<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1999
Commission File Number: 1-15169
PERFICIENT, INC.
(Name of Small Business Issuer in its Charter)
DELAWARE 74-2853258
-------- ----------
(State or Other Jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
7600B North Capital of Texas Highway, Suite 220
Austin, Texas 78731
- - ----------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 688-4445
Securities registered pursuant to Section 12(b) of the Exchange Act of 1934:
Title of Class Name of each exchange on which
registered:
Common Stock, $.001 par value Boston Stock Exchange
- - ----------------------------- ---------------------
Securities registered pursuant to Section 12(g) of the Act:
NONE
-----------------------------
(Title of Class)
----------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days: Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulations S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in a definitive proxy or
information statement incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. / /
The Registrant's revenues for its most recent fiscal year were $3,154,936
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. (The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock as of a specified date within 60 days prior to the date of filing.)
$44,379,720 AS OF MARCH 27, 2000
<PAGE>
Number of shares of common stock outstanding as of MARCH 27, 2000: 4,065,047
Transitional Small Business Disclosure Format: Yes |_| No |X|
PORTIONS OF THE FOLLOWING DOCUMENTS HAVE BEEN INCORPORATED BY REFERENCE INTO
THIS ANNUAL REPORT ON FORM 10-KSB: None
================================================================================
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
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 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:
<PAGE>
- 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 it
attractive to provide services when technology has become
<PAGE>
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
<PAGE>
leverage our accumulated 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
<PAGE>
its partner's Internet software products. In connection with providing our
services, we may perform the following activities:
- 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
<PAGE>
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 added active relationships with Motive
Software, a provider of support chain automation; Ventix, a provider of
knowledge support software, and Plumtree Software, the founder 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 is
similar to its contract with Vignette, and none of these companies is 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 its 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 it will succeed in forming long-term relationships with we
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 its
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 its 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
<PAGE>
that work with emerging Internet software companies. These relationships help
us identify and form partner relationships with emerging companies.
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.
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
<PAGE>
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 it offers are scarce and it believes 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.
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 $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. 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 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
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 per share. Gilford Securities Incorporated acted as placement
agent in connection with the private placement. In addition, the Company entered
into a Registration Rights Agreements with each of the purchasers pursuant to
which the Company 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.
<PAGE>
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.,
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 by July 1, 2000. The closing
of the merger, however, 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.
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 Report on Form 10-KSB and the documents and filings
incorporated by reference into this Report (including the financial statements
and notes thereto), the following factors. This Report 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 Report.
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.
<PAGE>
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 perform 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.
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
<PAGE>
information technology professionals regarding the use and features of our
partners' software, and we will lose this investment if our partners fail.
WE HAVE HAS 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 its 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.
<PAGE>
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. After our merger with Compete is completed, 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.
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.
ITEM 2. PROPERTIES
We lease approximately 2,700 square feet of office space in Austin,
Texas from Powershift Ventures, LLC, under a month to month lease. The rent is
currently $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.
<PAGE>
ITEM 3. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION: Since the effective date of our registration
statement on July 28, 1999, shares of our common stock have been listed on the
Nasdaq SmallCap market under the symbol "PRFT" and on the Boston Stock Exchange
under the symbol "PRF".
The table below sets forth, for the calendar quarters indicated, the
reported high and low closing prices of our 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
</TABLE>
HOLDERS: As of March 27, 2000, we believe that there were 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 above 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.
CHANGES IN SECURITIES AND USE OF PROCEEDS
The effective date of the registration statement for our initial public
offering, filed on Form SB-2 under the Securities Act of 1933, as amended (File
No. 333-78337), was July 28, 1999. The class of securities offered and sold
pursuant to the registration statement was common stock. The offering commenced
on July 29, 1999 and the proceeds therefrom were received August 3, 1999. The
managing underwriter for the offering was Gilford Securities Incorporated.
<PAGE>
In the offering we sold 1,000,000 shares of our common stock for an aggregate
offering price of $8.0 million. We incurred expenses of approximately $1.7
million, of which approximately $1.0 million represented underwriting
discount and a non-accountable expense allowance payable to the underwriter
and approximately $.7 million represented other expenses related to the
offering. The net offering proceeds to us after total expenses was
approximately $6.3 million. 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 our complimentary to ours. Pending such uses, we have
invested the net proceeds of the offering in investment grade,
interest-bearing securities.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
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 were
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.
<PAGE>
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;
- 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
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 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.
<PAGE>
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 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.
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. Pending the use
of proceeds, 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.
<PAGE>
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 and
our cash increased 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 the anticipated merger with Compete, for our operations
and general corporate purposes, and to pay the promissory note payable six
months from the Compete closing.
In connection with the anticipated acquisition of Compete, we have
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 intend to 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. We expect to close the merger with
Compete by July 1, 2000. The closing of the merger, however, is conditioned
upon, among other things, obtaining the consent of Perficient's stockholders.
Accordingly, there can be no assurances that the acquisition will be completed.
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
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 Developments
As of January 3, 2000, we acquired by merger Loredata, Inc. In
addition, on February 14, 2000 we agreed to acquire by merger, Compete, Inc.
See Item 1- Business - "Recent Developments" for more information with respect
to these two acquisitions. The following unaudited pro forma data gives
effect to the acquisition of LoreData, Inc. and the proposed merger with
Compete Inc. 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
these transactions under the purchase method of accounting. The pro forma
combined condensed financial statements are based on the historical financial
statements of Perficient, LoreData and Compete and their related notes
thereto previously filed by us with the Securities and Exchange Commission on
Form 8-K on March 17, 2000. This pro forma information is 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.
