevators, pipes, ducts, conduits, wires and
appurtenant fixtures and other common facilities serving the Premises, (c)
common walkways and driveways (if any) necessary for access to the Building, and
(d) if the Premises include less than all of the rentable area of any floor of
the Building, the common toilets and other common facilities located on such
floor.
If Landlord so requests, Tenant shall vacate the Premises and
relinquish its rights with respect to the same provided that Landlord shall
provide to Tenant substitute space in the Building, such space to be
substantially equal to or better in size, layout, finish and utility to the
Premises, and further provided that Landlord shall, (i) at its sole cost and
expense, move Tenant and its equipment (restored, cabled and wired to working
condition), furniture and other removable personal property from the Premises to
such new space in such manner as will minimize, to the greatest extent
practicable, undue interference with the business or operations of Tenant, and
(ii) additionally reimburse Tenant for all reasonable incidental costs and
expenses incurred as a result of such relocation, including the expenses of
changing stationery and paying wages and overtime incurred that is directly
associated with the relocation. Any such substitute space shall, from and after
the date such space is so provided, be treated as the Premises demised under
this Lease, and shall be occupied by Tenant under the same terms, provisions and
conditions as are set forth in this Lease.
2.2. TERM. The term of this Lease shall be for a period beginning on
the Commencement Date and continuing for the Original Term and any extension
thereof in accordance with the provisions of this Lease, unless sooner
terminated as hereinafter provided. The Original Term and any extension
thereof in accordance with the provisions of this Lease is hereinafter
referred to as the "TERM" of this Lease.
2.3. EXTENSION OPTION. So long as this Lease is still in full force
and effect, and the named Tenant as set forth in Section 1.1 (or any
successor by merger, or any Affiliate) shall actually occupy the entire
Premises, Tenant shall have the right to extend the term of this Lease for
two (2) additional periods (the "EXTENDED TERM(S)") of three (3) years each.
Each Extended Term shall commence on the day succeeding the expiration of the
Original Term or the preceding Extended Term, as the case may be, and shall
end on the day immediately preceding the third anniversary of the
commencement of such Extended Term. All of the terms, covenants
-4-
<PAGE>
and provisions of this Lease applicable immediately prior to the expiration
of the then current Term (i.e., Original Term or Extended Term, as
applicable) shall apply to each such Extended Term except that (i) the Annual
Fixed Rent for each such Extended Term shall be the greater of (a) the Annual
Fixed Rent in effect on the day preceding the commencement of such Extended
Term without giving effect to any abatements, set-offs or concessions then in
effect or (b) the fair market rental value of the Premises for the
[applicable] Extended Term as determined by Landlord in its sole discretion;
and (ii) Tenant shall have no further right to extend the term of this Lease
beyond the Extended Terms hereinabove provided. If Tenant shall elect to
exercise any of the aforesaid options, it shall do so by giving Landlord
notice of its election not later than six months, nor sooner than twelve
months prior to the expiration of the then current Term of this Lease
(Original Term or Extended Term, as applicable). If Tenant fails to give any
such notice to Landlord, the term of this Lease shall automatically terminate
no later than the end of the Original Term, and Tenant shall have no further
option to extend the term of this Lease, it being agreed that time is of the
essence with respect to the giving of any such notice. If Tenant shall extend
the term hereof pursuant to the provisions of this Section 2.4, such
extension shall be automatically effected without the execution of any
additional documents, but Tenant shall, at Landlord's request, execute an
agreement confirming the Annual Fixed Rent for the applicable Extended Term.
Landlord shall give Tenant notice of its determination of fair market rental
value for the [applicable] Extended Term not later than the later to occur of
thirty (30) days after request for such determination by Tenant or seven
months prior to the commencement of the [applicable] Extended Term.
2.4. MEASUREMENT OF THE PREMISES. Landlord and Tenant agree that the
Premises Rentable Area identified in Section 1.1 is an estimate only and
that, although the Annual Fixed Rent and Tenant's Percentage have been
determined by reference to such square footage (regardless of the possibility
that the actual measurement of the Premises may be more or less than the
number identified, irrespective of measurement method used), the Annual Fixed
Rent and Tenant's Percentage shall not be changed except as expressly
provided in this Section 2.3.
Either party hereto may, not later than ninety (90) days after the
Commencement Date, request that an exact measurement of the Premises be made in
accordance with the measurement method recommended by Building Owners and
Managers Association. Such measurement shall be made by an architect or engineer
designated by Landlord at the cost and expense of the requesting party.
If the rentable area of the Premises, as so measured, is more than one
hundred one percent (101%) or less than ninety-nine percent (99%) of the
Premises Rentable Area as set forth in Section 1.1: (i) the definition of
Premises Rentable Area set forth in Section 1.1 shall be deemed amended in
accordance with such measurement; (ii) Annual Fixed Rent shall, retroactively to
the Rent Commencement Date, be recomputed by multiplying the Annual Fixed Rent
as set forth in Section 1.1 by a fraction (the "FRACTION"), the numerator of
which shall be the rentable area as so measured and the denominator of which
shall be the Premises Rentable Area set forth in Section 1.1; and (iii) Tenant's
Percentage shall, retroactively to the Commencement Date, be recomputed to be
the percentage determined by multiplying Tenant's Percentage as set forth in
Section 1.1 by the Fraction.
-5-
<PAGE>
Any payment due to Landlord as the result of such adjustment shall be
paid within thirty (30) days after notice to Tenant of such computation. Any
payment due to Tenant as a result of such adjustment shall be credited against
installments of Annual Fixed Rent thereafter becoming due.
In the event of any adjustment pursuant to this Section 2.3, Landlord
and Tenant shall promptly execute a written statement setting forth the
recomputed Premise Rentable Area, Annual Fixed Rent, and Tenant's Percentage,
but the failure by either party to execute such a statement shall have no effect
on the validity of such recomputation.
If (i) neither Landlord nor Tenant requests any adjustment as herein
provided within the time limit provided, or (ii) such adjustment is requested,
but the rentable area is within the two percent range set forth above, Annual
Fixed Rent, Tenant's Percentage, and Premises Rentable Area shall remain as set
forth in Section 1.1, and neither Landlord nor Tenant shall have any right to
any adjustment.
ARTICLE 3.
Condition and Preparation of Premises
3.1. PREPARATION OF THE PREMISES. (a) Tenant shall, at its sole
cost and expense, have complete plans and specifications ("TENANT'S PLANS")
prepared for the initial improvements to the Premises, including mechanical,
electrical and architectural plans, which shall be in accordance with Landlord's
plan submission standards set forth in Exhibit C (notwithstanding that Landlord
shall perform the work) and shall be submitted to Landlord for its approval.
Within five Business Days (as defined in the Rules and Regulations) after
submission of Tenant's Plans to Landlord, Landlord shall notify Tenant of
approval or disapproval, and if Landlord fails to notify Tenant of disapproval
within said time period, Tenant's Plans shall be deemed approved provided they
are in conformity with the requirements of Exhibit C. Any disapproval of
Tenant's Plans shall be accompanied by a specific statement of the reasons
therefor and Tenant shall promptly revise and resubmit Tenant's Plans in order
to obtain Landlord's approval thereof. Each re-submission of Tenant's Plans
shall be subject to review and approval by Landlord in accordance with the
procedures for an original submission. The date on which Landlord gives its
approval to a complete and final set of Tenant's Plans is hereinafter the
"PLANS APPROVAL DATE".
(b) Landlord shall exercise all reasonable efforts to
substantially complete the work specified in Tenant's Plan's (collectively
"LANDLORD'S WORK") by that date which is forty five (45) days after the Plans
Approval Date (the "TARGET COMPLETION DATE"). Tenant agrees that Landlord may
make any changes in Landlord's Work from that shown on Tenant's Plans, the
necessity or desirability of which becomes apparent following approval of
Tenant's Plans, upon prior written notice to Tenant for nonsubtstantial changes
and with the approval of Tenant (which approval shall not be unreasonably
withheld or delayed) for substantial changes. Landlord shall provide Tenant with
an allowance ("LANDLORD'S CONTRIBUTION") of four dollars ($4.00) per square foot
of Premises Rentable Area for the performance of Landlord's Work, and Tenant
shall not be liable for any cost of Landlord's Work to the extent that the total
cost thereof is less than or equal to Landlord's Contribution. To the extent
that the cost of Landlord's Work exceeds Landlord's Contribution, Tenant shall
either (at Landlord's election) pay (i) fifty percent
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(50%) of the cost of such excess (as estimated by Landlord) to Landlord upon
approval by Landlord of Tenant's Plans and the remaining fifty (50) percent
within thirty (30) days after delivery to Tenant of a final accounting of the
cost of Landlord's Work, or (ii) the entire excess within thirty (30) days after
delivery to Tenant of a final accounting of the cost of Landlord's Work. For
purposes of this subsection (b), "COST" shall be the actual cost to Landlord of
performing Landlord's Work including, without limitation, all architectural
and/or engineering fees and expenses incurred by Landlord and all contractor
charges for the cost of work and materials, profit, general conditions and
overhead and supervision and all filing fees and other permitting costs. Tenant
shall, if requested by Landlord, execute an agreement (the "EXCESS COST
AGREEMENT") confirming Landlord's estimate of such excess costs, and Tenant's
obligation therefor, prior to the time Landlord shall be required to commence
Landlord's Work.
(c) Landlord's Work shall be considered substantially complete
and the "SUBSTANTIAL COMPLETION DATE" shall occur on the first day as of which
Landlord's Work has been completed except for items of work (and, if applicable,
adjustment of equipment and fixtures) which can be completed after occupancy has
been taken without causing material interference with Tenant's use of the
Premises (i.e. so-called "punch list" items). Landlord shall complete as soon as
conditions permit all "punch list" items and Tenant shall afford Landlord access
to the Premises for such purposes.
(d) If the Substantial Completion Date has not occurred within
thirty (30) days after the Target Completion Date, (as it may be extended for
Tenant Delays and Force Majeure as hereinafter provided), Tenant shall have the
right to terminate the term of this Lease by giving notice to Landlord not later
than twenty (20) days after the expiration of such thirty (30) day period (time
being of the essence with respect to the giving of such notice), and the term of
this Lease shall come to an end sixty (60) days after the giving of such notice
as if such date were the date set forth in the Lease for the expiration of the
Original Term, unless, within such sixty (60) day period after Tenant's notice,
Landlord substantially completes Landlord's Work (in which event such
termination of the term shall be null and void). Tenant's termination right
shall be Tenant's sole and exclusive remedy at law or in equity for any delay or
failure by Landlord to complete Landlord's Work.
3.2. CONCLUSIVENESS OF LANDLORD'S PERFORMANCE. Tenant shall be
conclusively deemed to have accepted Landlord's Work unless, within thirty (30)
days after the Substantial Completion Date, Tenant gives Landlord a notice
setting forth in detail those portions of Landlord's Work Tenant does not
accept.
3.3. TENANT DELAY. A "TENANT DELAY" shall be any delay in the
occurrence of the Substantial Completion Date as a result of a Direct Delay (as
defined in Section 3.4 (a)), plus any delay in the occurrence of the Substantial
Completion Date as a result of an Additional Delay (as defined in Section
3.4(b)).
(a) A "DIRECT DELAY" shall be any delay in the occurrence of
the Substantial Completion Date as a result of:
(i) any request by Tenant that Landlord delay in the commencement,
progress or completion of Landlord's Work for any reason;
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(ii) Tenant's failure to execute the Excess Cost Agreement if
requested by Landlord;
(iii) any change by Tenant in any of Tenant's Plans after the Plans
Approval Date; or
(iv) any special requirement of Tenant's Plans not in conformity
with Landlord's building standards (including without
limitation any so-called "long lead items").
(v) delays in the delivery of any fixtures, furnishings or other
items to be furnished directly by Tenant and installed as part
of Landlord's Work, or delays in the completion of any work
performed by Tenant or Tenant's contractors;
(vi) any failure by Tenant to cooperate with Landlord's contractors
as herein required; or
(vii) a delay in the performance of Landlord's Work that would not
have occurred if the Premises were not occupied by Tenant; or
(viii) any other act or omission of Tenant or its officers, agents,
servants or contractors (including unreasonable delay or
withholding of approval to changes desired by Landlord and
which require Tenant's approval, as described in Subsection
3.2(b)).
(b) An "ADDITIONAL DELAY" shall be any delay in the Substantial
Completion Date which is the result of (i) any reasonably necessary change in
Landlord's construction schedule resulting from a Direct Delay or (ii) any
"Force Majeure" condition (as defined in subsection (f) hereof) which would
have occurred after the Substantial Completion Date but for a Direct Delay.
(c) If as a result of Tenant Delays or Force Majeure the
Substantial Completion Date is delayed for more than six (6) months, Landlord
may (but shall not be required to) at any time thereafter terminate this
Lease by giving notice of such termination to Tenant and thereupon this Lease
shall terminate without further liability or obligation on the part of either
party.
(d) The Target Completion Date shall automatically be extended
by the aggregate of all delays in the Substantial Completion Date caused by
Tenant Delay(s), plus any period of delay in the Substantial Completion Date
caused by Force Majeure.
(e) "FORCE MAJEURE" shall be defined as any strike or other
labor trouble, fire, flood or other casualty, breakage, accident, repairs,
unusually severe weather, governmental preemption of priorities or other
controls in connection with a national or other public emergency (or
shortages of fuel, supplies or labor resulting therefrom), war, civil
commotion, or any other cause, whether similar or dissimilar, beyond
Landlord's reasonable control despite the diligent efforts of Landlord.
3.4. COOPERATION WITH LANDLORD'S CONTRACTORS. Reference is made to
the fact that Landlord's Work shall be performed in the Premises after the
Commencement Date and after Tenant has taken occupancy of the Premises. Tenant
acknowledges and agrees that Landlord's Work may be performed during or outside
of the Normal Building Operating Hours, as
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determined by Landlord in its sole discretion. Tenant shall provide Landlord's
contractors with access to the Premises at all times for the purpose of
performing Landlord's Work, and shall cooperate with Landlord and Landlord 's
contractors in connection with the performance of Landlord's Work. Such
cooperation shall include, without limitation, removing (temporarily) Tenant's
furnishings, equipment and other personal property from the work area within the
Premises promptly upon receiving a request to do so from Landlord 's contractor.
Landlord shall direct its contractors to use reasonable efforts to minimize any
interference with Tenant's use of the Premises to the extent reasonably
possible, but Landlord's contractors will not be required to delay the progress
of Landlord's Work. Further, Landlord shall incur no liability to Tenant for any
disruption of Tenant's business caused by the performance of Landlord 's Work as
herein provided, including, without limitation, any temporary shut down of
utilities or suspension of other services that is reasonably necessary in
connection therewith. It shall be the responsibility of Tenant to determine what
measures are necessary to protect Tenant's computers, office equipment,
fixtures, furnishings and other personal property in the Premises from dirt and
dust caused by the construction of Landlord 's Work, and Tenant shall be fully
responsible for taking such measures and paying the cost thereof. Under no
circumstance shall Landlord be liable for damage to any such property resulting
from Tenant failure to take such measures.
ARTICLE 4.
Rent, Additional Rent, Insurance and Other Charges
4.1. THE ANNUAL FIXED RENT. Tenant agrees to pay to Landlord, or as
otherwise directed by Landlord, commencing on the Commencement Date, without
offset, abatement (except as provided in Article 7), deduction or demand, the
Annual Fixed Rent. Annual Fixed Rent shall be payable in equal monthly
installments, in advance, on the first day of each and every calendar month
during the term of this Lease, at the Address for Payment of Rent specified in
Section 1.1, by check drawn on a domestic bank.
Annual Fixed Rent for any partial month shall be prorated on a daily
basis, and if the Commencement Date occurs and the Annual Fixed Rent commences
on a day other than the first day of a calendar month, the first payment which
Tenant shall make to Landlord shall be payable on the date Annual Fixed Rent
commences and shall be equal to a proportionate part of the monthly installment
of Annual Fixed Rent for the partial month in which Annual Fixed Rent commences
plus the installment of Annual Fixed Rent for the succeeding calendar month.
4.2. ADDITIONAL RENT. Tenant covenants and agrees to pay Tenant's
Percentage of Taxes and Operating Costs as provided in Sections 4.2.1 and
4.2.2, and all other charges and amounts payable by or due from Tenant to
Landlord (all such amounts referred to in this sentence being "ADDITIONAL
RENT").
4.2.1 REAL ESTATE TAXES. Tenant shall pay to Landlord, as
Additional Rent, Tenant's Percentage of the Building's share (as reasonably
determined by Landlord) of all Taxes (as hereinafter defined) assessed against
the Property (or estimated to be due by governmental authority) for any fiscal
tax period (a "TAX YEAR") during the term of this Lease (Tenant's Percentage of
Taxes being "TENANT'S TAX OBLIGATION"). Except as otherwise provided in the
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immediately following paragraph, Tenant shall pay Tenant's Tax Obligation to
Landlord within thirty (30) days after Landlord delivers to Tenant a notice of
the amount of taxes due, which notice shall set forth the manner of computation
of Tenant's Tax Obligation.