<PAGE>
PERFICIENT INC
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of December 31, 1999
<TABLE>
<CAPTION>
Pro Forma
-----------
<S> <C>
Assets
Current assets:
Cash $ 6,700,452
Accounts receivable, net 1,840,696
Other assets 142,422
Income tax receivable 10,916
-----------
Total current assets 8,694,486
Property and equipment 439,430
Accumulated depreciation (33,813)
Goodwill, net 60,906,298
Other assets 11,453
-----------
Total assets $70,017,854
===========
Liabilities and stockholders' equity
Liabilities
Current liabilities:
Accounts payable $ 363,013
Short term borrowings 2,971,276
Other current liabilities 383,814
-----------
Total current liabilities 3,718,103
Note payable to related party, less current portion 48,968
Capital lease obligation 119,515
-----------
Total liabilities 3,886,586
Stockholders' equity:
Common Stock 6,282
Additional paid-in capital 67,653,790
Unearned stock compensation (152,000)
Retained earnings (deficit) (1,376,804)
-----------
Total stockholders' equity 66,131,269
-----------
Total liabilities and stockholders' equity $70,017,855
===========
</TABLE>
See notes to unaudited pro forma condensed consolidated balance sheet.
PERFICIENT, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
For the year ended December 31, 1999
<TABLE>
<CAPTION>
Pro Forma
------------
<S> <C>
Statement of Operations Data:
Consulting revenues $11,146,993
Cost of consulting revenues 6,597,036
------------
Gross margin 4,549,957
Selling, general and administrative 4,826,433
Stock compensation 956,000
Intangibles amortization 20,247,829
------------
Income (loss) from operations (21,480,305)
Interest income (expense) 83,179
Income (loss) before income taxes (21,397,126)
Other expense 30,000
Provision (benefit) for income taxes (17,777)
------------
Net Income (loss) ($21,409,349)
============
See notes to unaudited pro forma condensed consolidated statement of operations.
Supplemental Data:
Net income (loss) per share: Basic and diluted (1) ($4.14)
============
Shares used in computing net income (loss) per share (2) 5,166,138
============
Diluted supplemental weighted average shares outstanding 5,577,380
============
Supplemental Data:
Net Income (Loss) as reported ($21,409,349)
Non-cash charges (3) 21,414,330
Provision (benefit) for income taxes (4) (20,912)
------------
Supplemental net income before non-cash charges $ 25,893
============
Supplemental net income before non-cash charges per share - basic $ 0.01
============
Supplemental net income before non-cash charges per share - diluted $ 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, available information we deem appropriate.
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.
ITEM 7. FINANCIAL STATEMENTS
The Financial Statements required by this item appear under the caption
"Index to Financial Statements" and are included elsewhere herein commencing on
page F-1.
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers and their ages as of March 27,
2000 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
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.
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
<PAGE>
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 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
<PAGE>
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 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.
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.
COMPLIANCE WITH SECTION 16(a)
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the our executive officers and directors, and persons who beneficially
own more than ten percent of a registered class of our equity securities to file
reports of ownership and changes in ownership with
<PAGE>
the Securities and Exchange Commission and Nasdaq SmallCap Market. Based
solely on a review of the copies of reports furnished to us and written
representations form our executive officers, directors and persons who
beneficially own more than ten percent of our equity securities, we believe
that during the preceding year, all filing requirements applicable to our
officers, directors and ten percent beneficial owners under Section 16(a)
were satisfied, except that David S. Lundeen, one of our directors, filed one
Form 4 covering one transaction late and Bryan R. Menell, a one of our
directors and our President, filed one Form 4 covering one transaction late.
ITEM 10. EXECUTIVE COMPENSATION
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. 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
$100,000 during 1999.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
<S> <C> <C> <C> <C>
NAME AND PRINCIPAL
POSITION YEAR SALARY ($) BONUS ($) SECURITIES UNDERLYING OPTIONS (#)
- - -------------------- ---- ---------- --------- ---------------------------------
John T. McDonald, 1999 50,000 -- --
Chief Executive Officer 1998 -- -- --
and 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
EMPLOYMENT ARRANGEMENTS
</TABLE>
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
<PAGE>
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.
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.
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.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of Perficient common stock as of March 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.
<PAGE>
<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 that person that are currently exercisable or exercisable
within 60 days of March 27, 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.
<PAGE>
(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 27, 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 27, 2000. Does not include
options to purchase 85,000 shares of Perficient Common Stock that are
not exercisable within 60 days of March 27, 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 27, 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
January 29, 2000.
ITEM 12. 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
<PAGE>
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 our common stock,
par value $0.001 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 an 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 the Company, and David S. Lundeen, a
director of the 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. The company 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.
POWERSHIFT SUBLEASE
Since April 1998, we have 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 have paid rent of $4,500 a month, which
we believe is consistent with prevailing market rates. The currently monthly
rental amounts were arrived at by arms' length negotiations.
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.
<PAGE>
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.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- - ----------- -----------
<S> <C>
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.
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.
<PAGE>
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.
10.18 Subcontract Agreement, dated as of November 4, 1999
between the Registrant and Plumtree, Inc.
21 Subsidiaries
27 Financial Data Schedule for the year ended
December 31, 1999.
</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.