Tenant shall pay to Landlord, as Additional Rent on the first day of
each calendar month during the term but otherwise in the manner provided for the
payment of Annual Fixed Rent, estimated payments on account of Tenant's Tax
Obligation, such monthly amounts to be sufficient to provide Landlord by the
time Tax payments are due or are to be made by Landlord a sum equal to Tenant's
Tax Obligation, as reasonably estimated by Landlord from time to time on account
of Taxes for the then current Tax Year. If the total of such monthly remittances
for any Tax Year is greater than Tenant's Tax Obligation for such Tax Year,
Landlord shall credit such overpayment against Tenant's subsequent obligations
on account of Taxes (or promptly refund such overpayment if the term of this
Lease has ended and Tenant has no further obligations to Landlord); if the total
of such remittances is less than Tenant's Tax Obligation for such Tax Year,
Tenant shall pay the difference to Landlord within thirty (30) days after being
so notified by Landlord.
If, after Tenant shall have made all payments due to Landlord pursuant
to this subsection 4.2.1, Landlord shall receive a refund of any portion of
Taxes as a result of an abatement of such Taxes by legal proceedings, settlement
or otherwise (without either party having any obligation to undertake any such
proceedings), Landlord shall pay or credit to Tenant, Tenant's Percentage of
that percentage of the refund (after first deducting any expenses, including
attorneys', consultants' and appraisers' fees, reasonably incurred in connection
with obtaining any such refund) which equals the percentage of the applicable
Tax Year included in the term hereof, provided however, in no event shall Tenant
be entitled to receive more than the sum of payments actually made by Tenant on
account of Taxes with respect to such Tax Year.
In the event that the Commencement Date shall occur or the term of this
Lease shall expire or be terminated during any Tax Year, or should the Tax Year
or period of assessment of real estate taxes be changed or be more or less than
one (1) year, or should Tenant's Percentage be modified during any Tax Year due
to a change in the rentable area of the Building and/or the Premises or
otherwise, as the case may be, then the amount of Tenant's Tax Obligation which
may be otherwise payable by Tenant as provided in this subsection 4.2.1 shall be
appropriately apportioned and adjusted.
"TAXES" shall mean all taxes, assessments, excises and other charges
and impositions which are general or special, ordinary or extraordinary,
foreseen or unforeseen, of any kind or nature which are levied, assessed or
imposed at any time during the term by any governmental authority upon or
against the Property, or taxes in lieu thereof, and additional types of taxes to
supplement real estate taxes due to legal limits imposed thereon. If, at any
time during the term of this Lease, any tax or excise on rents or other taxes,
however described, are levied or assessed against Landlord with respect to the
rent reserved hereunder, either wholly or partially in substitution for, or in
addition to, real estate taxes assessed or levied on the Property, such tax or
excise on rents shall be included in Taxes; however, Taxes shall not include
franchise, estate, inheritance, succession, capital levy, income or excess
profits taxes assessed on Landlord. Taxes also shall include all court costs,
attorneys', consultants' and accountants' fees, and other expenses incurred by
Landlord contesting Taxes through and including all appeals. Taxes shall
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include any estimated payment made by Landlord on account of a fiscal tax period
for which the actual and final amount of taxes for such period has not been
determined by the governmental authority as of the date of any such estimated
payment.
4.2.2 OPERATING COSTS. Tenant shall pay to Landlord, as
Additional Rent, Tenant's Percentage of all costs and expenses of every kind
and nature paid or incurred by Landlord with respect to the Property in any
twelve-month period established by Landlord (an "OPERATING YEAR") during the
term of this Lease (such costs and expenses being "OPERATING COSTS", as
hereinafter more fully described). Except as otherwise provided in the
immediately following paragraph Tenant shall pay Tenant's Percentage of
Operating Costs ("TENANT'S OPERATING COST OBLIGATION") to Landlord within twenty
(20) days from the date Landlord shall furnish to Tenant an itemized statement
thereof, prepared, allocated and computed in accordance with then prevailing
customs and practices of the real estate industry in the greater Austin area,
consistently applied. Any year-end statement by Landlord relating to Operating
Costs (other than an invoice for a monthly estimate) shall be final and binding
upon Landlord and Tenant unless either party within 30 days after Tenant's
receipt thereof, shall contest any items therein by giving notice to the other
specifying each items contested and the reasons therefor.
Tenant shall pay to Landlord, as Additional Rent on the first day of
each calendar month during the term but otherwise in the manner provided for the
payment of Annual Fixed Rent, estimated payments on account of Tenant's
Operating Cost Obligation, such monthly amounts to be sufficient to provide to
Landlord, by the end of each Operating Year, a sum equal to Tenant's Operating
Cost Obligation for such Operating Year, as estimated by Landlord from time to
time during such Operating Year. If, at the expiration of each Operating Year in
respect of which monthly installments of Tenant's Operating Cost Obligation
shall have been made as aforesaid, the total of such monthly remittances is
greater than Tenant's Operating Cost Obligation for such Operating Year,
Landlord shall credit such overpayment against Tenant's subsequent obligations
on account of Operating Costs (or promptly refund such overpayment if the term
of this Lease has ended and Tenant has no further obligation to Landlord); if
the total of such remittances is less than Tenant's Operating Cost Obligation
for such Operating Year, Tenant shall pay the difference to Landlord within
thirty (30) days after being so notified by Landlord.
In the event that the Commencement Date shall occur or the term of this
Lease shall expire or be terminated during any Operating Year or Tenant's
Percentage shall be modified during any Operating Year due to a change in the
rentable area of the Building and/or the Premises or otherwise, as the case may
be, then the amount of Tenant's Operating Cost Obligation which may be payable
by Tenant as provided in this subsection 4.2.2 shall be appropriately
apportioned and adjusted.
"OPERATING COSTS" shall include, without limitation, all costs and
expenses paid or incurred for the operation, cleaning, management, maintenance,
repair, upkeep and security of the Building and, in addition, the Building's
share (as reasonably determined by Landlord) of such costs and expenses incurred
for the benefit of the Property as a whole, including, without limitation:
(a) all salaries, wages, fringe benefits, payroll taxes and workers'
compensation insurance premiums related thereto and all other costs paid or
incurred with respect to
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employment of personnel engaged in operation, administration, cleaning,
maintenance, repair, upkeep and security of the Property including, without
limitation, supervisors, property managers, accountants, bookkeepers, janitors,
carpenters, engineers, mechanics, electricians and plumbers, provided that, if
any such personnel are also employed on other property of Landlord, such costs
shall be suitably prorated among the Property and such other properties;
(b) all utilities and other costs related to provision of heat
(including oil, steam and/or gas), electricity, air conditioning, and water
(including sewer charges) and other utilities to the Property (exclusive of
reimbursement to Landlord for any of same received as a result of direct billing
to any tenant of the Building);
(c) all costs, including supplies, material and equipment costs, for
cleaning and janitorial services to the Building and Property (including,
without limitation, trash removal and interior and exterior window cleaning),
and interior and exterior landscaping and pest control;
(d) the cost of replacements for tools and other similar equipment used
in the repair, maintenance, cleaning and protection of the Property, provided
that, in the case of any such equipment used jointly on other property of
Landlord, such costs shall be suitably prorated among the Property and such
other properties;
(e) all costs and premiums for fire, casualty, rental income, liability
and such other insurance as may be maintained from time to time by Landlord
relating to the Property and any deductible, and premiums for fidelity bonds
covering persons having custody or control over funds or other property of
Landlord relating to the Property;
(f) all costs of maintaining, repairing, decorating, operating,
administering, inspecting and protecting the Property (including, without
limitation, lighting, installation, maintenance, repair and alteration of signs,
snow removal on the Property and adjacent walks and ways, paving, patching and
restriping of parking areas and operation, maintenance, replacement and repair
of heating, ventilating and air conditioning equipment, fire protection and
security systems, elevators, roofs, parking areas and any other common Building
equipment, systems or facilities) and all costs of structural and other repairs
and replacements (other than repairs for which Landlord has received full
reimbursement from contractors, other tenants of the Building or from others)
necessary to keep the Property in good working order, repair, appearance and
condition (including, without limitation, fees, if any, imposed upon Landlord,
or charged to the Property, by the state or municipality in which the Property
is located on account of the need of the Property for increased or augmented
public safety services);
(g) costs of compliance with any laws, rules, regulations, ordinances,
agreements or standards applicable to the Building or the property, which
conformance is not the responsibility of any tenant of the Building or Property,
and which Landlord elects or is required to perform, and costs of removal or
remediation of any Hazardous Materials in or under the Building or property,
which is not the responsibility of any tenant of the Building or Property, and
which Landlord elects to perform, provided such costs shall be treated as
capital expenditures;
(h) all costs incurred in connection with the administration and
supervision of all matters referred to in items (a) through (f) hereof and in
performing Landlord's obligations under
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Article 5, including Landlord's office overhead costs provided that, if any such
administrative or supervisory personnel are also employed on other property of
Landlord, such cost of compensation shall be suitably prorated among the
Property and such other properties;
(i) payments under all service contracts relating to matters referred
to in Items (a) through (h) hereof;
(j) a management fee not to exceed four percent (4%) of the gross rents
from the Property; and
(k) attorney's fees and disbursements and auditing and other
professional fees and expenses associated with the operation of the Building,
but not including attorneys fees incurred in (i) tax abatement or reductions
proceedings, (ii) collection of rent and other sums due from any other tenant
of the Building or Property, (iii) eviction, foreclosure, repossession or
bankruptcy proceedings pertaining to any other tenant of the Building or
Property, or (iv) the preparation of leases.
Notwithstanding the foregoing, for purposes of this Lease, Operating
Costs shall not include the following:
(a) Costs incurred in connection with the original construction and
development of the Property or the original or future leasing of the Property,
and costs incurred with respect to the installation of tenant improvements made
for new tenants in the Property;
(b) the cost of capital expenditures except as expressly provided
herein;
(c) depreciation, interest and principal payments on mortgages, and
other debt costs except for the interest factor included in the annual charge
off of those capital expenditures that are included in Operating Costs as
hereinafter provided; (d) costs for which Landlord is reimbursed by any tenant
or occupant of the Property or by insurance by its carrier or any tenant's
carrier (or if Landlord fails to carry insurance required to be carried by
Landlord under this Lease, costs which would have been covered by insurance had
Landlord obtained the coverage required to be carried under this Lease) or by
anyone else, and electric power costs for which any tenant directly contracts
with the local utility;
(e) any bad debt loss, rent loss, or reserves for bad debts or rent
loss;
(f) any amounts paid as ground rental for the Property of Landlord:
(g) all items and services for which Tenant or any other tenant in the
Property separately reimburses Landlord or which Landlord provides selectively
to one or more tenants (but not to Tenant) without reimbursement;
(h) any costs expressly excluded from Operating Costs elsewhere in this
Lease;
(i) the amount of any payments by Landlord to its affiliates for goods
or services for
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the Property in excess of a competitive rate, except as otherwise provided
herein; and
(j) costs incurred in connection with the sale, financing, refinancing,
mortgaging, selling or change of ownership of the Property.
If, during the term of this Lease, Landlord shall make any capital
expenditure, the total cost thereof shall not be included in Operating Costs for
the Operating Year in which it was made, but Landlord may include in Operating
Costs for such Operating Year in which such expenditure was made and in
Operating Costs for each succeeding Operating Year an annual charge-off of such
capital expenditure, provided such expenditure is (i) made to comply with any
law, rule, regulation, order or ordinance after the date the Building was
constructed, or (ii) made to protect the health or safety of the occupants of
the Property, or (iii) made to replace worn out or obsolete items or to keep the
Property in first-class condition, or (iv) designed to reduce Operating Costs.
Annual charge-offs shall be determined by dividing the original capital
expenditure plus an interest factor, reasonably determined by Landlord as being
the interest rate then being charged for long-term mortgages by institutional
lenders on like properties within the locality in which the Building is located,
by the number of years of useful life of the improvement, repair, alteration or
replacement made with the capital expenditure; and the useful life shall be
determined reasonably by Landlord in accordance with then prevailing customs and
practices of the real estate industry in the greater Austin area, consistently
applied.
In addition, if during any portion of any Operating Year for which
Operating Costs are being computed, less than ninety five percent (95%) of the
rentable area of the Building was leased to tenants or if Landlord is supplying
less than ninety five percent (95%) of the rentable area of the Building with
the services and utilities being supplied hereunder, actual Operating Costs
incurred shall be reasonably projected by Landlord on an item-by-item basis to
the estimated Operating Costs that would have been incurred if ninety five
percent (95%) of the Building were occupied for such Operating Year and such
services and utilities were being supplied to ninety five percent (95%) of the
rentable area of the Building, and such projected amount shall, for the purposes
hereof, be deemed to be the Operating Costs for such Operating Year.
4.3. PERSONAL PROPERTY AND SALES TAXES. Tenant shall pay all taxes
charged, assessed or imposed upon the personal property of Tenant and all taxes
on the sales of inventory, merchandise and any other goods by Tenant in or upon
the Premises.
4.4. INSURANCE. Tenant shall, at its expense, take out and
maintain, throughout the term of this Lease, the following insurance:
4.4.1 Commercial general liability insurance (on an occurrence
basis and on a 1988 ISO CGL form or its equivalent, including without
limitation, broad form contractual liability, bodily injury, property damage,
fire legal liability, and products and completed operations coverage) under
which Tenant is named as an insured and Landlord (and the holder of any mortgage
on the Premises or Property, as set out in a notice from time to time) are named
(on an ISO Form 20226 or as otherwise acceptable to Landlord) as additional
insureds as their interests may appear, in an amount which shall, at the
beginning of the term, be at least equal to the Commercial General Liability
Insurance Limits, and, which, from time to time during the
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term, shall be for such higher limits, if any, as Landlord shall determine to be
customarily carried in the area in which the Premises are located at property
comparable to the Premises and used for similar purposes;
Worker's compensation insurance with statutory limits covering all of
Tenant's employees working on the Premises; and
So-called "all-risk" property insurance on a "replacement cost" basis
with an agreed value endorsement covering all furniture, furnishings, fixtures
and equipment and other personal property brought to the Premises by Tenant and
all improvements and betterments to the Premises performed at Tenant's expense.
4.4.2 All such policies shall contain a clause confirming that such
policy and the coverage evidenced thereby shall be primary with respect to any
insurance policies carried by Landlord and shall be obtained from responsible
companies qualified to do business and in good standing in the state or district
in which the Property is located, which companies shall have a general policy
holder's rating in Best's of at least A / X or otherwise be acceptable to
Landlord. A copy of each paid-up policy evidencing such insurance (appropriately
authenticated by the insurer) or a certificate (on ACORD Form 27 or its
equivalent) of the insurer, certifying that such policy has been issued and paid
in full, providing the coverage required by this Section and containing
provisions specified herein, shall be delivered to Landlord prior to the
commencement of the term of this Lease and, upon renewals, not less than thirty
(30) days prior to the expiration of such coverage. Each such policy shall be
non-cancelable and not materially changed with respect to the interest of
Landlord and such mortgagees of the Property (and others that are in privity of
estate with Landlord of which Landlord provides notice to Tenant from time to
time) without at least thirty (30) days' prior written notice thereto. Any
insurance required of Tenant under this Lease may be furnished by Tenant under a
blanket policy carried by it provided that such blanket policy shall reference
the Premises, and shall guarantee a minimum limit available for the Premises
equal to the insurance amounts required in this Lease. Landlord may, at any
time, and from time to time, inspect and/or copy any and all insurance policies
required to be procured by Tenant hereunder.
4.4.3 Landlord and Tenant shall each endeavor to secure an
appropriate clause in, or an endorsement upon, each property damage insurance
policy obtained by it and covering the Building, the Premises or the personal
property, fixtures and equipment located therein or thereon, pursuant to which
the respective insurance companies waive subrogation and permit the insured,
prior to any loss, to agree with a third party to waive any claim it might have
against said third party. The waiver of subrogation or permission for waiver of
any claim hereinbefore referred to shall extend to the agents of each party and
its employees and, in the case of Tenant, shall also extend to all other persons
and entities occupying or using the Premises by, through or under Tenant. If and
to the extent that such waiver or permission can be obtained only upon payment
of an additional charge then the party benefiting from the waiver or permission
shall pay such charge upon demand, or shall be deemed to have agreed that the
party obtaining the insurance coverage in question shall be free of any further
obligations under the provisions hereof relating to such waiver or permission
from such insurance companies.
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Subject to the foregoing provisions of this Subsection 4.4.3, and
insofar as may be permitted by the terms of the insurance policies carried by
it, each party hereby releases the other with respect to any claim which it
might otherwise have against the other party for loss, damage or destruction of
or to its property to the extent such damage is or would be covered by policies
of insurance required by this Lease to be carried by the respective parties
hereunder. In addition, Tenant agrees to exhaust any and all claims against its
insurer(s) prior to commencing an action against Landlord for any property loss.
4.5. UTILITIES. Tenant shall pay all charges for telephone and other
utilities or services not supplied by Landlord pursuant to Subsections 5.1.1
and 5.1.2, whether designated as a charge, tax, assessment, fee or otherwise,
all such charges to be paid as the same from time to time become due. Except
as otherwise provided in this Subsection 4.5 or in Article 5, it is
understood and agreed that Tenant shall make its own arrangements for the
installation or provision of all utilities and services and that Landlord
shall be under no obligation to furnish any utilities to the Premises.
If permitted by law, Landlord shall have the right at any time, and
from time to time during the term of this Lease, to contract for electric
services from the company of Landlord's choice, whether the company is the
provider currently providing electric service to the Property ("CURRENT
PROVIDER") or a different company or companies ("ALTERNATE PROVIDER"). Tenant
shall cooperate with Landlord and Current Provider or Alternate Provider at all
times, and, as reasonably necessary, shall allow Landlord and Current Provider
or Alternate Provider reasonable access to the electric lines, feeders, risers,
wiring, and any other equipment within the Premises. Unless due to its negligent
act or omission, Landlord shall in no way be liable or responsible for any loss,
damage or expense that Tenant may sustain or incur by reason of any change,
failure, interference, disruption, or defect in the supply or character of the
electric energy furnished to the Premises, or if the quantity or character of
the electric energy supplied by the Current Provider or any Alternate Provider
is no longer available or suitable for Tenant's requirements. In no event shall
any such change, failure, defect, unavailability, or unsuitability constitute an
actual or constructive eviction, in whole or in part, or entitle Tenant to any
abatement or diminution of rent (except as provided in Section 5.2), or relieve
Tenant from any of its obligations under the Lease.
4.6. LATE PAYMENT OF RENT. If any installment of Annual Fixed Rent
or Additional Rent is not paid on or before the date the same is due, it
shall bear interest (as Additional Rent) from the date due until the date
paid at the Default Rate (as defined in Section 8.4). In addition, if any
installment of Annual Fixed Rent or Additional Rent is unpaid for more than
five (5) days after the date due, Tenant shall pay to Landlord a late charge
equal to the lesser of Four Hundred Dollars ($400) or seven percent (7%) of
the delinquent amount. The parties agree that the amount of such late charge
represents a reasonable estimate of the cost and expense that would be
incurred by Landlord in processing and administration of each delinquent
payment by Tenant, but the payment of such late charges shall not excuse or
cure any default by Tenant under this Lease. Absent specific provision to the
contrary, all Additional Rent shall be due and payable in full thirty (30)
days after demand by Landlord.
4.7. SECURITY DEPOSIT. Upon execution of this Lease, Tenant shall
deposit with Landlord the Security Deposit. The Security Deposit shall be
held by Landlord as security for
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the faithful performance of all the terms of this Lease to be observed and
performed by Tenant. The Security Deposit shall not be mortgaged, assigned,
transferred or encumbered by Tenant and any such act on the part of Tenant
shall be without force and effect and shall not be binding upon Landlord.
If the Annual Fixed Rent or Additional Rent payable hereunder shall be
overdue and unpaid or should Landlord make any payment on behalf of the Tenant,
or Tenant shall fail, after notice and the expiration of any cure period
provided for in this Lease, to perform any of the terms of this Lease, then
Landlord may, at its option and without notice or prejudice to any other remedy
which Landlord may have on account thereof, appropriate and apply the entire
Security Deposit or so much thereof as may be necessary to compensate Landlord
toward the payment of Annual Fixed Rent, Additional Rent or other sums or loss
or damage sustained by Landlord due to such breach by Tenant; and Tenant shall,
within ten (10) days after demand restore the Security Deposit to the original
sum deposited. So long as Tenant shall not be in default of its obligations
under this Lease, Landlord shall return the Security Deposit, or so much thereof
as shall have not theretofore been applied in accordance with the terms of this
Section 4.7, to Tenant promptly following the expiration or earlier termination
of the term of this Lease and the surrender of possession of the Premises by
Tenant to Landlord in accordance with the terms of this Lease. While Landlord
holds the Security Deposit, Landlord shall have no obligation to pay interest on
the same and shall have the right to commingle the same with Landlord's other
funds. If Landlord conveys Landlord's interest under this Lease, the Security
Deposit, or any part thereof not previously applied, shall be turned over by
Landlord to Landlord's grantee, and Tenant shall look solely to such grantee for
proper application of the Security Deposit in accordance with the terms of this
Section 4.7 and the return thereof in accordance herewith. The holder of a
mortgage on the Property shall not be responsible to Tenant for the return or
application of the Security Deposit, whether or not it succeeds to the position
of Landlord hereunder, unless such holder actually receives the Security
Deposit.
ARTICLE 5.
Landlord's Covenants
5.1. AFFIRMATIVE COVENANTS. Landlord shall, during the term of this
Lease provide the following:
5.1.1 HEAT AND AIR-CONDITIONING. Landlord shall furnish heat,
ventilation and air-conditioning ("HVAC") to the Premises sufficient to
maintain the Premises at comfortable temperatures for general office use,
subject to all federal, state and municipal regulations, during Normal
Building Operating Hours (as defined in the Rules and Regulations). If Tenant
shall require HVAC service outside the hours and days above specified,
Landlord may furnish such service and Tenant shall pay therefor such charges
as may from time to time be in effect. In the event Tenant locates an
excessive number of persons or heat-generating equipment in the Premises
which overloads the capacity of the Building HVAC systems or in any other way
interferes with such system's ability to perform adequately its proper
functions, supplementary systems may, if and as needed, at Landlord's option,
be provided by Landlord, at Tenant's expense. Landlord shall have no
responsibility for providing any service from separate HVAC Equipment, as
defined in Section 6.1.3.
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5.1.2 ELECTRICITY. Landlord shall furnish to the Premises
electricity to meet a requirement similar to the average load of other
general office tenants of the Building.
5.1.3 CLEANING; WATER. Landlord shall provide cleaning,
maintenance and landscaping to the common areas of the Building and Property
(including snow removal to the extent necessary to maintain reasonable access
to the Building) in accordance with standards generally prevailing throughout
the term hereof in comparable office buildings in the greater Austin, Texas
area; and furnish water for ordinary drinking, lavatory and toilet facilities
(as opposed to special laboratory or other uses in excess of general office
uses) and to cause the Premises to be cleaned in accordance with standards of
comparable office buildings in the greater Austin, Texas area. Tenant shall
pay to Landlord upon invoice the actual costs incurred by Landlord for (x)
extra cleaning work in the Premises required because of carelessness,
indifference, misuse or neglect on the part of Tenant or its subtenants or
its or their employees or visitors, and (y) removal from the Premises and the
Building of any refuse and rubbish of Tenant in excess of that ordinarily
accumulated in business office occupancy, including, without limitation,
kitchen refuse or large volumes of refuse generated by parties, receptions or
other special events of Tenant, or at times other than Landlord's standard
cleaning times. Notwithstanding the foregoing, Landlord shall not be required
to clean any portions of the Premises used for preparation, serving or
consumption of food or beverages or other special purposes if same requires
on a regularly recurring basis materially greater or more difficult cleaning
work than office areas, and Tenant agrees, at Tenant's expense, to retain
Landlord's cleaning contractor to perform such extra cleaning, provided that
the charges of such cleaning contractor shall be commercially reasonable.
Under no circumstances shall Landlord's cleaning contractor be required to
clean Tenant's refrigerator, microwave oven, dishes, utensils or other
kitchen equipment or personal property used in connection therewith.
Landlord, its cleaning contractor and their respective employees
shall have access to the Premises after 6:00 p.m. and before 8:00 a.m. and
shall have the right to use, without charge therefor, all light, power and
water in the Premises reasonably required to clean the Premises as required
hereunder.
Notwithstanding anything contained herein to the contrary, Landlord
shall have no obligation to collect or dispose of any a) radioactive,
volatile, highly flammable, explosive or toxic or hazardous materials, b)
needles, syringes, lancets, similar sharp objects or contaminated glassware,
c) blood products, d) body fluids, e) human or animal tissue, any item
identified in clauses a) through e), above, hereinafter referred to as
"EXCEPTED WASTE". Tenant agrees that title to and liability for any Excepted
Waste shall remain with Tenant, even if Landlord collects and/or disposes of
any such Excepted Waste.
If Tenant uses water for any purpose other than ordinary drinking,
lavatory and toilet purposes, Landlord may assess a reasonable charge for the
additional water so used, or install a water meter and thereby measure Tenant's
water consumption for all purposes. In the latter event, Tenant shall pay the
cost of the meter and the cost of installation thereof and shall keep such meter
and installation equipment in good working order and repair. Tenant agrees to
pay for water consumed, as shown on such meter, together with the sewer charge
based on such meter charges, as and when bills are rendered, and if Tenant shall
fail to make such payment, Landlord may pay such charges and collect the same
from Tenant as Additional Rent.
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5.1.4 ELEVATOR AND LIGHTING. Landlord shall furnish
non-exclusive passenger elevator service from the lobby to the Premises;
purchase and install all building standard lamps, tubes, bulbs, starters and
ballasts for lighting fixtures in the Premises; and provide lighting to
public and common areas of the Property.
5.1.5 REPAIRS. Except as otherwise expressly provided herein,
Landlord shall make such repairs and replacements to the roof, exterior
walls, floor slabs and other structural components of the Building, and to
the common areas and facilities of the Building and Property (including any
plumbing, electrical, HVAC equipment, elevators and any other common
equipment or systems in the Building) as may be necessary to keep them in
good repair and condition (exclusive of equipment installed by Tenant and
except for those repairs required to be made by Tenant pursuant to Subsection
6.1.3 hereof and repairs or replacements occasioned by any act or negligence
of Tenant, its servants, agents, customers, contractors, employees, invitees,
or licensees).
5.2. INTERRUPTION. Landlord shall be under no responsibility or
liability for failure, interruption or unavailability of any services,
facilities, utilities, repairs or replacements or inability to provide access
or inability to perform any other obligation under this Lease caused by
breakage, accident, fire, flood or other casualty, strikes or other labor
trouble, order or regulation of or by any governmental authority, inclement
weather, repairs, inability to obtain or shortages of supplies, labor or
materials, war, civil commotion or other emergency, transportation
difficulties or due to any act or neglect of Tenant or Tenant's servants,
agents, employees or licensees or for any other cause beyond the reasonable
control of Landlord, and in no event for any indirect or consequential
damages to Tenant; and failure or omission on the part of Landlord to furnish
any of same for any of the reasons set forth in this paragraph shall not be
construed as an eviction of Tenant, actual or constructive, nor entitle
Tenant to an abatement of rent, nor render the Landlord liable in damages,
nor release Tenant from prompt fulfillment of any of its covenants under this
Lease.
Notwithstanding the foregoing, if due to the default, negligence or
willful wrongful conduct of Landlord or its agents or contractors, (i) the
Premises or any material portion thereof are unusable by Tenant as a result of
the lack, for a period of more than three (3) consecutive Business Days
following notice from Tenant of (I) water, sewer, electricity, heat, or air
conditioning, or (II) the performance of repairs which Landlord is obligated to
perform pursuant to Section 5.1.4, and (ii) Tenant shall, concurrently with the
giving of such notice discontinue use of the Premises or the portion thereof
which is unusable as a result thereof (other than for sporadic purposes such as
salvage, security or retrieval of property), then the Annual Fixed Rent and
Additional Rent on account of Taxes and Operating Costs shall be equitably
abated for such portion of the Premises rendered unusable for the period
commencing on the expiration of such three (3) Business Day period and ending on
the earlier of the date that the Premises (or such portion) is rendered usable
or the date Tenant returns to use the Premises other than for sporadic purposes.
If more than fifty percent (50%) of the Premises is rendered unusable and if
Tenant shall vacate the entire Premises, then the aforesaid abatement shall be a
full abatement. Any notice from Tenant pursuant to the first sentence of this
paragraph shall expressly state that the failure of Landlord to cure any claimed
default timely shall give rise to Tenant's right of rent abatement.
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Landlord reserves the right temporarily (up to twenty-four (24) hours
or longer in a bona fide emergency) to stop the services of the HVAC, plumbing,
electrical or other mechanical systems or facilities in the Building when
necessary from time to time by reason of accident or emergency, or for repairs,
alterations, replacements or improvements which in the reasonable judgment of
Landlord are desirable or necessary, until such repairs, alterations,
replacements or improvements shall have been completed. Landlord shall use
reasonable efforts to (i) give to Tenant at least three (3) business days'
notice if service is to be stopped, except in cases of emergency, (ii) minimize
any disruption or interference with Tenant's use of the Premises, and (iii)
limit such disruption to a Saturday or Sunday or to times outside of the Normal
Building Operating Hours, if reasonably possible.
5.3. OUTSIDE SERVICES. In the event Tenant wishes to obtain services
or to hire vendors relating to the Premises, Tenant shall first obtain the
prior approval of Landlord, which approval shall not be unreasonably withheld
or delayed, for the installation and/or utilization of such services or
vendors. ("OUTSIDE SERVICES" shall include, but shall not be limited to,
utility providers, security services, moving facilities, equipment
installers, catering services and the like). Notwithstanding any Landlord
approval of the installation and/or utilization of such services or vendors,
such installation and utilization shall be at Tenant's sole cost, risk and
expense.
5.4. ACCESS TO BUILDING. During Normal Building Operating Hours, the
Building shall, subject to the provisions of Section 5.2, be open and access
to the Premises shall be freely available, subject to the Rules and
Regulations. During periods other than Normal Building Operating Hours,
Tenant shall have access to the Premises, but such access shall also be
subject to the Rules and Regulations. Tenant acknowledges that Tenant is
responsible for providing security to the Premises following Tenant's entry
onto the Premises for any reason and for its own personnel whenever located
therein. Subject to the foregoing, Landlord shall, at all times, retain the
right to control and prevent such access by all persons whose presence, in
the sole discretion of Landlord, may jeopardize the safety, protection,
character, reputation and interests of the Building and its tenants or
occupants. Landlord shall in no case be liable for damages resulting from any
error with regard to the admission or exclusion of any person from the
Building.
ARTICLE 6.
Tenant's Additional Covenants
6.1. AFFIRMATIVE COVENANTS. Tenant shall do the following:
6.1.1 PERFORM OBLIGATIONS. Tenant shall perform promptly all of
the obligations of Tenant set forth in this Lease; and pay when due the
Annual Fixed Rent and Additional Rent and all other amounts which by the
terms of this Lease are to be paid by Tenant.
6.1.2 USE. Tenant shall, during the term of this Lease, use
the Premises only for the Permitted Uses and from time to time to procure and
maintain all licenses and permits necessary therefor and for any other use or
activity conducted at the Premises, at Tenant's sole
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expense. The Permitted Uses shall expressly exclude use for utility company
offices, or employment agency or governmental or quasi-governmental offices.
6.1.3 REPAIR AND MAINTENANCE. Tenant shall, during the term of
this Lease, maintain the Premises in neat and clean order and condition and
perform all repairs to the Premises and all fixtures, systems, and equipment
therein (including Tenant's equipment and other personal property and any
HVAC equipment serving all or any portion of the Premises to the exclusion of
any other space in the Building ("SEPARATE HVAC EQUIPMENT"), provided such
Separate HVAC Equipment is reasonably accessible to Tenant) as are necessary
to keep them in good and clean working order, appearance and condition,
reasonable use and wear thereof and damage by fire or by unavoidable casualty
only excepted and shall replace any damaged or broken glass in windows and
doors of the Premises (except glass in the exterior walls of the Building)
with glass of the same quality as that damaged or broken.
6.1.4 COMPLIANCE WITH LAW. Tenant shall, during the term of
this Lease, make all repairs, alterations, additions or replacements to the
Premises required by any law or ordinance or any order or regulation of any
public authority; keep the Premises safe and equipped with all safety
appliances so required; and comply with, and perform all repairs,
alterations, additions or replacements required by, the orders and
regulations of all governmental authorities with respect to zoning, building,
fire, health and other codes, regulations, ordinances or laws applicable to
the Premises or applicable to the Premises or other portions of the Property
and arising out of any use being conducted in or on the Premises or arising
out of any work performed by Tenant, except that Tenant may (but only so long
as (i) Landlord shall not be subject to any fine or charge, (ii) neither the
Property nor any portion thereof shall be subject to being condemned or
vacated and (iii) neither the Property nor any portion thereof shall be
subject to any lien or encumbrance) defer compliance so long as the validity
of any such law, ordinance, order or regulation shall be contested by Tenant
in good faith and by appropriate legal proceedings, if Tenant first gives
Landlord assurance or security against any loss, cost or expense on account
thereof in form and amount acceptable to Landlord.