(b) During the last quarter of the period covered by this report and through
March 27, 2000, we filed the following reports on Form 8-K:
(1) We filed a Form 8-K with the Securities and Exchange Commission
(the "Commission") on January 14, 2000 to report the acquisition by way of
merger of LoreData, Inc. a Connecticut corporation, with and into our
newly-formed, wholly owned subsidiary, Perficient Acquisition Corp, a Delaware
Corporation. Financial statements of the business acquired and pro forma
financial information were not included in the report but were to be filed by
amendment within sixty (60) days after the date that the Form 8-K was required
to be filed.
(2) We filed a Form 8-K with the Commission on March 1 ,2000 to report
the completion on February 7, 2000 of an $8.1 million private placement of our
common stock.
(3) We filed a Form 8-K/A with the Commission on March 17, 2000 to
amend and supplement the Form 8-K dated January 3, 2000 filed with the
Commission on January 14, 2000 relating to our acquisition of LoreData, Inc. The
Form 8-K/A contains the financial statements of the business acquired and the
pro forma information required by Item 7 of Form 8-K. However, because we
entered into a definitive Agreement and Plan of Merger with Compete Inc.,
Perficient Compete, Inc. and the Shareholders of Compete subsequent to the
initial filing of
<PAGE>
the Form 8-K, the pro forma information contained in the Form 8-K/A give
effect to the acquisition of LoreData as well as the proposed merger with
Compete. The Form 8-K/A also contains audited information of Compete.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Contents
FINANCIAL STATEMENTS FOR PERFICIENT, INC.
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Auditors............................................................................ (i)
Balance Sheets............................................................................................ F-1
Statements of Operations.................................................................................. F-2
Statements of Stockholders' Equity........................................................................ F-3
Statements of Cash Flows.................................................................................. F-4
Notes to Financial Statements............................................................................. F-5
</TABLE>
<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
(i)
<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-1
<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-2
<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-3
<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-4
<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-5
<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-6
<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-7
<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-8
<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-9
<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-10
<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-11
<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-12
<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-13
<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-14
<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-15
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
PERFICIENT, INC.
Dated: March 27, 2000
/s/ John T. McDonald
--------------------
John T. McDonald
Chief Executive Officer
(Principal Executive Officer)
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
Dated: March 27, 2000
/s/ John T. McDonald
--------------------
John T. McDonald
Director
Dated: March 27, 2000
/s/ John A. Hinners
--------------------
John A. Hinners
Chief Financial Officer
(Principal Financial and Accounting
Officer)
Dated: March 27, 2000
/s/ Bryan R. Menell
--------------------
Bryan R. Menell
President and Director
Dated: March 27, 2000
/s/ Steven G. Papermaster
---------------------
Steven G. Papermaster
Director
<PAGE>
Dated: March 27, 2000
/s/ David S. Lundeen
--------------------
David S. Lundeen
Director
Dated: March 27, 2000
/s/ W. Frank King
--------------------
Dr. W. Frank King
Director
Dated: March 27, 2000
/s/ Philip J. Rosenbaum
-------------------
Philip J. Rosenbaum
Director
<PAGE>
EXHIBIT 10.16
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT made as of January 3, 2000, between
Perficient, Inc., a Delaware corporation (the "Company"), and the individual
listed on the signature page hereto (the "Holder").
WHEREAS, the Company, the Holder, Perficient Acquisition Corp. and
LoreData, Inc. are parties to that certain Agreement and Plan of Merger dated
as of December 10, 1999, as amended by Amendment to Agreement and Plan of
Merger dated as of January 3, 2000 (collectively, the "Merger Agreement"); and
WHEREAS, as a condition to the consummation of the transactions
contemplated by the Merger Agreement, the Company has agreed to register 20%
of the shares of its common stock, par value $0.001 per share ("Common
Stock"), issued by the Company to the Holder in accordance with the terms and
subject to the conditions of the Merger Agreement.
NOW, THEREFORE, the parties have agreed as follows:
1. DEFINITIONS.
(a) The term "Commission" means the Securities and Exchange
Commission.
(b) The term "Other Securities" means at any time those
shares of Common Stock which do not constitute Primary Securities or
Registrable Securities.
(c) The term "Person" means a holder of Registrable
Securities whenever such Person has the right to acquire such Registrable
Securities (by conversion or otherwise, but disregarding any legal or other
restrictions upon the exercise of such right), whether or not such
acquisition has actually been effected.
(d) The term "Primary Securities" means at any time the
authorized but unissued shares of Common Stock or shares of Common Stock held
by the Company in its treasury.
(e) The term "Registrable Securities" means 20% of the
Common Stock issued to Holder pursuant to the Merger Agreement. As to any
particular Registrable Securities, once issued such securities shall cease to
be Registrable Securities when (a) a registration statement with respect to
the sale of such securities shall have become effective under the Securities
Act and such securities shall have been disposed of in accordance with such
registration statement, (b) such securities may be distributed by the Holder
to the public pursuant to Rule 144 (or any successor provision) under the
Securities Act, (c) such securities shall have been otherwise transferred,
new certificates for such securities not bearing a legend restricting
<PAGE>
further transfer shall have been delivered by the Company and subsequent
disposition of such securities shall not require registration or
qualification of such securities under the Securities Act or any similar
state law then in force, or (d) such securities shall have ceased to be
outstanding.
(f) The term "Registration Expenses" means all expenses
incident to the Company's performance of or compliance with this Agreement,
including, without limitation, all registration, filing and NASD fees, all
stock exchange listing fees, all fees and expenses of complying with
securities or blue sky laws, all word processing, duplicating and printing
expenses, messenger and delivery expenses, the fees and disbursements of
counsel for the Company and of its independent public accountants, including
the expenses of any special audits or "cold comfort letters" required by or
incident to such performance and compliance, premiums and other costs of
policies of insurance against liabilities arising out of the public offering
of the Registrable Securities being registered and any fees and disbursements
of underwriters customarily paid by issuers or sellers of securities, but
excluding underwriting discounts and commissions and transfer taxes, if any,
relating to the sale or disposition of the Holder's Registrable Securities
pursuant to the shelf registration statement and the expenses of any separate
fees for counsel for the Holder, PROVIDED THAT, in any case where
Registration Expenses are not to be borne by the Company, such expenses shall
not include salaries of the Company's personnel or general overhead expenses
of the Company, premiums or other expenses relating to liability insurance
required by underwriters of the Company or other expenses for the preparation
of financial statements or other data normally prepared by the Company in the
ordinary course of its business or which the Company would have incurred in
any event.
(g) The term "Securities Act" means the Securities Act of
1933, as amended, or any successor law.
(h) Unless otherwise stated, other capitalized terms
contained herein have the meanings set forth in the Merger Agreement.
2. REGISTRATION UNDER SECURITIES ACT.
(a) FILING OF SHELF REGISTRATION STATEMENT. The Company
shall cause to be filed no later than August 3, 2000 (the first anniversary
of the Company's initial public offering of Common Stock) a shelf
registration statement under the Securities Act providing for the
registration of the sale of the Registrable Securities on a continuous basis
on Form S-3 or any successor thereto providing for the sale by the Holder of
all of their Registrable Securities and will use its best efforts to have
such shelf registration statement declared effective by the Commission as
soon thereafter as practicable.
(b) EXPENSES. The Company shall pay all Registration
Expenses in connection with the registration pursuant to this Agreement.
2
<PAGE>
3. REGISTRATION PROCEDURES.
(a) When the Company is required to effect the registration
of the Registrable Securities under the Securities Act as provided in Section
2, the Company shall, as expeditiously as possible (and in all events subject
to Section 2):
(i) prepare and file with the Commission the
requisite registration statement to effect such registration (including such
audited financial statements as may be required by the Securities Act or the
rules and regulations promulgated thereunder) and thereafter cause such
registration statement to become and remain effective, PROVIDED, HOWEVER,
that before filing such registration statement or any amendments thereto, the
Company will furnish to the Holder copies of all such documents proposed to
be filed, which documents will be subject to its review and approval in
accordance with Section 3(b), PROVIDED, HOWEVER, that the Company shall not
be liable for any delay in filing the registration statement or any amendment
thereto as a result of the review and approval by the Holder of the contents
of such registration statement or amendment;
(ii) prepare and file with the Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such
registration statement until the sooner of (i) such time as all of such
Registrable Securities have been disposed of in accordance with the intended
methods of disposition by the Holder set forth in such registration statement
or (ii) six months from the date of effectiveness of the registration
statement;
(iii) furnish to the Holder (or underwriter, if
any, of the securities being sold by the Holder) such number of conformed
copies of such registration statement and of each such amendment and
supplement thereto (in each case including all exhibits), such number of
copies of the prospectus contained in such registration statement (including
each preliminary prospectus and any summary prospectus) and any other
prospectus filed under Rule 424 under the Securities Act, in conformity with
the requirements of the Securities Act, and such other documents as, the
Holder (and each such underwriter, if any) may reasonably request in order to
facilitate the public sale or other disposition of the Registrable Securities;
(iv) use its best efforts to register or qualify
all Registrable Securities and other securities covered by such registration
statement under such other securities laws or blue sky laws of such
jurisdictions as the Holder (and any underwriter of the Registrable
Securities being sold) shall reasonably request, to keep such registrations
or qualifications in effect for so long as such registration statement
remains in effect, and take any other action which may be necessary or
advisable to enable the Holder (and underwriter, if any) to consummate the
disposition in such jurisdictions of the Registrable Securities except that
the Company shall not for any such purpose be required to qualify generally
to do business as a foreign corporation in any jurisdiction wherein it would
not but for the requirements of this
3
<PAGE>
subdivision (iv) be obligated to be so qualified or to consent to general
service of process in any such jurisdiction;
(v) use its best efforts to cause all Registrable
Securities covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary to enable the Holder to consummate the disposition of such
Registrable Securities;
(vi) notify the Holder (and the managing
underwriter or underwriters, if any) promptly and confirm such advice in
writing promptly thereafter:
(A) when the registration statement, the
prospectus or any prospectus supplement related thereto or post-effective
amendment to the registration statement has been filed, and, with respect to
the registration statement or any post-effective amendment thereto, when the
same has become effective:
(B) of any request by the Commission for
amendments or supplements to the registration statement or the prospectus or
for additional information;
(C) of the issuance by the Commission of
any stop order suspending the effectiveness of the registration statement or
the initiation of any proceedings by any Person for that purpose;
(D) if at any time the representations
and warranties of the Company cease to be true and correct;
(E) of the receipt by the Company of any
notification with respect to the suspension of the qualification of any
Registrable Securities for sale under the securities or blue sky laws of any
jurisdiction or the initiation or threat of any proceeding for such purpose;
(vii) notify the Holder, at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, upon discovery that, or upon the happening of any event as a result of
which, the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then
existing, and at the request of the Holder promptly prepare and furnish to
the Holder (and each underwriter, if any) a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so that,
as thereafter delivered to the purchasers of such securities, such prospectus
shall not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing;
(viii) make every reasonable effort to obtain the
withdrawal of any order suspending the effectiveness of the registration
statement;
4
<PAGE>
(ix) otherwise use reasonable efforts to comply
with all applicable rules and regulations of the Commission and will furnish
to the Holder at least five business days prior to the filing thereof a copy
of any amendment or supplement to such registration statement or prospectus
and shall not file any thereof to which the Holder shall have reasonably
objected on the grounds that such amendment or supplement does not comply in
all material respects with the requirements of the Securities Act or of the
rules or regulations thereunder;
(x) make available for inspection by the Holder,
any underwriter participating in any disposition pursuant to the registration
statement and any attorney or accountant retained by the Holder or such
underwriter (each, an "Inspector"), all financial and other records,
pertinent corporate documents and properties of the Company (the "Records"),
and cause the Company's officers, directors and employees to supply all
information reasonably requested by any such Inspector in connection with
such registration in order to permit a reasonable investigation within the
meaning of Section 11 of the Securities Act;
(xi) provide and cause to be maintained a transfer
agent and registrar for all Registrable Securities covered by such
registration statement from and after a date not later than the effective
date of such registration statement;
(xii) enter into such agreements and take such
other actions as the Holder shall reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities;
(xiii) use its best efforts to list all
Registrable Securities covered by such registration statement on any
securities exchange on which any of the securities of the same class as the
Registrable Securities are then listed; and
(xiv) use its best efforts to provide a CUSIP
number for the Registrable Securities, not later than the effective date of
the registration statement.