6.1.5 INDEMNIFICATION. Tenant shall save Landlord harmless,
and exonerate and indemnify Landlord from and against (i) any and all claims,
liabilities or penalties asserted by or on behalf of any person, firm,
corporation or public authority on account of nuisance or injury, death,
damage or loss to person or property in or upon the Premises and/or the
Property and (ii) any loss, cost, damage or expense incurred by Landlord (a)
arising out of the use or occupancy of the Premises by Tenant or by any
person claiming by, through or under Tenant (including, without limitation,
all patrons, employees, contractors, vendors, suppliers, invitees and
customers of Tenant), (b) arising out of labor disputes with Tenant's
employees or strikes, picketing or other similar actions, or (c) on account
of or based upon anything whatsoever done on or occurring in the Premises
during the term of this Lease except (and then only to the extent not subject
to the provisions of the last paragraph of Subsection 4.4.3) if the same were
caused by the negligence or willful misconduct of Landlord, its agents,
servants or employees. In respect of the matters set forth in clause (i),
Tenant shall indemnify Landlord (and such others as are in privity of estate
with Landlord) from and against all costs, expenses (including reasonable
attorneys' fees), and liabilities incurred in or in connection with any such
claim, action or proceeding brought thereon.
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6.1.6 LANDLORD'S RIGHT TO ENTER. Tenant shall, during the term
of this Lease, permit Landlord and its agents and invitees to enter into and
examine the Premises at reasonable times and to show the Premises to
prospective lessees, lenders, partners and purchasers and others having a
bonafide interest in the Premises, and to make such repairs, alterations and
improvements and to perform such testing and investigation as Landlord shall
reasonably determine to make or perform, and, during the last six (6) months
prior to the expiration of this Lease, to keep affixed in suitable places
notices of availability of the Premises. In exercising its rights hereunder,
Landlord shall minimize interference with Tenant's operations in the Premises
to the extent reasonably possible.
6.1.7 PERSONAL PROPERTY AT TENANT'S RISK. Tenant shall, during
the term of this Lease keep, at the sole risk and hazard of Tenant, all of
the furnishings, fixtures, equipment, effects and property of every kind,
nature and description of Tenant and of all persons claiming by, through or
under Tenant which may be on the Property, and if the whole or any part
thereof shall be destroyed or damaged by fire, water or otherwise, or by the
leakage or bursting of water pipes, steam pipes, or other pipes, by theft or
from any other cause, Tenant shall hold harmless and indemnify Landlord from
and against any and all injury, loss, damage or liability to Tenant or to any
other person or entity arising out of said loss or damage.
6.1.8 PAYMENT OF LANDLORD'S COST OF ENFORCEMENT. Tenant shall
pay within thirty (30) days following written demand Landlord's expenses,
including reasonable attorneys' fees, incurred in enforcing any obligation of
Tenant under this Lease or in curing any default by Tenant under this Lease
as provided in Section 8.4.
6.1.9 YIELD UP. Tenant shall, at the expiration or earlier
termination of the term of this Lease, surrender all keys to the Premises;
remove all of its trade fixtures and personal property in the Premises;
remove such installations made (or if applicable, restore any items removed)
by it as Landlord may request and all Tenant's signs wherever located; repair
all damage caused by such removal (excluding minor nail or screw holes) and
yield up the Premises (including all installations and improvements made by
Tenant except for trade fixtures and such of said installations or
improvements as Landlord shall request Tenant to remove), broom clean and in
the same good order and repair in which Tenant is obliged to keep and
maintain the Premises by the provisions of this Lease, reasonable wear and
tear excepted. Any property not so removed shall be deemed abandoned and may
be removed and disposed of by Landlord in such manner as Landlord shall
determine and Tenant shall pay Landlord the reasonable cost and expense
incurred by it in effecting such removal and disposition and in making any
incidental repairs and replacements to the Premises and for use and occupancy
during the period after the expiration or earlier termination of the term of
this Lease and prior to the performance by Tenant of its obligations under
this subsection 6.1.9. Tenant shall further indemnify Landlord against all
loss, cost and damage resulting from Tenant's failure or delay in
surrendering the Premises as above provided.
6.1.10 RULES AND REGULATIONS. Tenant shall, during the term of
this Lease, observe and abide by the Rules and Regulations of the Building
set forth as Exhibit B, as the same may from time to time be amended, revised
or supplemented (the "RULES AND REGULATIONS"). Tenant shall further be
responsible for compliance with the Rules and Regulations by the employees,
servants, agents and visitors of Tenant. The failure of Landlord
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to enforce any of the Rules and Regulations against Tenant, or against any
other tenant or occupant of the Building, shall not be deemed to be a waiver
of such Rules and Regulations. Tenant shall be liable for all injuries or
damages sustained by Landlord or by other tenants, occupants or invitees of
the Building arising by reason of any breach of the Rules or Regulations by
Tenant or by Tenant's agents or employees.
6.1.11 ESTOPPEL CERTIFICATE. Tenant shall, within ten (10)
days' following written request by Landlord, execute, acknowledge and deliver
to Landlord a statement in form satisfactory to Landlord in writing
certifying, if true, that this Lease is unmodified and in full force and
effect and that Tenant, to the best of Tenant's knowledge, information and
belief, has no defenses, offsets or counterclaims against its obligations to
pay the Annual Fixed Rent and Additional Rent and any other charges and to
perform its other covenants under this Lease (or, if there have been any
modifications, that the Lease is in full force and effect as modified and
stating the modifications and, if there are any defenses, offsets or
counterclaims, setting them forth in reasonable detail), the dates to which
the Annual Fixed Rent and Additional Rent and other charges have been paid,
and any other matter pertaining to this Lease. Any such statement delivered
pursuant to this subsection 6.1.11 may be relied upon by any prospective
purchaser or mortgagee of the Property, or any prospective assignee of such
mortgage.
6.1.12 LANDLORD'S EXPENSES FOR CONSENTS. Tenant shall
reimburse Landlord, as Additional Rent, promptly on demand for all reasonable
legal, engineering and other professional services expenses incurred by
Landlord in connection with all requests by Tenant for consent or approval
hereunder.
6.1.13 FINANCIAL INFORMATION. Tenant shall, from and after the
Date of this Lease and thereafter throughout the term of this Lease, provide
Landlord with such information as to Tenant's financial condition and/or
organizational structure as Landlord reasonably requires or the holder of any
mortgage of the Property requires, within thirty days of request. Nothing in
this provision shall be construed to require Tenant to obtain an audit or
certified financial statement.
6.2. NEGATIVE COVENANTS. Tenant shall not do the following.
6.2.1 ASSIGNMENT AND SUBLETTING. Without Landlord's prior
written consent, which may be withheld in Landlord's sole discretion except
as hereinafter provided, Tenant shall not assign, mortgage, pledge,
hypothecate, encumber or otherwise transfer this Lease or sublease (which
term shall be deemed to include the granting of concessions and licenses and
the like) all or any part of the Premises or suffer or permit this Lease or
the leasehold estate hereby created or any other rights arising under this
Lease to be assigned, transferred, mortgaged, pledged, hypothecated or
encumbered, in whole or in part, whether voluntarily, involuntarily or by
operation of law, or permit the use or occupancy of the Premises by anyone
other than Tenant, or the Premises to be offered or advertised for assignment
or subletting.
Any transfer of fifty percent (50%) or more of the stock or partnership
or beneficial interests or other evidences of ownership of Tenant or the
issuance of additional stock or partnership or beneficial interests or other
indicia of ownership in Tenant or any transactions pursuant to which Tenant is
merged, reorganized or consolidated with another entity or pursuant to which all
or substantially all of Tenant's assets are transferred to any other entity
shall be
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deemed to be an assignment of this Lease; provided, however, that any
transaction pursuant to which Tenant is merged, reorganized or consolidated
with another entity or pursuant to which all or substantially all of Tenant's
assets are transferred shall not be deemed a prohibited assignment, if (w)
after any such transaction or transfer, the successor to Tenant or the
transferee of or successor to any of Tenant's rights hereunder has a tangible
net worth computed in accordance with generally accepted accounting
principles at least equal to the greater of (1) the net worth of Tenant
immediately prior to such merger, consolidation or transfer, or (2) the net
worth of Tenant herein named on the Date of this Lease, (x) proof of such net
worth, as evidenced by certified financial statements prepared by a certified
public accountant or by other information reasonably satisfactory to
Landlord, shall have been delivered to Landlord at least ten (10) days prior
to the effective date of any such transaction, (y) in the case of a sale of
assets, proof satisfactory to Landlord shall have been delivered to Landlord
at least ten (10) days prior to the effective date of any such transfer that
substantially all of Tenant's assets shall be sold to such transferee, and
(z) the assignee, transferee or successor agrees directly with Landlord, by
written instrument in form satisfactory to Landlord, to be bound by all the
terms of this Lease including, without limitation, the covenants contained in
this Subsection; or if after any such transaction or transfer, the stock or
other evidences of ownership of Tenant is publicly traded on a recognized,
U.S. securities exchange and the requirements of clauses (y) and (z) above
are satisfied. In addition, Tenant may, upon not less than ten (10) days
prior notice to Landlord, sublease all or any portion of the Premises to any
entity which controls, is controlled by or is under common control with the
Tenant identified in Section 1.1 (such entity being an "AFFILIATE"). Any
sublease to an Affiliate shall, at Landlord's election, be terminated if the
subtenant shall cease to be an Affiliate, and any sublease shall so provide.
The term "CONTROL" shall mean the ownership, directly or indirectly, of more
than fifty percent (50%) of the outstanding voting stock of a corporation or
other equity interest if Tenant is not a corporation.
In the event Tenant intends to enter into a sublease or assignment of
the Lease with a party who is not an Affiliate, then Tenant shall provide
Landlord with a written description of all terms and conditions of the proposed
transaction, copies of the proposed documentation, and the following information
about the proposed subtenant or assignee ("TRANSFEREE"): (i) name and address,
(ii) reasonably complete information about its business and business history,
(iii) its proposed use of the Premises, (iv) banking, financial and other credit
information , and (v) general references sufficient to enable Landlord to
determine the proposed Transferee's creditworthiness and character. Landlord
shall not unreasonably withhold its consent to any assignment or subletting as
to which it does not elect to exercise its rights pursuant to the following
paragraph, provided that the proposed Transferee (i) is creditworthy, (ii) does
not have a bad reputation in the business community, (iii) shall not use the
Premises for a purpose or in a manner which is inconsistent with Landlord's
commitments to other tenants in the Building, (iv) shall not cause an increase
in Operating Costs, and (v) is not another occupant of the Building; otherwise,
Landlord may withhold its consent in its sole discretion. Tenant shall reimburse
Landlord promptly upon request for its reasonable attorneys fees incurred in
connection with considering any request for consent to a subletting or
assignment. If Landlord consents to a proposed subletting or assignment, then
the proposed Transferee shall deliver to Landlord a written agreement whereby
its expressly assumes Tenant's obligations hereunder; however, any sublessee
shall be liable only for obligations under this Lease that are properly
allocable to the space subject to the subletting for the period of the
subletting. Landlord's consent to any assignment or subletting shall not release
Tenant from its obligations under this lease, but rather,
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Tenant and the Transferee shall be jointly and severally liable therefor.
Landlord's consent to any subletting or assignment shall not waive Landlord's
rights as to any subsequent subletting or assignment.
Landlord may, within thirty (30) days of submission of Tenant's written
request for Landlord's consent to an assignment or subletting requiring
Landlord's prior written consent, elect (i) to terminate the term of this Lease
if Tenant intends to assign this Lease or to sublease more than fifty percent
(50%) of the Premises for more than half of the remaining term of this Lease or
(ii) to exclude from the Premises, for the term of a proposed sublease, the
portion thereof to be sublet by giving notice to Tenant of such election not
later than thirty (30) days after receiving notice of such intent from Tenant.
If Landlord shall give such notice within such thirty (30) day period, upon the
later to occur of (a) the proposed date of commencement of such sublease or
assignment, or (b) the date which is fifteen (15) days after Landlord's notice,
the term of this Lease shall terminate or (as applicable), for the period
expiring on the expiration date of such proposed sublease, the Premises shall be
reduced to exclude the portion of the Premises intended for subletting, in which
case Annual Fixed Rent and Tenant's Percentage shall be correspondingly reduced
for such period. If Landlord terminates the term of this Lease as to all or any
portion of the Premises, then the term of this Lease shall cease as of such date
for such portion of the Premises.
If this Lease is assigned or if the Premises or any part thereof are
sublet (or occupied by any party other than Tenant and its employees) Landlord,
after default by Tenant hereunder, may collect the rents from such assignee,
subtenant or occupant, as the case may be, and apply the net amount collected to
the Annual Fixed Rent and Additional Rent herein reserved, but no such
collection shall be deemed a waiver of the provisions set forth in the first
paragraph of this Subsection 6.2.1, the acceptance by Landlord of such assignee,
subtenant or occupant, as the case may be, as a tenant, or a release of Tenant
from the future performance by Tenant of its covenants, agreements or
obligations contained in this Lease.
Any sublease of all or any portion of the Premises shall provide that
it is subject and subordinate to this Lease and to the matters to which this
Lease is or shall be subject or subordinate, and that in the event of
termination of this Lease or reentry or dispossession of Tenant by Landlord
under this Lease, Landlord may, at its option, take over all of the right, title
and interest of Tenant, as sublessor under such sublease, and such subtenant
shall, at Landlord's option, attorn to Landlord pursuant to the then executory
provisions of such sublease, except that neither Landlord nor any mortgagee of
the Property, as holder of a mortgage or as Landlord under this Lease if such
mortgagee succeeds to that position, shall (a) be liable for any act or omission
of Tenant under such sublease, (b) be subject to any credit, counterclaim,
offset or defense which theretofore accrued to such subtenant against Tenant, or
(c) be bound by any previous modification of such sublease or by any previous
prepayment of more than one (1) month's rent, (d) be bound by any covenant of
Tenant to undertake or complete any construction of the Premises or any portion
thereof, (e) be required to account for any security deposit of the subtenant
other than any security deposit actually received by Landlord, (f) be bound by
any obligation to make any payment to such subtenant or grant any credits, (g)
be responsible for any monies owing by Landlord to the credit of Tenant or (h)
be required to remove any person occupying the Premises or any part thereof; and
such sublease shall provide that the subtenant thereunder shall, at the request
of Landlord, execute a suitable instrument in confirmation of such
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agreement to attorn. The provisions of this paragraph shall not be deemed a
waiver of the provisions set forth in the first paragraph of this Subsection
6.2.1.
Tenant shall not enter into, nor shall it permit any person having an
interest in the possession, use, occupancy or utilization of any part of the
Premises to enter into, any sublease, license, concession, assignment or other
agreement for use, occupancy or utilization of the Premises (i) which provides
for rental or other compensation based on the income or profits derived by any
person or on any other formula such that any portion of such sublease rental, or
other consideration for a license, concession, assignment or other occupancy
agreement, would fail to qualify as "rents from real property" within the
meaning of Section 856(d) of the Internal Revenue Code or any similar or
successor provision thereto, or would otherwise disqualify Landlord for
treatment as a real estate investment trust under Sections 856-869 of the
Internal Revenue Code, (ii) under which fifty percent (50%) or more of the total
rent or other compensation received by Tenant is attributable to personal
property or (iii) which would otherwise be subject to the prohibitions of
Section 406 of ERISA or result in imposition of any tax pursuant to Section 511
or Section 4975 of the Internal Revenue Code; and any such purported lease,
sublease, license, concession or other agreement shall be absolutely void and
ineffectual as a conveyance of any right or interest in the possession, use,
occupancy or utilization of such part of the Premises.
No subletting or assignment shall in any way impair the continuing
primary liability of Tenant hereunder, and no consent to any subletting or
assignment in a particular instance shall be deemed to be a waiver of the
obligation to obtain the Landlord's written approval in the case of any other
subletting or assignment. The joint and several liability of Tenant named herein
and any immediate and remote successor in interest of Tenant (by assignment or
otherwise), and the due performance of the obligations of this Lease on Tenant's
part to be performed or observed, shall not in any way be discharged, released
or impaired by any (a) agreement which modifies any of the rights or obligations
of the parties under this Lease, (b) stipulation which extends the time within
which an obligation under this Lease is to be performed, (c) waiver of the
performance of an obligation required under this Lease, or (d) failure to
enforce any of the obligations set forth in this Lease. No assignment,
subletting or occupancy shall affect the Permitted Uses. Any subletting,
assignment or other transfer of Tenant's interest in this Lease in contravention
of this Subsection 6.2.1 shall be voidable at Landlord's option. Tenant shall
not occupy any space in the Building (by assignment, sublease or otherwise)
other than the Premises if Landlord advises Tenant, within forty-five (45) days
after notice from Tenant that it proposes to occupy such other space in the
Building, that Landlord has vacant space in the Building that is (or will be
made by Landlord) reasonably comparable to such other space in terms of size and
appearance, and that Landlord will make such space available to Tenant at the
same Annual Fixed Rent and for the same period as such other space, but
otherwise on the terms and conditions of this Lease. Tenant shall not take
occupancy of any such other space without giving Landlord at least forty-five
(45) days prior written notice.