(b) The Holder agrees that, upon receipt of any notice from
the Company of the occurrence of any event of the kind described in
subdivision (vii) of this Section, the Holder will forthwith discontinue
disposition of Registrable Securities pursuant to the registration statement
relating to such Registrable Securities until the Holder's receipt of the
copies of the supplemented or amended prospectus contemplated by subdivision
(vii) of this Section.
(c) Notwithstanding anything to the contrary in this
Agreement, the Holder agrees that in the event of a private or public
offering of Common Stock, the Holder shall be subject to the same
restrictions on transferability or lock-up of shares of Common Stock as the
underwriter of any such offering or any officer of the Company shall require
of the executive officers of the Company.
5
<PAGE>
4. INDEMNIFICATION BY THE COMPANY.
(a) GENERAL RIGHTS.
(i) In the event of any registration of any
securities of the Company under the Securities Act, the Company will, and
hereby does agree to, indemnify and hold harmless in the case of any
registration statement of the Company, the Holder and any underwriter
including the respective directors, officers, agents and controlling persons
(within the meaning of Section 15 of the Securities Act and Section 20 of the
Exchange Act), if any, of the Holder and such underwriters against any
losses, claims, damages, liabilities or expense, joint or several, to which
the Holder (or any underwriter) or any such director, officer, agent or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions
or proceedings, whether commenced or threatened, in respect thereof) arise
out of or based upon any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which securities
were registered under the Securities Act, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and the Company will reimburse the Holder
(or any underwriter) and each such director, officer, agent and controlling
person for any legal or any other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability, action or proceeding, PROVIDED THAT the Company shall not be
liable in such case to the extent that any such loss, claim, damage,
liability or action or proceeding in respect thereof or expense arises out of
or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in such registration statement, any such preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement
exclusively in reliance upon and in conformity with information furnished to
the Company through an instrument duly executed by the Holder, specifically
stating that it is for use in the preparation thereof. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of the Holder (or underwriter, if any) or any such director, officer,
agent or controlling person and shall survive the transfer of such securities
by the Holder.
(ii) The Holder will, and hereby does agree to
indemnify and hold harmless the Company and the directors, officers, agents
and controlling persons, if any, of the Company against any losses, claims,
damages, liabilities or expense to which the Company and the directors,
officers, agents and controlling persons, if any, of the Company may become
subject under the Securities Act insofar as such losses, claims, damages,
liabilities or expense arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in any registration
statement under which the Registrable Securities were registered under the
Securities Act, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent (and only to the extent) that such loss, claim,
damage, liability or expense occurs in exclusive reliance upon and in
conformity
6
<PAGE>
with written information furnished by the Holder expressly for use in
connection with such registration; provided that the Holder shall be liable
under this paragraph for only that amount of losses, claims, damages,
liabilities or expense as does not exceed the proceeds to the Holder as a
result of the sale of Registrable Securities pursuant to such registration.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Company or any such director,
officer, agent or controlling person.
(b) NOTICES OF CLAIMS, ETC. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in the preceding subdivisions of this Section,
such indemnified party will, if a claim in respect thereof is to be made
against an indemnifying party, give written notice to the latter of the
commencement of such action, PROVIDED THAT the failure of any indemnified
party to give notice as provided herein shall not relieve the indemnifying
party of its obligations under the preceding subdivisions of this Section,
except to the extent that the indemnifying party is actually prejudiced in a
material manner by such failure to give notice. In case any such action is
brought against an indemnified party, unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, the indemnifying
party shall be entitled to participate in and to assume the defense thereof,
jointly with any other indemnifying party similarly notified, to the extent
that the indemnifying party may wish, with counsel reasonably satisfactory to
such indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any
legal or other expenses subsequently incurred by the latter in connection
with the defense thereof other than reasonable costs of investigation. No
indemnifying party shall, without the consent of the indemnified party,
consent to entry of any judgment or enter into any settlement of any such
action which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability, or a covenant not to sue, in respect to such claim or litigation.
No indemnified party shall consent to entry of any judgment or enter into any
settlement of any such action the defense of which has been assumed by an
indemnifying party without the consent of such indemnifying party.