If the rent and other sums (including, without limitation, all monetary
payments plus the reasonable value of any services performed or any other thing
of value given by any assignee or subtenant in consideration of such assignment
or sublease), either initially or over the term of any assignment or sublease,
payable by such assignee or subtenant (other than an Affiliate) on account of an
assignment or sublease of all or any portion of the Premises exceed the sum of
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Annual Fixed Rent plus Additional Rent called for hereunder with respect to the
space assigned or sublet, Tenant shall pay to Landlord as Additional Rent fifty
percent (50%) of such excess actually received by Tenant, (the "EXCESS INCOME"),
payable monthly at the time for payment of Annual Fixed Rent. Nothing in this
paragraph shall be deemed to abrogate the provisions of this Subsection 6.2.1
and Landlord's acceptance of any sums pursuant to this paragraph shall not, in
and of itself, be deemed a granting of consent to any assignment or sublease.
6.2.2 NUISANCE. Tenant shall not injure, deface or otherwise
harm the Premises; nor commit any nuisance; nor permit in the Premises any
vending machine (except such as is used for the sale of merchandise to
employees of Tenant) or inflammable fluids or chemicals (except such as are
customarily used in connection with standard office equipment); nor permit
any cooking to such extent as requires special exhaust venting; nor permit
the emission of any objectionable noise or odor; nor make, allow or suffer
any waste; nor make any use of the Premises which is improper, offensive or
contrary to any law or ordinance or which will invalidate or increase the
premiums for any of Landlord's insurance or which is liable to render
necessary any alteration or addition to the Building; nor conduct any
auction, fire, "going out of business" or bankruptcy sales.
6.2.3 FLOOR LOAD; HEAVY EQUIPMENT. Tenant shall not place a
load upon any floor of the Premises exceeding the lesser of the floor load
capacity which such floor was designed to carry or which is allowed by law.
Landlord reserves the right to prescribe the weight and position of all heavy
business machines and equipment, including safes, which shall be placed so as
to distribute the weight. Business machines and mechanical equipment which
cause vibration or noise shall be placed and maintained by Tenant at Tenant's
expense in settings sufficient to absorb and prevent vibration, noise and
annoyance. Tenant shall not move any safe, heavy machinery, heavy equipment,
freight or fixtures into or out of the Premises without Landlord's prior
consent which consent may include a requirement to provide insurance naming
Landlord, and the holder of any mortgage affecting the Property, as
additional insureds, in such amount as Landlord reasonably requires. If any
such safe, machinery, heavy equipment, freight, or fixtures requires special
handling, Tenant agrees to employ only persons holding a master rigger's
license to do said work, and that all work in connection therewith shall
comply with applicable laws and regulations. Any such moving shall be at the
sole risk and hazard of Tenant and Tenant hereby agrees to exonerate,
indemnify and save Landlord harmless against and from any liability, loss,
injury, claim or suit resulting directly or indirectly from such moving.
Tenant shall schedule such moving at such times as Landlord shall reasonably
designate.
6.2.4 ELECTRICITY. Tenant shall not connect to the electrical
distribution system serving the Premises (i) a total load exceeding the
lesser of the capacity of such system or the maximum load permitted from time
to time under applicable governmental regulations or (ii) any fixtures,
appliances or equipment other than telephone systems, dictation and
transcription machines, photocopy, facsimile and shredding machines, personal
computers, file servers, printers, scanners, modems and other customary
computer peripherals, refrigerators, coffee makers, toasters, toaster ovens
and microwave ovens, typewriters, calculators, adding machines, desk lamps,
pencil sharpeners, clocks, and radios. The capacity of the electrical
distribution system serving the Premises shall be the lesser of (i) the
capacity of the branch of the system serving the Premises exclusively or (ii)
the allocation to the Premises of the capacity of the
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system serving the entire Building, Landlord and Tenant agreeing that such
capacity shall be allocated equally over the entire rentable area of the
Building.
6.2.5 INSTALLATION, ALTERATIONS OR ADDITIONS. Tenant shall not
make any installations, alterations or additions in, to or on the Premises
nor to permit the making of any holes in the ceilings or floors without on
each occasion obtaining the prior consent of Landlord, and then only pursuant
to plans and specifications approved by Landlord in advance in each instance.
All work to be performed to the Premises by Tenant shall (i) be performed in
a good and workmanlike manner by contractors approved in advance by Landlord
and in compliance with the provisions of Exhibit C and all applicable zoning,
building, fire, health and other codes, regulations, ordinances and laws,
(ii) be made at Tenant's sole cost and expense and at such times and in such
a manner as Landlord may from time to time designate, and (iii) become part
of the Premises and the property of Landlord without being deemed additional
rent for tax purposes, Landlord and Tenant agreeing that Tenant shall be
treated as the owner for tax purposes until the expiration or earlier
termination of the term hereof, subject to Landlord's rights pursuant to
Section 6.1.7 to require Tenant to remove the same at or prior to the
expiration or earlier termination of the term hereof, and, subject to
Tenant's right to remove any trade fixtures, equipment or other personal
property installed and owned by Tenant, provided that Tenant repairs any
damage to the Premises caused by such removal (excluding minor nail or screw
holes and reasonable wear and tear). Tenant shall pay promptly when due the
entire cost of any work to the Premises so that the Premises, Building and
Property shall at all times be free of liens for labor and materials, and, at
Landlord's request, Tenant shall furnish to Landlord a bond or other security
acceptable to Landlord assuring that any such work will be completed in
accordance with the plans and specifications theretofore approved by Landlord
and assuring that the Premises will remain free of any mechanics' lien or
other encumbrances that may arise out of such work. Prior to the commencement
of any such work, and throughout and until completion thereof, Tenant shall
maintain, or cause to be maintained, the insurance required by Exhibit D, all
with coverage limits as stated therein or such higher limits as shall be
reasonably required by Landlord. In addition, Tenant shall save Landlord
harmless and indemnified from all injury, loss, claims or damage to any
person or property occasioned by or arising out of such work. Whenever and as
often as any mechanic's or materialmen's lien shall have been filed against
the Property based upon any act of Tenant or of anyone claiming through
Tenant, Tenant shall within seven (7) days of notice from Landlord to Tenant
take such action by bonding, deposit or payment as will remove or satisfy the
lien.
In the event that Landlord or any of its agents, employees or
contractors manage any installations, alterations or additions in, to or on the
Premises at Tenant's request (other than Landlord's Work, if any, in connection
with the initial preparation of the Premises for Tenant's occupancy), Tenant
shall pay to Landlord, promptly upon the completion of such work, an
administrative fee (the "ADMINISTRATIVE FEE") in an amount equal to ten percent
(10%) of the entire cost of such work. Notwithstanding the foregoing, Tenant
shall not be required to pay the Administrative Fee for merely seeking
Landlord's consent to any such work although Tenant shall pay any third party
expenses related to Landlord's consent.
Tenant shall not, at any time, directly or indirectly, employ or permit
the employment of any contractor, mechanic or laborer in the Premises, if such
employment will interfere or cause any conflict with other contractors,
mechanics or laborers engaged in the construction,
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maintenance or operation of the Building by Landlord, Tenant or others. In
the event of any such interference or conflict, Tenant, upon demand of
Landlord, shall cause all contractors, mechanics or laborers causing such
interference or conflict to leave the Building immediately.
6.2.6 ABANDONMENT. Tenant shall not abandon or vacate the
Premises during the term.
6.2.7 SIGNS. Tenant shall not paint or place any signs or
place any curtains, blinds, shades, awnings, aerials, or the like, visible
from outside the Premises. Landlord shall not unreasonably withhold consent
for signs or lettering on or adjacent to the entry doors to the Premises
provided such signs conform to building standards adopted by Landlord and
Tenant has submitted to Landlord a plan or sketch of the sign to be placed on
such entry doors. Landlord agrees, however, to maintain a tenant directory in
the lobby of the Building in which will be placed Tenant's name and the
location of the Premises in the Building.
6.2.8 OIL AND HAZARDOUS MATERIALS. Tenant shall not introduce
on or transfer to the Premises or Property, any Hazardous Materials (as
hereinafter defined); nor dump, flush or otherwise dispose of any Hazardous
Materials into the drainage, sewage or waste disposal systems serving the
Premises or Property; nor generate, store, use, release, spill or dispose of
any Hazardous Materials in or on the Premises or the Property, or to transfer
any Hazardous Materials from the Premises to any other location; and Tenant
shall not commit or suffer to be committed in or on the Premises or Property
any act which would require any reporting or filing of any notice with any
governmental agency pursuant to any statutes, laws, codes, ordinances, rules
or regulations, present or future, applicable to the Property or to Hazardous
Materials. This paragraph shall not prohibit Tenant from using minimal
quantities of cleaning fluids, photocopy toner and other products or
substances which may constitute Hazardous Materials, but which are
customarily present in or about premises devoted to first-class
administrative office uses or medical offices providing ophthalmological
laser surgery and related ophthalmological service, provided (i) that such
use, including storage and disposal thereof, by Tenant is in strict
compliance with all Environmental Laws and the manufacturer's instructions
and recommendations for the safe use and disposal of such products, and (ii)
Tenant follows the highest recognized standard of care with respect to the
use and disposal of such products.
Tenant agrees that if Tenant or any of Tenant's employees, agents,
contractors or invitees shall generate, store, release, spill, dispose of or
transfer to the Premises or Property any Hazardous Materials, Tenant shall
forthwith remove the same, at its sole cost and expense, in the manner provided
by all applicable Environmental Laws (as hereinafter defined), regardless of
when such Hazardous Materials shall be discovered. Furthermore, Tenant shall pay
any fines, penalties or other assessments imposed by any governmental agency
with respect to any such Hazardous Materials and shall forthwith repair and
restore any portion of the Premises or Property which it shall disturb in so
removing any such Hazardous Materials to the condition which existed prior to
Tenant's disturbance thereof.
Tenant agrees to deliver promptly to Landlord any notices, orders or
similar documents received from any governmental agency or official concerning
any violation of any Environmental Laws or with respect to any Hazardous
Materials affecting the Premises or Property. In addition, Tenant shall, within
ten (10) days of receipt, accurately complete any
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questionnaires from Landlord or other informational requests relating to
Tenant's use of the Premises and, in particular, to Tenant's use, generation,
storage and/or disposal of Hazardous Materials at, to, or from the Premises.
Tenant shall indemnify, defend (by counsel satisfactory to Landlord),
protect, and hold Landlord free and harmless from and against any and all
claims, or threatened claims, including without limitation, claims for death of
or injury to any person or damage to any property, actions, administrative
proceedings, whether formal or informal, judgments, damages, punitive damages,
liabilities, penalties, fines, costs, taxes, assessments, forfeitures, losses,
expenses, attorneys' fees and expenses, consultant fees, and expert fees that
arise from or are caused in whole or in part, directly or indirectly, by (i)
use, analysis, storage, transportation, disposal, release, threatened release,
discharge or generation of Hazardous Materials to, in, on, under, about or from
the Premises by Tenant or Tenant's employees, agents, contractors or invitees,
or (ii) Tenant's failure or the failure of any of Tenant's employees, agents or
contractors to comply with any Environmental Laws. Tenant's obligations
hereunder shall include, without limitation, and whether foreseeable or
unforeseeable, all costs (including, without limitation, capital, operating and
maintenance costs) incurred in connection with any investigation or monitoring
of site conditions, repair, cleanup, containment, remedial, removal or
restoration work, or detoxification or decontamination of the Premises, and the
preparation and implementation of any closure, remedial action or other required
plans in connection therewith. For purposes of this Section 6.2.8, any acts or
omissions of Tenant, or by employees, agents, assignees, contractors or
subcontractors of Tenant or others acting for or on behalf of Tenant (whether or
not they are negligent, intentional, willful or unlawful) shall be attributable
to Tenant.
The term "HAZARDOUS MATERIALS" shall mean and include any oils,
petroleum products, asbestos, radioactive, biological, medical or infectious
wastes or materials, and any other toxic or hazardous wastes, materials and
substances which are defined, determined or identified as such in any
Environmental Laws, or in any judicial or administrative interpretation of
Environmental Laws.
"ENVIRONMENTAL LAWS" shall mean any and all federal, state and
municipal statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, codes, plans, injunctions, permits, concessions, grants, franchises,
licenses, agreements or other governmental restrictions relating to the
environment or to emissions, discharges or releases of pollutants, contaminants,
petroleum or petroleum products, medical, biological, infectious, toxic or
hazardous substances or wastes into the environment including, without
limitation, ambient air, surface water, ground water or land, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants, petroleum or
petroleum products, medical, biological, infectious, toxic or hazardous
substances or wastes or the cleanup or other remediation thereof.
ARTICLE 7.
Casualty or Taking
7.1. TERMINATION. In the event that the Premises or the Property, or
any material part thereof shall be destroyed or damaged by fire or casualty,
shall be taken by any public authority
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or for any public use or shall be condemned by the action of any public
authority, then this Lease may be terminated at the election of Landlord.
Such election, which may be made notwithstanding the fact that Landlord's
entire interest may have been divested, shall be made by the giving of notice
by Landlord to Tenant within sixty (60) days after the date of the taking or
casualty.
In addition, in the event that (i) at least twenty five percent (25%)
of the Premises is damaged by fire or other casualty to such an extent that
repair of the same in the ordinary course could not be expected to be completed,
or is not actually substantially completed, within nine (9) months of the fire
or other casualty, or (ii) at least twenty five percent (25%) of the Premises is
taken by any exercise of eminent domain for all or substantially all of the
remaining term of the Lease, then in either case Tenant shall have the right to
terminate the term of this Lease by giving notice of its desire to do so to
Landlord. In the case of a casualty, such notice must be given within thirty
(30) days after such damage or the expiration of such nine-month period. In the
case of a taking such notice must be given within thirty days after such taking.
Provided Tenant is entitled to give such notice as herein provided, then on the
date thirty (30) days after the giving of such notice, the term of this Lease
shall terminate with the same force and effect as if such date were the date on
which the term of this lease were scheduled to expire by effluxion of time.
Notwithstanding the foregoing to the contrary, Tenant shall have no right to
terminate the term of this Lease due to a fire or other casualty if the cause
thereof was due to the negligence or wrongful conduct of Tenant or any agent,
employee or invitee of Tenant or any sublessee or other occupant permitted on
the Premises by Tenant.
7.2. RESTORATION. If neither Landlord nor Tenant elects to so
terminate the term of this Lease, this Lease shall continue in force and (so
long as the damage is not caused by the negligence or other wrongful act of
Tenant or its employees, agents, contractors or invitees) a just proportion
of the Annual Fixed Rent reserved, according to the nature and extent of the
damages sustained by the Premises, shall be suspended or abated until the
Premises (excluding any improvements to the Premises made by Tenant at
Tenant's expense), or what may remain thereof, shall be put by Landlord in
proper condition for use, which Landlord covenants to do with reasonable
diligence to the extent permitted by the net proceeds of insurance recovered
or damages awarded for such destruction, taking, or condemnation and subject
to zoning and building laws or ordinances then in existence. "NET PROCEEDS OF
INSURANCE RECOVERED OR DAMAGES AWARDED" refers to the gross amount of such
insurance or damages actually made available to Landlord (and not retained by
any Superior Lessor or Superior Mortgagee) less the reasonable expenses of
Landlord incurred in connection with the collection of the same, including
without limitation, fees and expenses for legal and appraisal services.
7.3. AWARD. Irrespective of the form in which recovery may be had by
law, all rights to damages or compensation shall belong to Landlord in all
cases. Tenant hereby grants to Landlord all of Tenant's rights to such
damages and covenants to deliver such further assignments thereof as Landlord
may from time to time request. Nothing contained herein shall be construed to
prevent Tenant from prosecuting in any condemnation proceedings a claim for
relocation expenses or other compensable damage, provided that such action
shall not affect the amount of compensation otherwise recoverable by Landlord
from the taking authority.
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ARTICLE 8.
Defaults
8.1. DEFAULT OF TENANT. (a) (I) If Tenant shall default in its
obligations to pay the Annual Fixed Rent or Additional Rent or any other
charges under this Lease when due or shall default in complying with its
obligations under Subsection 6.1.11 of this Lease and if any such default
shall continue for ten (10) days after notice from Landlord designating such
default, or (II) if as promptly as possible but in any event within thirty
(30) days after notice from Landlord to Tenant specifying any default or
defaults other than those set forth in clause (I) Tenant has not cured the
default or defaults so specified; or (b) if any assignment shall be made by
Tenant or any guarantor of Tenant for the benefit of creditors; or (c) if
Tenant's leasehold interest shall be taken on execution; or (d) if a
involuntary lien or other involuntary encumbrance shall be filed against
Tenant's leasehold interest or Tenant's other property, including said
leasehold interest, or against the property of any guarantor of Tenant, and
shall not be discharged or a bond obtained in lieu of discharge within ten
(10) days thereafter; or (e) if a petition shall be filed by Tenant or any
guarantor of Tenant for liquidation, or for reorganization or an arrangement
under any provision of any bankruptcy law or code as then in force and
effect; or (f) if an involuntary petition under any of the provisions of any
bankruptcy law or code shall be filed against Tenant or any guarantor of
Tenant and such involuntary petition shall not be dismissed within thirty
(30) days thereafter; or (g) if a custodian or similar agent shall be
authorized or appointed to take charge of all or substantially all of the
assets of Tenant or any guarantor of Tenant; or (h) if Tenant or any
guarantor of Tenant dissolves or shall be dissolved or shall liquidate or
shall adopt any plan or commence any proceeding, the result of which is
intended to include dissolution or liquidation; or (i) if any order shall be
entered in any proceeding by or against Tenant or any guarantor of Tenant
decreeing or permitting the dissolution of Tenant or any guarantor of Tenant
or the winding up of its affairs; or (j) if Tenant shall fail to pay any
installment of Annual Fixed Rent or Additional Rent when due, Tenant shall
cure such default within the grace period provided in clause (a) (I) above
(or with Landlord's approval after the expiration of such grace period) and
Tenant shall, within the next year following the date such initial defaulted
payment was first due, fail more than twice to pay any installment of Annual
Fixed Rent or Additional Rent when due, then, and in any of such cases
indicated in clauses (a) through (j) hereof (collectively and individually, a
"DEFAULT OF TENANT"), Landlord and the agents and servants of Landlord
lawfully may, in addition to and not in derogation of any remedies for any
preceding breach of covenant, immediately or at any time thereafter mail a
notice of termination addressed to Tenant, and repossess the same as of
Landlord's former estate and expel Tenant and those claiming through or under
Tenant and remove its and their effects without being deemed guilty of any
manner of trespass and without prejudice to any remedies which might
otherwise be used for arrears of rent or prior breach of covenant, and upon
such entry or mailing as aforesaid the term of this Lease shall terminate,
and Landlord may store Tenant's effects, and those of any person claiming
through or under Tenant, at the expense and risk of Tenant, and, if Landlord
so elects, may sell or otherwise dispose of such effects at public auction or
private sale or otherwise and apply the net proceeds (if any) to the payment
of all sums due to Landlord from Tenant, if any, and pay over the balance, if
any, to Tenant.
8.2. REMEDIES IN EVENT OF TERMINATION. In the event of any
termination pursuant to Section 8.1, Tenant shall pay the Annual Fixed Rent,
Additional Rent and other charges payable
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hereunder up to the time of such termination, and thereafter, Tenant, until
the end of what would have been the term of this Lease in the absence of such
termination and whether or not the Premises shall have been re-let, shall be
liable to Landlord for, and shall pay to Landlord, as current damages, the
Annual Fixed Rent, Additional Rent and other charges which would be payable
hereunder for the remainder of the term of this Lease if such termination had
not occurred, less the net proceeds, if any, of any reletting of the
Premises, after deducting all expenses in connection with such reletting
("RELETTING COSTS"), including, without limitation, all repossession costs,
brokerage commissions, legal expenses, attorneys' fees, advertising, expenses
of employees, alteration costs, the value of any tenant inducements
(including but without limitation free rent, moving costs, and contributions
toward leasehold improvements) and expenses of preparation for such
reletting. Tenant shall pay such current damages to Landlord monthly on the
days on which the Annual Fixed Rent would have been payable hereunder if the
term of this Lease had not been terminated.
At any time after such termination, whether or not Landlord shall have
collected any such current damages, as liquidated final damages and in lieu of
all such current damages beyond the date of such demand, at Landlord's election
Tenant shall pay to Landlord either (i) an amount equal to the excess, if any,
of (x) the Annual Fixed Rent, Additional Rent and other charges as hereinbefore
provided which would be payable hereunder from the date of such demand (assuming
that, for the purposes of this paragraph, annual payments by Tenant on account
of Taxes and Operating Costs would be the same as payments required for the
immediately preceding twelve calendar months, or if lesser than twelve calendar
months have expired since the Commencement Date, the payments required for such
lesser period projected to an annual amount) for what would be the then
unexpired term of this Lease if the same remained in effect, discounted to
present value at a discount rate selected by Landlord in its sole but reasonable
discretion, over (y) the then fair net rental value of the Premises for the same
period, discounted to present value at a discount rate selected by Landlord in
its sole but reasonable discretion or (ii) an amount equal to the lesser of (x)
the Annual Fixed Rent, Additional Rent and other charges that would have been
payable for the balance of the term of this Lease had it not been terminated or
(y) the aggregate of the Annual Fixed Rent, Additional Rent and other charges
accrued in the six (6) months ended next prior to such termination (without
reduction for any rent abatement) except that in the event the term of this
Lease is so terminated prior to the expiration of the first six calendar months,
the liquidated damages which Landlord may elect to recover pursuant to clause
(ii) (y) of this paragraph shall be calculated as if such termination had
occurred on the last day of the sixth calendar month after the Commencement Date
and there had been no rental abatement. Nothing contained in this Lease shall,
however, limit or prejudice the right of Landlord to prove for and obtain in
proceedings for bankruptcy or insolvency by reason of the termination of this
Lease, an amount equal to the maximum allowed by any statute or rule of law in
effect at the time when, and governing the proceedings in which, the damages are
to be proved, whether or not the amount be greater than, equal to, or less than
the amount of the loss or damages referred to above.
8.3. OTHER REMEDIES. In the event of any Default of Tenant and at
any time prior to Landlord's election to terminate the term of this Lease,
Landlord may change the locks of the Premises without Tenant's consent,
whereupon Landlord shall post a notice on the door of the Premises informing
Tenant where a new key may be obtained. Landlord shall, however, be under no
obligation to furnish Tenant with a new key for the Premises unless and until
Tenant
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has cured the Default of Tenant and Tenant waives any and all duties and/or
liabilities imposed upon Landlord by Section 93.002 of the Texas Property
Code. In the event of any Default of Tenant at any time prior to Landlord's
election to terminate the term of this Lease, Landlord may terminate Tenant's
right to possession of the Premises, enter upon and take possession of the
Premises and expel or remove Tenant and any other person who may be occupying
any portion of the Premises, by force if necessary, without being liable for
prosecution or any claim for damages therefor, and without terminating the
Lease. Landlord shall make reasonable efforts to relet the Premises and
receive the rent therefor as provided in Section 8.4. In the event of such
election by Landlord, Tenant shall pay to Landlord within ten (10) days after
written notice by Landlord, as liquidated damages, sums equivalent to the
Annual Fixed Rent and Additional Rent reserved hereunder less the proceeds of
reletting, if any, or, at Landlord's option, upon notice to Tenant, Landlord
may demand and Tenant shall become immediately liable to Landlord for the
amount by which the Annual Fixed Rent and Additional Rent that would be
payable by Tenant during the unexpired balance of the term of this Lease,
discounted to present value at a discount rate selected by Landlord in its
sole but reasonable discretion, exceeds the fair market value of the Premises
as of the time of the Default of Tenant for such balance of the term of this
Lease, , discounted to present value at a discount rate selected by Landlord
in its sole but reasonable discretion. Tenant shall also pay within ten (10)
days after notice, any amounts expended or incurred by Landlord for Reletting
Costs. If Tenant's right to possession of the Premises is terminated, Tenant
shall nonetheless remain liable (in addition to accrued liabilities) to the
extent legally permissible for the Annual Fixed Rent and Additional Rent and
all other charges Tenant would have been required to pay until the date this
Lease would have expired had such termination of Tenant's right to possession
of the Premises not occurred. Landlord shall have the right, at its option,
to recover sums due hereunder through litigation or otherwise from time to
time on one or more occasions without being obligated to wait until the
expiration of the term of this Lease before filing suit. Notwithstanding
Landlord's exercise of the remedy set forth in this Section 8.3, Landlord
shall have the continuing right, at its option, to terminate the term of this
Lease in accordance with Section 8.1 and to recover any amounts provided in
Section 8.2.
8.4. RELETTING. In case of any Default of Tenant and termination of
Tenant's right to possession of the Premises or termination of the term of
this Lease, Landlord shall make reasonable efforts to relet the Premises.
Landlord may (i) relet the Premises or any part or parts thereof, either in
the name of Landlord or otherwise, for a term or terms which may at
Landlord's option be equal to or less than or exceed the period which would
otherwise have constituted the balance of the term of this Lease and may
grant concessions or free rent to the extent that Landlord considers, in its
reasonable business judgment, advisable and necessary to relet the same and
(ii) may make such reasonable alterations, repairs and decorations in the
Premises as Landlord in its sole judgment considers advisable and necessary
for the purpose of reletting the Premises; and the making of such
alterations, repairs and decorations shall not operate or be construed to
release Tenant from liability hereunder as aforesaid. In the event of a
Default by Tenant, Landlord shall use reasonable efforts to mitigate damages,
to the extent required by law. To the fullest extent permitted by law, Tenant
hereby expressly waives any and all rights of redemption granted under any
present or future laws in the event of Tenant being evicted or dispossessed,
or in the event of Landlord obtaining possession of the Premises, by reason
of the violation by Tenant of any of the covenants and conditions of this
Lease.
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8.5. REMEDIES CUMULATIVE. Except as expressly provided otherwise in
Section 8.2, any and all rights and remedies which Landlord may have under
this Lease, and at law and equity (including without limitation actions at
law for direct, indirect, special and consequential (foreseeable and
unforeseeable) damages, for Tenant's failure to comply with its obligations
under this Lease shall be cumulative and shall not be deemed inconsistent
with each other, and any two or more of all such rights and remedies may be
exercised at the same time insofar as permitted by law.
8.6. LANDLORD'S RIGHT TO CURE DEFAULTS. At any time with or without
notice, Landlord shall have the right, but shall not be required, to pay such
sums or do any act which requires the expenditure of monies which may be
necessary or appropriate by reason of the failure or neglect of Tenant to
comply with any of its obligations under this Lease (irrespective of whether
the same shall have ripened into a Default of Tenant), and in the event of
the exercise of such right by Landlord, Tenant agrees to pay to Landlord
within thirty (30) days after demand, as Additional Rent, all such sums
including reasonable attorneys fees, together with interest thereon at a rate
(the "DEFAULT RATE") equal to the lesser of 6% over the Prime Rate or the
maximum rate allowed by law. "PRIME RATE" shall mean a rate of interest,
determined daily, which is two (2) percentage points above the 14-day moving
average closing trading price of 90-day Treasury Bills.
8.7. HOLDING OVER. Any holding over by Tenant after the expiration
or early termination of the term of this Lease shall be treated as a daily
tenancy at sufferance at a rate equal to one hundred and fifty percent (150%)
of the Annual Fixed Rent in effect immediately prior to the expiration or
earlier termination of the term plus Additional Rent and other charges herein
provided (prorated on a daily basis). Tenant shall also pay to Landlord all
damages, direct and/or consequential (foreseeable and unforeseeable),
sustained by reason of any such holding over. Otherwise, all of the
covenants, agreements and obligations of Tenant applicable during the term of
this Lease shall apply and be performed by Tenant during such period of
holding over as if such period were part of the term of this Lease.
8.8. EFFECT OF WAIVERS OF DEFAULT. Any consent or permission by
Landlord or Tenant to any act or omission by the other shall not be deemed to
be consent or permission by Landlord to any other similar or dissimilar act
or omission and any such consent or permission in one instance shall not be
deemed to be consent or permission in any other instance.
8.9. NO WAIVER, ETC. The failure of Landlord or Tenant to seek
redress for violation of, or to insist upon the strict performance of, any
covenant or condition of this Lease shall not be deemed a waiver of such
violation nor prevent a subsequent act, which would have originally
constituted a violation, from having all the force and effect of an original
violation. The receipt by Landlord of rent with knowledge of the breach of
any covenant of this Lease shall not be deemed to have been a waiver of such
breach by Landlord, or by Tenant, unless such waiver be in writing signed by
the party to be charged. No consent or waiver, express or implied, by
Landlord or Tenant to or of any breach of any agreement or duty shall be
construed as a waiver or consent to or of any other breach of the same or any
other agreement or duty.
8.10. NO ACCORD AND SATISFACTION. No acceptance by Landlord of a
lesser sum than the Annual Fixed Rent, Additional Rent or any other charge
then due shall be deemed to be other
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than on account of the earliest installment of such rent or charge due, nor
shall any endorsement or statement on any check or any letter accompanying
any check or payment as rent or other charge be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice
to Landlord's right to recover the balance of such installment or pursue any
other remedy in this Lease provided.
ARTICLE 9.
Rights of Holders
9.1. RIGHTS OF MORTGAGEES OR GROUND LESSOR. This Lease, and all rights
of Tenant hereunder, are and shall be subject and subordinate to any ground
or master lease, and all renewals, extensions, modifications and replacements
thereof, and to all mortgages, which may now or hereafter affect the Building
or the Property and/or any such lease, whether or not such mortgages shall
also cover other lands and/or buildings and/or leases, to each and every
advance made or hereafter to be made under such mortgages, and to all
renewals, modifications, replacements and extensions of such leases and such
mortgages and all consolidations of such mortgages. This Section shall be
self-operative and no further instrument of subordination shall be required.
In confirmation of such subordination, Tenant shall promptly execute,
acknowledge and deliver any instrument that Landlord, the lessor under any
such lease or the holder of any such mortgage or any of their respective
successors in interest may reasonably request to evidence such subordination.
Any lease to which this Lease is subject and subordinate is herein called
"SUPERIOR LEASE" and the lessor of a Superior Lease or its successor in
interest, at the time referred to, is herein called "SUPERIOR LESSOR"; and
any mortgage to which this Lease is subject and subordinate, is herein called
"SUPERIOR MORTGAGE" and the holder of a Superior Mortgage is herein called
"SUPERIOR MORTGAGEE".
If any Superior Lessor or Superior Mortgagee or the nominee or designee
of any Superior Lessor or Superior Mortgagee shall succeed to the rights of
Landlord under this Lease, whether through possession or foreclosure action or
delivery of a new lease or deed, or otherwise, then at the request of such party
so succeeding to Landlord's rights (herein called "SUCCESSOR LANDLORD") and upon
such Successor Landlord's written agreement to accept Tenant's attornment,
Tenant shall attorn to and recognize such Successor Landlord as Tenant's
landlord under this Lease and shall promptly execute and deliver any instrument
that such Successor Landlord may reasonably request to evidence such attornment.
Upon such attornment, this Lease shall continue in full force and effect as a
direct lease between the Successor Landlord and Tenant upon all of the terms,
conditions and covenants as are set forth in this Lease, except that the
Successor Landlord (unless formerly the landlord under this Lease) shall not be
(a) liable in any way to Tenant for any act or omission, neglect or default on
the part of Landlord under this Lease, (b) responsible for any monies owing by
or on deposit with Landlord to the credit of Tenant, (c) subject to any
counterclaim or setoff which theretofore accrued to Tenant against Landlord, (d)
bound by any modification of this Lease subsequent to such Superior Lease or
Superior Mortgage, or by any previous prepayment of Annual Fixed Rent or
Additional Rent for more than one (1) month, which was not approved in writing
by the Successor Landlord, (e) liable to the Tenant beyond the Successor
Landlord's interest in the Property, (f) responsible for the performance of any
work to be done by Landlord under this Lease to render the Premises ready for
occupancy by the Tenant, or (g) required to remove any person occupying the
Premises or any part thereof, except
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if such person claims by, through or under the Successor Landlord. Tenant
agrees at any time and from time to time to execute a suitable instrument in
confirmation of Tenant's agreement to attorn, as aforesaid.
9.2. MODIFICATIONS. If any Superior Lessor or Superior Mortgagee
shall require any modification(s) of this Lease, Tenant shall, at Landlord's
request, promptly execute and deliver to Landlord such instruments effecting
such modification(s) as Landlord shall require, provided that such
modification(s) do not adversely affect in any material respect any of
Tenant's rights under this Lease. In addition, and notwithstanding Section
9.1 to the contrary, any Superior Lessor or Superior Mortgagee may, at its
option, subordinate the Superior Lease or Superior Mortgage of which it is
the lessor or holder to this Lease by giving Tenant ten (10) days prior
written notice of such election, whereupon this Lease shall, irrespective of
dates of execution, delivery and recording, be superior to such Superior
Lease or Superior Mortgage and no other documentation shall be necessary to
effect such change.
9.3. SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT. At Tenant's
request, Landlord shall use reasonable efforts (without the obligation to
incur expense or liability in connection with such efforts) to obtain a
so-called non-disturbance agreement from any such Superior Lessor or Superior
Mortgagee which agreement may be in the form customarily used by such
Superior Lessor or Superior Mortgagee, or if no such form exists, in any
commercially reasonable form, subject to the conditions and limitations of
Sections 9.1 and 9.2, provided, however, that if, despite such reasonable
efforts, Landlord is unable to obtain such agreement, such failure shall not
constitute a default by Landlord under this Lease. In addition, at Tenant's
request, Landlord shall subordinate any lien, security interest or
encumbrance of Landlord with respect to Tenant's business fixtures, equipment
and other personal property in or about the Premises, whether statutory,
contractual or arising by operation of law, to the lien, security interest or
encumbrance of any lender or financier of such personal property, provided
that Landlord shall not be obligated to honor Tenant's request if the request
is made during a time when there exists a Default of Tenant (as defined in
Section 8.1).