(c) OTHER INDEMNIFICATION. Indemnification similar to that
specified in the preceding subdivisions of this Section (with appropriate
modifications) shall be given by the Company and the Holder with respect to
any required registration or other qualification of securities under any
Federal or state law or regulation of any governmental authority, other than
the Securities Act.
(d) INDEMNIFICATION PAYMENTS. The indemnification required
by this Section shall be made by periodic payments of the amount thereof
during the course of the investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred.
(e) CONTRIBUTION. If the indemnification provided for in
the preceding subdivisions of this Section is unavailable to an indemnified
party in respect of any loss, claim, damage, liability or expense referred to
therein, then each indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
7
<PAGE>
indemnified party as a result of such loss, claim, damage, liability or
expense (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and the Holder or
underwriter, as the case may be, on the other from the distribution of the
Registrable Securities or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company on the one hand and of the Holder or
underwriter, as the case may be, on the other in connection with the
statements or omissions which resulted in such loss, claim, damage, liability
or expense, as well as any other relevant equitable considerations. The
relative fault of the Company on the one hand and of the Holder or
underwriter, as the case may be, on the other shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or omission to state a material fact relates to
information supplied by the Company, by the Holder or by the underwriter and
the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission, PROVIDED THAT
the foregoing contribution agreement shall not inure to the benefit of any
indemnified party if indemnification would be unavailable to such indemnified
party by reason of the provisions contained in the first sentence of
subdivision (a) of this Section and in no event shall the obligation of any
indemnifying party to contribute under this subdivision (e) exceed the amount
that such indemnifying party would have been obligated to pay by way of
indemnification if the indemnification provided for under subdivisions (a) or
(b) of this Section had been available under the circumstances.
Notwithstanding the provisions of this subdivision (e), neither the Holder
nor the underwriter shall be required to contribute any amount in excess of
the amount by which (i) in the case of the Holder, the net proceeds received
by the Holder from the sale of Registrable Securities or (ii) in the case of
an underwriter, the total price at which the Registrable Securities purchased
by it and distributed to the public were offered by the public exceeds, in
either such case, the amount of any damages that the Holder or underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11 the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
5. CERTAIN RIGHTS OF THE HOLDER.
The Company will not file any registration statement under
the Securities Act, unless it shall first have given to the Holder, at least
30 days prior written notice thereof. If any such registration statement
refers to the Holder by name or otherwise as the holder of any securities of
the Company, then the Holder shall have the right within such 30 day period
to require (a) the insertion therein of language, in form and substance
satisfactory to the Holder to the effect that the holding by the Holder of
such securities does not necessarily make the Holder a "controlling person"
of the Company within the meaning of the Securities Act and is not to be
construed as a recommendation by the Holder of the investment quality of the
Company's debt or equity securities covered thereby and that the Holder will
assist in meeting any future financial requirements of the Company or (b) in
the event that such reference to the Holder by name or otherwise is not
required by the Securities Act or any rules and regulations promulgated
thereunder, the deletion of the reference to the Holder. If the Holder does
not respond within such 30 day period, the Company may proceed with the
filing.
8
<PAGE>
6. MISCELLANEOUS.
(a) NO INCONSISTENT AGREEMENTS. The Company will not
hereafter enter into any agreement with respect to its securities which is
inconsistent with the rights granted to the Holder of Registrable Securities
in this Agreement.
(b) ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES. The
Company will not take any action, or permit any change to occur, with respect
to its securities which would adversely affect the ability of the Holder to
include Registrable Securities in a registration statement undertaken
pursuant to this Agreement or which would adversely affect the ability of the
Holder to sell such Registrable Securities in any such registration
(including, without limitation, effecting a stock split or a combination of
shares).
(c) AMENDMENTS AND WAIVERS. Except as otherwise provided
herein, the provisions of this Agreement may be amended and the Company may
take any action herein prohibited, or omit to perform any act herein required
to be performed by it, if and only if the Company has obtained the written
consent of the Holder.
(d) SUCCESSORS AND ASSIGNS. This Agreement may not be
assigned by the Holder. All covenants and agreements in this Agreement by or
on behalf of any of the parties hereto will bind and inure to the benefit of
the respective successors and assigns of the parties hereto whether so
expressed or not. In addition, whether or not any express assignment has been
made, the provisions of this Agreement which are for the benefit of
purchasers or holders of Registrable Securities are also for the benefit of,
and enforceable by, any subsequent holder of Registrable Securities.
(e) JURISDICTION AND GOVERNING LAW. The Company and the
Holder each hereby consent to personal jurisdiction in any action brought
with respect to this Agreement and the transactions contemplated hereunder in
any federal or state court within the State of New York. This Agreement shall
be governed by and construed in accordance with the law of the State of New
York without giving effect to conflicts of law principles thereof.
(f) CONSTRUCTION. Section headings of this Agreement are
for reference purposes only and are to be given no effect in the construction
or interpretation of this Agreement.
(g) SEVERABILITY. In the event that any provision hereof
would, under applicable law, be invalid or enforceable in any respect, such
provision shall be construed by modifying or limiting it so as to be valid
and enforceable to the maximum extent compatible with, and permissible under,
applicable law. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement which shall remain in full force and effect.
9
<PAGE>
(h) JOINT AGREEMENT. The provisions of this Agreement and
each document delivered pursuant hereto shall be deemed to be the joint
effort of each of the parties hereto and shall not be construed more severely
or strictly against any one or more parties.