ARTICLE 10.
Miscellaneous Provisions
10.1. NOTICES. All notices, requests, demands, consents, approvals
or other communications to or upon the respective parties hereto shall be in
writing and delivered by hand or mailed by certified or registered mail,
return receipt requested, or a nationally recognized courier service that
provides a receipt for delivery such as Federal Express, United Parcel
Service or U.S. Postal Service Express Mail and shall be effective on the
date delivered (or the first date such delivery is attempted and refused) in
writing to the party to which such notice, request, demand, consent, approval
or other communication is required or permitted to be given or made under
this Lease, addressed if intended for Landlord, to the Original Address of
Landlord set forth in Section 1.1 of this Lease with a copy by regular mail
to HUB Properties Trust, c/o REIT Management & Research, Inc., 400 Centre
Street, Newton, MA 02458, Attention: Jennifer B. Clark (or to such other
address or addresses as may from time to time hereafter be designed by
Landlord by like notice); and if intended for Tenant, addressed to Tenant at
the Original Address of Tenant set forth in Section 1.1 of this Lease (or to
such other
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address or addresses as may from time to time hereafter be designated by
Tenant by like notice). Notices from Landlord may be given by Landlord's
attorney.
10.2. QUIET ENJOYMENT; LANDLORD'S RIGHT TO MAKE ALTERATIONS, ETC.
Landlord agrees that upon Tenant's paying the rent and performing and
observing the agreements, conditions and other provisions on its part to be
performed and observed, Tenant shall and may peaceably and quietly have, hold
and enjoy the Premises during the term hereof without any manner of hindrance
or molestation from Landlord or anyone claiming under Landlord, subject,
however, to the terms of this Lease; provided, however, Landlord reserves the
right at any time and from time to time, without the same constituting breach
of Landlord's covenant of quiet enjoyment or an actual or constructive
eviction, and without Landlord incurring any liability to Tenant or otherwise
affecting Tenant's obligations under this Lease, to make such changes,
alterations, improvements, repairs or replacements in or to the interior and
exterior of the Building (including the Premises, provided same do not
permanently and materially (i) interfere with Tenant's use of the Premises
for the permitted uses, or (ii) adversely affect the appearance of the
Premises) and the fixtures and equipment thereof, and in or to the Property,
or properties adjacent thereto, as Landlord may deem necessary or desirable,
and to change (provided that there be no unreasonable obstruction of the
right of access to the Premises by Tenant and that Landlord use commercially
reasonable efforts to minimize, to the extent practical, any interference
with the conduct of business at the Premises) the arrangement and/or location
of entrances or passageways, doors and doorways, corridors, elevators, or
other common areas of the Building and Property.
Without incurring any liability to Tenant, Landlord may permit access
to the Premises and open the same, whether or not Tenant shall be present, upon
any demand of any receiver, trustee, assignee for the benefit of creditors,
sheriff, marshal or court officer Landlord reasonably believes is entitled to
such access for the purpose of taking possession of, or removing, Tenant's
property or for any other lawful purpose (but this provision and any action by
Landlord hereunder shall not be deemed a recognition by Landlord that the person
or official making such demand has any right or interest in or to this Lease, or
in or to the Premises), or upon demand of any representative of the fire,
police, building, sanitation or other department of the city, state or federal
governments.
10.3. LEASE NOT TO BE RECORDED. Tenant agrees that it will not
record this Lease. Both parties shall, upon the request of either (and at the
expense of the requesting party), execute and deliver a notice or short form
of this Lease in such form, if any, as may be acceptable for recording with
the land records of the governmental entity responsible for keeping such
records for the city of Austin, Texas. In no event shall such document set
forth the rent or other charges payable by Tenant pursuant to this Lease; and
any such document shall expressly state that it is executed pursuant to the
provisions contained in this Lease and is not intended to vary the terms and
conditions of this Lease.
10.4. ASSIGNMENT OF RENTS AND TRANSFER OF TITLE; LIMITATION OF
LANDLORD'S LIABILITY. Tenant agrees that the assignment by Landlord of
Landlord's interest in this Lease, or the rents payable hereunder, whether
absolute or conditional in nature or otherwise, which assignment is made to
the holder of a mortgage on property which includes the Premises, shall never
be treated as an assumption by such holder of any of the obligations of
Landlord hereunder unless such
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holder shall, by notice sent to Tenant, specifically otherwise elect and
that, except as aforesaid, such holder shall be treated as having assumed
Landlord's obligations hereunder (subject to the limitations set forth in
Section 9.1) only upon foreclosure of such holder's mortgage and the taking
of possession of the Premises.
The term "LANDLORD", so far as covenants or obligations to be performed
by Landlord are concerned, shall be limited to mean and include only the owner
or owners at the time in question of Landlord's interest in the Property, and in
the event of any transfer or transfers of such title to said property, Landlord
(and in case of any subsequent transfers or conveyances, the then grantor) shall
be concurrently freed and relieved from and after the date of such transfer or
conveyance, without any further instrument or agreement, of all liability with
respect to the performance of any covenants or obligations on the part of
Landlord contained in this Lease thereafter to be performed, it being intended
hereby that the covenants and obligations contained in this Lease on the part of
Landlord, shall, subject as aforesaid, be binding on Landlord, its successors
and assigns, only during and in respect of their respective period of ownership
of such interest in the Property. Notwithstanding the foregoing, in no event
shall the acquisition of Landlord's interest in the Property by a purchaser
which, simultaneously therewith, leases Landlord's entire interest in the
Property back to Landlord or the seller thereof be treated as an assumption by
operation of law or otherwise, of Landlord's obligations hereunder. Tenant shall
look solely to such seller-lessee, and its successors from time to time in
title, for performance of Landlord's obligations hereunder. The seller-lessee,
and its successors in title, shall be the Landlord hereunder unless and until
such purchaser expressly assumes in writing the Landlord's obligations
hereunder.
Tenant, its successors and assigns, shall not assert nor seek to
enforce any claim for breach of this Lease against any of Landlord's assets
other than Landlord's interest in the Property, and Tenant agrees to look solely
to such interest for the satisfaction of any liability or claim against Landlord
under this Lease, it being specifically agreed that in no event whatsoever shall
Landlord ever be personally liable for any such liability. In addition, Landlord
hereby notifies Tenant that the Declaration of Trust of HUB Properties Trust
provides, and Tenant agrees, that no trustee, officer, director, general or
limited partner, member, shareholder, beneficiary, employee or agent (including
any person or entity from time to time engaged to supervise and/or manage the
operation of Landlord) of Landlord shall be held to any liability, jointly or
severally, for any debt, claim, demand, judgment, decree, liability or
obligation of any kind (in tort, contract or otherwise) of, against or with
respect to Landlord or arising out of any action taken or omitted for or on
behalf of Landlord.
10.5. LANDLORD'S DEFAULT. Landlord shall not be deemed to be in
default in the performance of any of its obligations hereunder unless it
shall fail to perform such obligations and such failure shall continue for a
period of thirty (30) days or such additional time as is reasonably required
to correct any such default after written notice has been given by Tenant to
Landlord specifying the nature of Landlord's alleged default. Tenant shall
have no right to terminate this Lease for any default by Landlord hereunder
and no right, for any such default, to offset or counterclaim against any
rent due hereunder. In no event shall Landlord ever be liable to Tenant for
any punitive damages or for any loss of business or any other indirect,
special or consequential damages suffered by Tenant from whatever cause.
Tenant further agrees that if Landlord shall have failed to cure any such
default within thirty (30) days of such notice to
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Landlord (or if such default cannot be cured within said time, then within
such additional time as may be necessary if within said thirty days Landlord
has commenced and is diligently pursuing the remedies necessary to cure such
default), then the holder(s) of any mortgage(s) or the lessor under any
ground lease entitled to notice pursuant to Section 10.6 shall have an
additional thirty (30) days within which to cure such default or if such
default cannot be cured within that time, then such additional time as may be
necessary if within such thirty (30) days any such holder or lessor has
commenced and is diligently pursuing the remedies necessary to cure such
default (including but not limited to commencement of foreclosure
proceedings, if necessary to effect such cure), in which event this Lease
shall not be terminated while such remedies are being so diligently pursued.
Where provision is made in this Lease for Landlord's consent and Tenant
shall request such consent and Landlord shall fail or refuse to give such
consent, Tenant shall not be entitled to any damages for any withholding by
Landlord of its consent, it being intended that Tenant's sole remedy shall be an
action for specific performance or injunction, and that such remedy shall be
available only in those cases where Landlord is expressly required not to
withhold its consent unreasonably.
10.6. NOTICE TO MORTGAGEE AND GROUND LESSOR. After receiving notice
from any party that it holds a mortgage which includes the Premises as part
of the mortgaged premises, or that it is the ground lessor under a lease with
Landlord, as ground lessee, which includes the Premises as part of the
demised premises, no notice from Tenant to Landlord shall be effective unless
and until a copy of the same is given to such holder or ground lessor, and
the curing of any of Landlord's defaults by such holder or ground lessor
shall be treated as performance by Landlord.
10.7. BROKERAGE. Tenant warrants and represents that it has dealt
with no broker in connection with the consummation of this Lease, except
Leonard Rodell of Rodell Interests, Inc., and in the event of any brokerage
claims or lien against Landlord or the Property predicated upon or arising
out of prior dealings with Tenant, Tenant agrees to defend the same and
indemnify and hold Landlord harmless against any such claim, and to discharge
any such lien.
10.8. APPLICABLE LAW AND CONSTRUCTION. This Lease shall be governed
by and construed in accordance with the laws of the state or district in
which the Property is located and if any provisions of this Lease shall to
any extent be invalid, the remainder of this Lease shall not be affected
thereby. Tenant expressly acknowledges and agrees that Landlord has not made
and is not making, and Tenant, in executing and delivering this Lease, is not
relying upon, any warranties, representations, promises or statements, except
to the extent that the same are expressly set forth in this Lease or in any
other written agreement which may be made between the parties concurrently
with the execution and delivery of this Lease and which shall expressly refer
to this Lease. All understandings and agreements heretofore made between the
parties are merged in this Lease and any other such written agreement(s) made
concurrently herewith, which alone fully and completely express the agreement
of the parties and which are entered into after full investigation, neither
party relying upon any statement or representation not embodied in this Lease
or any other such written agreement(s) made concurrently herewith. This Lease
may be amended, and the provisions hereof may be waived or modified, only by
instruments in writing executed by Landlord and Tenant. The titles of the
several Articles and Sections contained herein are for convenience only and
shall not be considered in construing this Lease.
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The submission of this document for examination and negotiation does not
constitute an offer to lease, or a reservation of, or option for, the
Premises, and Tenant shall have no right to the Premises hereunder until the
execution and delivery hereof by both Landlord and Tenant. Except as herein
otherwise provided, the terms hereof shall be binding upon and shall inure to
the benefit of the successors and assigns, respectively, of Landlord and
Tenant and, if Tenant shall be an individual, upon and to his heirs,
executors, administrators, successors and assigns. If two or more persons or
parties are named as Tenant herein, each of such persons or parties shall be
jointly and severally liable for the obligations of the Tenant hereunder, and
Landlord may proceed against any one without first having commenced
proceedings against any other of them. Each term and each provision of this
Lease to be performed by Tenant shall be construed to be both an independent
covenant and a condition and time is of the essence with respect to the
exercise of any of Tenant's rights under this Lease. The reference contained
to successors and assigns of Tenant is not intended to constitute a consent
to assignment of Tenant. Except as otherwise set forth in this Lease, any
obligations of Tenant (including, without limitation, rental and other
monetary obligations, repair obligations and obligations to indemnify
Landlord), shall survive the expiration or earlier termination of this Lease,
and Tenant shall immediately reimburse Landlord for any expense incurred by
Landlord in curing Tenant's failure to satisfy any such obligation
(notwithstanding the fact that such cure might be effected by Landlord
following the expiration or earlier termination of this Lease).
10.9. ELECTRICITY AUDIT. From time to time during the term of this
Lease, Landlord shall have the right to have an electrical consultant
selected by Landlord make a survey of Tenant's electric usage, the result of
which survey shall be conclusive and binding upon Landlord and Tenant. In the
event that such survey shows that Tenant has exceeded the requirements set
forth in Section 6.2.4, in addition to any other rights Landlord may have
hereunder, Tenant shall reimburse Landlord for the reasonable cost of such
survey within thirty (30) days after demand, and thereafter pay Landlord for
the cost, as determined by such consultant, of such excess electricity usage
for the balance of the term of this Lease unless and until Tenant's excess
electricity usage ceases and Tenant provides Landlord evidence thereof which
is reasonably acceptable to Landlord.
Landlord shall have the right to discontinue furnishing electricity to
the Premises at any time upon not less than thirty (30) days' notice to Tenant
provided Landlord shall, at Landlord's expense, separately meter the Premises.
If Landlord exercises such right, from and after the effective date of such
discontinuance, Landlord shall not be obligated to furnish electricity to the
Premises, and
(i) Annual Fixed Rent shall be reduced by an amount equal to the
product of the square footage of the Premises multiplied by
the cost on a per square footage basis (the "ELECTRICITY
COST") of supplying electricity for connected lights and power
for space leased to tenants of the Building;
(ii) in the computation of Operating Costs, only the cost of
electricity supplied to those portions of the Building other
than those leased or intended to be leased to tenants for
their exclusive use or occupancy, i.e. only those areas which
are so-called common areas, shall be included; and
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(iii) Landlord shall permit Landlord's existing wires, risers,
conduits and other electrical equipment of Landlord to be used
to supply electricity to Tenant provided that the limits set
forth above shall not be exceeded.
WITNESS the execution hereof under seal on the day and year first above
written.
LANDLORD:
HUB Properties Trust
By:_______________________________
Name: Jennifer B. Clark
Title: Senior Vice President
TENANT:
Perficient, Inc.
By: ______________________________
Name:
Title:
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EXHIBIT B
RULES AND REGULATIONS
1. The sidewalks, entrances, passages, corridors, vestibules, halls,
elevators or stairways in or about the Building shall not be obstructed by
Tenant.
2. Tenant shall not place objects against glass partitions, doors or
windows which would be unsightly from the Building corridor or from the exterior
of the Building. No sign, advertisement, notice or other lettering shall be
exhibited, inscribed, painted or fixed by Tenant on any window or part of the
outside or inside of the Buildings without prior consent of Landlord.
3. Tenant shall not place a load upon any floor of the Building exceeding
the lesser of the floor load which such floor was designed to carry or that
allowed by law.
4. Tenant shall not waste electricity or water in the Building and shall
cooperate fully with Landlord to assure the most effective operation of the
Building HVAC system. All regulating and adjusting of HVAC equipment shall be
done by the Landlord's agents or employees.
5. No additional or different locks or bolts shall be affixed on doors by
Tenant. Tenant shall return all keys to Landlord upon termination of Tenant's
lease. Tenant shall not allow peddlers, solicitors or beggars in the Building
and shall report such persons to the Landlord.
6. Tenant shall not use the Premises so as to cause any increase above
normal insurance premiums on the Building.
7. No bicycles, vehicles or animals of any kind shall be brought into or
kept in or about the Premises. No space in the Building shall be used for
manufacturing or for the sale of merchandise of any kind at auction or for
storage thereof preliminary to such sale.
8. Tenant shall not engage or pay any employees of the Building without
approval from the Landlord. Tenant shall not employ any persons other than the
janitor or employees of Landlord for the purpose of cleaning Premises without
the prior written consent of Landlord.
9. All removals from the Building or the carrying in or out of the
Building or the Premises of any freight, furniture or bulky matter of any
description must take place at such time and in such manner as Landlord may
determine from time to time. Landlord reserves the right to inspect all freight
to be brought into the Building and to exclude from the Building all freight
which violates any of the rules and regulations or provisions of Tenant's lease.
10. Normal Building Operating Hours are 7:00 a.m. to 6:00 p.m. Mondays
through Fridays and 7:00 a.m. to 6:00 p.m. on Saturdays excluding New Years Day,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Christmas Day (and
the applicable weekday when any such day occurs on a weekend day) and all other
federal and state holidays and all Sundays. Any day (other than a Saturday) on
which Normal Building Operating Hours shall occur shall be a "BUSINESS DAY".
Outside of Normal Building Operating Hours, Landlord reserves the right to
exclude from the Building all persons connected with or calling upon Tenant
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who do not present a pass to the Building signed by Tenant. Landlord will
furnish passes to persons designated by Tenant and Tenant shall be responsible
to Landlord for all acts of such persons.
11. Tenant shall cooperate with Landlord in minimizing loss and risk
thereof from fire and associated perils.
12. Tenant shall, at Tenant's expense, provide artificial light and
electric current for the Landlord and/or its contractors, agents and employees
during the making of repairs, alterations, additions or improvements in or to
the demised premises.
13. The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were designed and
constructed and no sweepings, rubbish, rags, acid or like substance shall be
deposited therein. All damages resulting from any misuse of the fixtures shall
be borne by Tenant.