(i) NOTICES. Except as otherwise provided in this
Agreement, all notices, requests and other communications shall be in writing
and shall be given to the Holder addressed to it in the manner set forth in
the Merger Agreement or at such other address as the Holder shall have
furnished to the Company in writing, and to the Company, to the attention of
its Chief Executive Officer, or at such other address, or to the attention of
such other officer, as the Company shall have furnished to the Holder. Each
such notice, request or other communication shall be effective (i) if given
by mail, 72 hours after such communication is deposited in the mails with
first class postage prepaid, addressed as aforesaid or (ii) if given by any
other means (including, without limitation, by air courier), when delivered
at the address specified above, PROVIDED that any such notice, request or
communication shall not be effective until received.
(j) COUNTERPARTS. This Agreement may be executed
simultaneously in counterparts, each of which shall be deemed an original,
but all such counterparts shall together constitute one and the same
instrument.
(k) UNDERWRITER HOLDBACK. The Holder agrees that if the
Company proposes to offer securities pursuant to a Registration Statement
under the Securities Act pursuant to a firm commitment underwritten public
offering, then the Holder will, if requested by the Underwriter of such
proposed public offering, enter into such agreement that may be requested,
agreeing not to sell, pledge, hypothecate or otherwise dispose of any
Registrable Securities for the same period of time that is requested of
officers, directors and principal stockholders of the Company.
(1) SPECIFIC PERFORMANCE. The parties hereto acknowledge
that there would be no adequate remedy at law if any party fails to perform
any of its other obligations hereunder, and accordingly agree that each
party, in addition to any other remedy to which it may be entitled at law or
in equity, shall be entitled to compel specific performance of the
obligations of any other party under this Agreement in accordance with the
terms and conditions of this Agreement in any court of the United States or
any State thereof having jurisdiction. Any remedy hereunder is subject to
certain equitable defenses and to the discretion of the court before which
any proceedings therefor may be brought.
(m) ENTIRE AGREEMENT. This Agreement embodies the entire
agreement between the parties and understanding between the Company and the
Holder relating to the subject matter hereof and supersedes all prior
agreements and understandings relating to such subject matter.
10
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
PERFICIENT, INC.
By: /s/ John T. McDonald
------------------------------
Name: John T. McDonald
Title: Chief Executive Officer
HOLDER
/s/ John Gillespie
--------------------------------
John Gillespie, individually
11
<PAGE>
EXHIBIT 10.17
FORM OF REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT made as of February __, 2000, between
Perficient, Inc., a Delaware corporation (the "Company), and the individuals
listed on the signature page hereto (each, a "Holder" and, collectively, the
"Holders").
WHEREAS, the Holders have agreed to purchase shares of common stock,
par value $0.001 per share ("Common Stock"), of the Company pursuant to
Subscription Agreements (the "Subscription Agreements") and under the
Confidential Private Placement Memorandum dated January 27, 2000 (the
"Memorandum"); and
WHEREAS, as a condition to the consummation of private placement,
the Company has agreed to grant the Holders the rights provided hereunder
with respect to the shares of Common Stock.
NOW, THEREFORE, the parties have agreed as follows:
1. DEFINITIONS.
(a) The term "Commission" means the Securities and Exchange
Commission.
(b) The term "Other Securities" means at any time those
shares of Common Stock which do not constitute Primary Securities or
Registrable Securities.
(c) The term "Person" means a holder of Registrable
Securities whenever such Person has the right to acquire such Registrable
Securities (by conversion or otherwise, but disregarding any legal or other
restrictions upon the exercise of such right), whether or not such
acquisition has actually been effected.
(d) The term "Primary Securities" means at any time the
authorized but unissued shares of Common Stock or shares of Common Stock held
by the Company in its treasury.
(e) The term "Registrable Securities" means the Common
Stock issued to Holders under the Memorandum. As to any particular
Registrable Securities, once issued such securities shall cease to be
Registrable Securities when (a) a registration statement with respect to the
sale of such securities shall have become effective under the Securities Act
and such securities shall have been disposed of in accordance with such
registration statement, (b) such securities may be distributed by a Holder to
the public pursuant to Rule 144(k) (or any successor provision) under the
Securities Act, (c) such securities shall have been otherwise transferred,
new certificates for such securities not bearing a legend restricting further
transfer shall have been delivered by the Company and subsequent disposition
of such securities shall not require registration or qualification of such
securities under the Securities Act or any similar state law then in force,
or (d) such securities shall have ceased to be outstanding.
<PAGE>
(f) The term "Registration Expenses" means all expenses
incident to the Company's performance of or compliance with this Agreement,
including, without limitation, all registration, filing and NASD fees, all
stock exchange listing fees, all fees and expenses of complying with
securities or blue sky laws, all word processing, duplicating and printing
expenses, messenger and delivery expenses, the fees and disbursements of
counsel for the Company and of its independent public accountants, including
the expenses of any special audits or "cold comfort letters" required by or
incident to such performance and compliance, premiums and other costs of
policies of insurance against liabilities arising out of the public offering
of the Registrable Securities being registered and any fees and disbursements
of underwriters customarily paid by issuers or sellers of securities, but
excluding underwriting discounts and commissions and transfer taxes, if any,
relating to the sale or disposition of any Holder's Registrable Securities
pursuant to the shelf registration statement and the expenses of any separate
fees for counsel for such Holder, PROVIDED THAT, in any case where
Registration Expenses are not to be borne by the Company, such expenses shall
not include salaries of the Company's personnel or general overhead expenses
of the Company, premiums or other expenses relating to liability insurance
required by underwriters of the Company or other expenses for the preparation
of financial statements or other data normally prepared by the Company in the
ordinary course of its business or which the Company would have incurred in
any event.