14. Tenant may request HVAC service outside of Normal Building Operating
Hours by submitting a request in writing to the Building Manager's office by
noon of the preceding workday.
15. Landlord reserves the right to establish, modify and enforce parking
rules and regulations.
16. All refuse from the Premises shall be disposed of in accordance with
the requirements established therefor by Landlord and no dumpster shall be
overloaded by Tenant.
17. Landlord reserves the right at any time to rescind, alter or waive
any rule or regulation at any time prescribed for the Building and to impose
additional reasonable rules and regulations when in its judgment Landlord deems
it necessary, desirable or proper for its best interest and for the best
interest of tenants and other occupants and invitees thereof. No alteration or
waiver of any rule or regulation in favor of one Tenant shall operate as an
alteration or waiver in favor of any other Tenant. Landlord shall not be
responsible to any Tenant for the non-observance or violation by any other
Tenant however resulting of any rules or regulations at any time prescribed for
the Building.
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EXHIBIT C
ALTERATIONS REQUIREMENTS
A. GENERALLY
1. All alterations, installations or improvements ("ALTERATIONS") to be
made by Tenant in, to or about the Premises, including any Alterations to be
made prior to Tenant's occupancy of the Premises for the Permitted Use, shall be
made in accordance with the requirements of this Exhibit and with any additional
requirements stated in the Lease.
2. All submissions, inquiries approvals and other matters shall be
processed through Landlord's Building manager or regional property manager.
3. Additional and differing provisions in the Lease, if any, will be
applicable and will take precedence over the terms of this Exhibit.
B. PLANS
1. Before commencing construction of any Alterations, Tenant shall
submit for Landlord's written approval, either a description of the Alterations
or drawings and specifications for Tenant's Alterations as follows:
(i) Tenant shall submit drawings and written specifications
(collectively, "PLANS") for all of Tenant's Alterations,
including mechanical, electrical and cabling, plumbing and
architectural drawings. Drawings are to be complete, with full
details and finish schedules, and shall be stamped by an AIA
architect licensed in the state or district in which the Property
is located certifying compliance with building codes.
(ii) Tenant may submit a complete description of Tenant's Alterations
(including sketches or diagrams as necessary) in lieu of
submitting Plans if the proposed Alterations meet all of the
following criteria: (1) they are cosmetic in nature (e.g.
painting, wallpapering, installation of floor coverings, etc.),
(2) they do not require a building permit, (3) they do not
require work to be performed inside walls or above the ceiling of
the Premises, and (4) they will not affect the Building structure
or mechanical, electrical, plumbing or HVAC systems.
Notwithstanding that Tenant's proposed Alterations satisfy all of
the preceding criteria, upon review of Tenant's submission,
Landlord shall have the right to require Tenant to submit Plans
for all or any portion of the proposed Alterations.
2. Landlord shall review the description or Plans submitted by Tenant
("TENANT'S DESIGN SUBMISSION") and notify Tenant within ten (10) Business Days
of approval or disapproval. If Landlord disapproves Tenant's Design Submission,
Landlord shall specify the reasons for its disapproval and Tenant shall revise
Tenant's Design Submission to meet Landlord's objections, and shall resubmit the
same to Landlord as so revised until Tenant's Design Submission is approved by
Landlord. NO APPROVAL BY LANDLORD OF TENANT'S DESIGN SUBMISSION SHALL CONSTITUTE
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A WAIVER OF ANY OF THE REQUIREMENTS OF THIS EXHIBIT OR THE LEASE. Tenant shall
not make any changes to Tenant's Design Submission after approval by Landlord,
including changes required to obtain governmental permits, without obtaining
Landlord's written approval in each instance.
3. All mechanical, electrical, structural and floor loading
requirements shall be subject to approval of Landlord's engineers. Landlord also
reserves the right to require Tenant to submit copies of shop drawings for
Landlord's review and approval.
4. Before commencing construction of any Alterations, Tenant shall
provide Landlord with two (2) complete copies of Tenant's Design Submission in
final form as approved by Landlord.
C. SELECTION OF CONTRACTORS AND SUBCONTRACTORS
Before commencing construction of any Alterations, Tenant shall submit
to Landlord the names of Tenant's general contractor (the "GENERAL
CONTRACTOR")and any subcontractors for Landlord's approval. If Landlord shall
reject the General Contractor or any subcontractor, Landlord shall advise Tenant
of the reasons(s) in writing and Tenant shall submit another selection to
Landlord for Landlord's approval.
D. INSURANCE
1. Before commencing construction of any Alterations, Tenant will
deliver to Landlord:
(i) Four (4) executed copies of the Insurance Requirements
agreement in the form set forth in Exhibit D from the general
contractor and, if requested by Landlord, from the
subcontractors (Landlord will return two fully executed copies
to Tenant), and
(ii) insurance certificates for the General Contractor and
subcontractors as required by Exhibit D, which shall include
evidence of coverage for the indemnity provided by the
General Contractor or subcontractor executing such agreement.
E. BUILDING PERMIT AND OTHER LEGAL REQUIREMENTS
1. Before commencing construction of any Alterations, Tenant shall
furnish Landlord with a valid permit for the construction of the Alterations
from the building department or other agency having jurisdiction in the
municipality in which the Building is located (unless the Alterations are of a
cosmetic nature not requiring a building permit). Tenant shall keep the
original building permit posted on the Premises during the construction of the
Alterations.
2. Tenant Design Submission, the Alterations, and the construction of
the Alterations shall each be in strict compliance with (1) all applicable laws,
codes, rules and regulations, including, without limitation, the Americans with
Disabilities Act, state and local health department requirements, and
occupational health and safety laws and regulations, and (2) all building
permits, consents, licenses, variances, and approvals issued in connection with
the Alterations. Tenant shall ensure that the General Contractor and all
subcontractors have the requisite licenses to perform their work. Tenant shall
procure all permits, governmental
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approvals, licenses, variances and consents required for the Alterations and
shall provide Landlord with a complete copy thereof promptly upon receipt of
same by Tenant.
F. MATERIALS AND WORKMANSHIP
1. All equipment and installations must be equal to the Building
standard and all materials shall be new, commercial grade and of first-class
quality. Any deviation from these requirements will be permitted only if clearly
indicated or specified on Tenant's Design Submission and approved by Landlord.
2. Alterations shall be constructed in a professional, first-class and
workmanlike manner, in accordance with Tenant's Design Submission.
3. The General Contractor shall guaranty all materials and workmanship
against defects for a period of not less than one (1) year from installation.
Notwithstanding any limitations contained in such guaranty or in any contract,
purchase order or other agreement, during the entire term of the Lease, Tenant
shall promptly repair or replace, at Tenant's cost, any defective aspect of the
Alterations except for insubstantial defects that do not adversely effect the
Building or the appearance or rental value of the Premises, as determined by
Landlord in its sole discretion.
4. Alterations must be compatible with the existing mechanical,
plumbing, HVAC, electrical and life safety systems of the Building (collectively
the "BUILDING SYSTEMS"). In the event any Alterations shall interfere with the
proper functioning of any Building System, Tenant shall promptly cause such
repairs, replacements or adjustments to be made to the Alterations as are
necessary to eliminate any such interference at Tenant's sole cost and expense.
G. PROSECUTION OF THE WORK
1. All construction activities shall be conducted so as to avoid
disturbance of other tenants. Landlord may require that all demolition and other
categories of work that may inconvenience other tenants or disturb Building
operations be scheduled and performed before or after Normal Building Operating
Hours (at times determined by Landlord) and Tenant shall provide the Building
manager with at least 24 hours' notice prior to proceeding with such work.
2. Unless Landlord directs otherwise, Tenant's contractors shall have
access to the Building during the Normal Building Operating Hours only. If
Tenant's contractors desire access to the Building at any other time, Landlord
shall use reasonable efforts to provide such access, provided, however, that
Tenant shall pay Landlord any additional cost incurred by Landlord to provide
such access, including, without limitation, additional costs for utilities,
personnel, and security.
3. Prior arrangements for elevator use shall be made with the Building
manager by Tenant or the General Contractor. Elevator cabs shall be properly
padded and no material or equipment shall be carried under or on top of
elevators. If an operating engineer is required by any union rules, such
engineer shall be paid for by Tenant.
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4. Under no circumstances will any persons or material related to
Tenant's Alterations be allowed access through the Building's front entrance
without advance written approval of the Building manager.
5. If shutdown of risers and mains for electrical, HVAC, sprinkler or
plumbing work is required, such work shall be supervised by Landlord's
representative at Tenant's expense. No work will be performed in Building
mechanical equipment rooms except under Landlord's supervision.
6. Alterations shall be performed under the supervision of a
superintendent or foreman of the General Contractor at all times.
7. All areas adjacent to the construction area shall be sealed with
plastic so as to not be affected by dust and debris. All floors shall be
protected from the construction process.
8. The General Contractor or HVAC subcontractor shall block off supply
and return grilles, diffusers and ducts to keep dust from entering into the
Building HVAC system and thoroughly clean all HVAC units in the work area at the
completion of the Alterations.
9. Construction debris shall be removed from the construction area
daily and the construction area shall be kept neat and reasonably clean at all
times. All construction debris is to be discarded in waste containment provided
by the General Contractor only. No material or debris shall be stored outside
the Premises or Building without the prior written approval of the Landlord's
representative.
10. Landlord shall have the right to instruct the General Contractor to
deliver to Landlord, at Tenant's expense, any items to be removed from the
Premises during the construction of the Alterations.
11. Tenant, either directly or through the General Contractor, will
immediately notify Landlord, in writing, of any damage to the Building caused by
the General Contractor or any subcontractors. Such damage shall be repaired
within 72 hours unless otherwise directed by the Landlord in writing. Any damage
that is not repaired may be repaired by Landlord at Tenant's expense.
12. Construction personnel shall use the restrooms located within
Tenant's Premises only. If there are no restrooms within Tenant's Premises, then
construction personnel shall use only those Building restrooms located on the
floor where the work is being performed.
13. The General Contractor and all subcontractors shall cause their
employees to adhere to all applicable Rules and Regulations of the Building.
14. Landlord shall have the right to supervise and inspect the
Alterations as the work progresses and to require Tenant to remove or correct
any aspect of the Alterations that does not conform to Tenant's Design
Submission approved by Landlord. Such supervision and inspection shall be at
Tenant's sole expense and Tenant shall pay Landlord's reasonable charges for
such supervision and inspection.
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H. DOCUMENTS TO BE FURNISHED TO LANDLORD UPON COMPLETION OF TENANT'S WORK
1. Within fifteen (15) days after the substantial completion of the
Alterations, Tenant shall furnish Landlord with the following documents:
(i) record "as built" drawings in paper and electronic (CADD)
format showing all of the Alterations as actually constructed
for all portions of the Alterations for which drawings were
submitted;
(ii) if Plans for the Alterations were prepared by an architect, a
written certification from the architect confirming that the
Alterations were completed in accordance with the Plans and
all applicable laws, codes, ordinances, and regulations;
(iii) full and final lien waivers and releases executed by the
General Contractor and all subcontractors and suppliers;
(iv) if the Alterations include any HVAC work, a properly executed
air balancing report signed by a professional engineer
showing that the HVAC system is properly balanced for the
season;
(v) copies of all warranties and guarantees received from the
General Contractor, subcontractors and materials suppliers or
manufacturers;
(vi) copies of all maintenance manuals, instructions and similar
information pertaining to the operation and maintenance of
equipment and fixtures installed in the Premises as part of
the Alterations; and
(vii) a copy of the final, permanent certificate of occupancy or
amended certificate of occupancy for the Premises.
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EXHIBIT D
CONTRACTOR'S INSURANCE REQUIREMENTS
Building:
Tenant:
Premises:
The undersigned contractor or subcontractor ("CONTRACTOR") has been hired
by the tenant or occupant (hereinafter called "TENANT") of the Building named
above or by Tenant's contractor to perform certain work ("WORK") for Tenant in
the Premises identified above. Contractor and Tenant have requested the
undersigned landlord ("LANDLORD") to grant Contractor access to the Building and
its facilities in connection with the performance of the Work and Landlord
agrees to grant such access to Contractor upon and subject to the following
terms and conditions:
1. Contractor agrees to indemnify and save harmless the Landlord,
and if Landlord is a general or limited partnership each of the partners
thereof, and if Landlord is a nominee trust the trustee(s) and all
beneficiaries thereof, and all of their respective officers, employees
and agents, from and against any claims, demands, suits, liabilities,
losses and expenses, including reasonable attorneys' fees, arising out
of or in connection with the Work (and/or imposed by law upon any or all
of them) because of personal injuries, including death, at any time
resulting therefrom and loss of or damage to property, including
consequential damages, whether such injuries to person or property are
claimed to be due to negligence of the Contractor, Tenant, Landlord or
any other party entitled to be indemnified as aforesaid except to the
extent specifically prohibited by law (and any such prohibition shall
not void this agreement but shall be applied only to the minimum extent
required by law).
2. Contractor shall provide and maintain at its own expense, until
completion of the Work, the following insurance:
(a) Workmen's Compensation and Employers Liability Insurance
covering each and every workman employed in, about or upon the Work, as
provided for in each and every statute applicable to Workmen's
Compensation and Employers' Liability Insurance.
(b) Commercial General Liability Insurance including coverages
for Protective and Contractual Liability (to specifically include
coverage for the indemnification clause of this agreement) for not less
than the following limits:
Bodily Injury: $5,000,000 per person
$5,000,000 per occurrence
Property Damage: $5,000,000 per occurrence
$5,000,000 aggregate
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(c) Commercial Automobile Liability Insurance (covering all owned,
non-owned and/or hired motor vehicles to be used in connection with the
Work) for not less than the following limits:
Bodily Injury: $5,000,000 per person
$5,000,000 per occurrence
Property Damage: $5,000,000 per occurrence.
Contractor shall furnish a certificate from its insurance carrier or
carriers to the Building office before commencing the Work, showing that
it has complied with the above requirements regarding insurance and
providing that the insurer will give Landlord ten (10) days' prior
written notice of the cancellation of any of the foregoing policies.
3. Contractor shall require all of its subcontractors engaged in the
Work to provide the following insurance:
(a) Commercial General Liability Insurance including Protective
and Contractual Liability coverages with limits of liability at
least equal to the limits stated in paragraph 2(b).
(b) Commercial Automobile Liability Insurance (covering all
owned, non-owned and/or hired motor vehicles to be used in
connection with the Work) with limits of liability at least
equal to the limits stated in paragraph 2(c).
Upon the request of Landlord, Contractor shall require all of its
subcontractors engaged in the Work to execute an Insurance Requirements
agreement in the same form as this Agreement.
Agreed to and executed this_____day of_______ , 20___ .
Contractor: Landlord:
By: ____________________ By: ____________________
By: ____________________ By: ____________________
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EXHIBIT E
CLERK'S CERTIFICATE
I,__________________ , the duly elected and acting [Secretary/Clerk]
of Perficient, Inc. a Delaware corporation (the "CORPORATION"), hereby
certify that:
(A) at a meeting of the board of directors of the Corporation held on
_____________in accordance with law and the Bylaws of the Corporation the
following resolutions were duly adopted:
VOTED: a. To approve a lease of approximately 5,894 rentable square feet
of space for a term of approximately three years in the building commonly
known as Building B, Lakewood on the Park, 7600B, Capital of Texas Highway,
Austin, Texas substantially in the form of the draft presented at this
meeting, a copy of which shall be placed on file in the office of the
[Secretary/Clerk]and be incorporated by reference in this vote;
b. To authorize _________________ and __________________, or any
one of them (each hereinafter referred to as a "SIGNATORY"), to execute and
deliver in the name and on behalf of the Corporation the above-described
lease and to execute and deliver all other documents, agreements and
instruments, including, without limitation, notices of lease, and to take all
other actions with respect to the foregoing which any Signatory, in such
Signatory's discretion, shall determine to be necessary or appropriate to
effect or secure the transactions contemplated herein, the execution and
delivery of any of the foregoing or the taking of any such action to be
conclusive evidence of such Signatory's determination and of the Signatory's
authority so to do granted by this vote;
(B) as of this date the following individuals are duly elected and
qualified officers of the Corporation holding at this date, the offices
specified next to their names and the signature next to each such name is
such individual's true signature.
NAME OFFICE SIGNATURE
- ---- ------ ---------
__________________ _____________________ ____________________
__________________ _____________________ ____________________
(C) The form of lease attached to this Certificate is the form
referred to in the foregoing vote.
(D) The resolutions set forth above are unmodified and continue to be
in full force and effect and the Corporation has adopted no other resolutions
in respect of the subject matter thereof.
In witness whereof, I have hereunto set my hand and affixed the seal of the
Corporation this_______day of_______, 2000.
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Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
to the use of our report dated February 21, 2000, in the Registration
Statement (Form SB-2 No. ________) and the related Prospectus of Perficient,
Inc. for the registration of 580,000 shares of its common stock.
/s/ Ernst & Young LLP
Austin, Texas
April 28, 2000