(g) The term "Securities Act" means the Securities Act of
1933, as amended, or any successor law.
(h) Unless otherwise stated, other capitalized terms
contained herein have the meanings set forth in the Memorandum.
2. CERTAIN RIGHTS OF THE HOLDERS.
(a) As soon as practicable following the Closing Date of
the private placement of shares of Common Stock offered under the Memorandum
(the "Closing Date") and in no event later than April 30, 2000, the Company
shall cause to be filed a registration statement under the Securities Act to
register the Registrable Securities and shall use its best efforts to cause
the registration statement to be declared effective by the Commission as soon
as possible thereafter; PROVIDED, HOWEVER, that the Company shall not be
required to maintain the effectiveness of any such registration for any
period following the earlier of the occurrence of (i) the sale of all
Registrable Securities or (ii) such time as Rule 144(k) is available for the
sale of the Registrable Securities. The Company will not file any
registration statement under the Securities Act, unless it shall first have
given to each Holder, at least 10 days prior written notice thereof. If any
such registration statement refers to any Holder by name or otherwise as the
holder of any securities of the Company, then such Holder shall have the
right within such 10 day period to require (i) the insertion therein of
language, in form and substance satisfactory to such Holder to the effect
that the holding by the Holder of such securities does not necessarily make
the Holder a "controlling person" of the Company within the meaning of the
Securities Act and is not to be construed as a recommendation by such Holder
of the investment quality of the Company's debt or equity securities covered
thereby and that the Holder will assist in meeting any future financial
requirements of the Company or (ii) in the event that such reference to such
2
<PAGE>
Holder by name or otherwise is not required by the Securities Act or any
rules and regulations promulgated thereunder, the deletion of the reference
to the Holder. If such Holder does not respond within such 10 day period, the
Company may proceed with the filing.
(b) PIGGYBACK REGISTRATION. (i) If, at any time following
the Closing Date and ending on the ten-year anniversary of such Closing Date,
the Company proposes to prepare and file one or more registration statements
or post-effective amendments thereto covering equity or debt securities of
the Company, or any such securities of the Company held by its shareholders
(in any such case, other than in connection with a merger, acquisition or
pursuant to Form S-8 or successor form) (for purposes of this Section,
collectively, the "Registration Statement"), it will give written notice of
its intention to do so by registered mail ("Notice"), at least thirty (30)
business days prior to the filing of each such Registration Statement, to the
Holders. Upon the written request of any Holder (a "Requesting Holder"), made
within twenty (20) business days after receipt of the Notice, that the
Company include any of the Requesting Holder's Registrable Securities in the
proposed Registration Statement, the Company shall use its best efforts to
effect the registration under the Act of the Registrable Securities which it
has been so requested to register ("Piggyback Registration"), at the
Company's sole cost and expense and at no cost or expense to the Requesting
Holder provided, however, that if, in the written opinion of the Company's
managing underwriter, if any, for such offering, the inclusion of all or a
portion of the Registrable Securities requested to be registered, when added
to the securities being registered by the Company or the selling
shareholder(s), will exceed the maximum amount of the Company's securities
which can be marketed (i) at a price reasonably related to their then current
market value, or (ii) without otherwise materially adversely affecting the
entire offering, then the Company may exclude from such offering all or a
portion of the Registrable Securities which it has been requested to register.
(ii) If securities are proposed to be offered for
sale pursuant to such Registration Statement by other security holders of the
Company and the total number of securities to be offered by the Requesting
Holder and such other selling security holders is required to be reduced
pursuant to a request from the managing underwriter (which request shall be
made only for the reasons and in the manner set forth above) the aggregate
number of Registrable Securities to be offered by the Requesting Holder
pursuant to such Registration Statement shall equal the number which bears
the same ratio to the maximum number of securities that the underwriter
believes may be included for all the selling security holders (including the
Requesting Holder) as the original number of Registrable Securities proposed
to be sold by the Requesting Holder bears to the total original number of
securities proposed to be offered by the Requesting Holder and the other
selling security holders.
(iii) If any Registrable Securities requested to
be included in a Piggyback Registration are not so included because of the
operation of the proviso of the first paragraph of this Section 2(b), then
the holders of such excluded Registrable Securities shall have the right to
require the Company, at its expense, to prepare and file another Registration
Statement under the Act covering such Registrable Securities, provided that,
if the underwriter so requests, such Registrable Securities shall not be sold
until the expiration of 90 days from the effective date of the offering that
gave rise to the piggyback registration rights that are the
3
<PAGE>
subject of this Section 2(b). Nothing contained in the foregoing sentence
shall require the Company to undergo an audit, other than in the ordinary
course of business.
(iv) Notwithstanding the provisions of
this Section 2(b), the Company shall have the right at any time after it
shall have given written notice pursuant to this Section 2(b) (irrespective
of whether any written request for inclusion of such securities shall have
already been made) to elect not to file any such proposed Registration
Statement, or to withdraw the same after the filing but prior to the
effective date thereof.
(c) DEMAND REGISTRATION. At any time during a period of ten
years from the Closing Date, Holders owning more than 50% of the aggregate
Registrable Securities outstanding shall have the right (which right is in
addition to the piggyback registration rights provided for under Section 2(b)
hereof), exercisable by written notice to the Company (the "Demand
Registration Request"), to have the Company prepare and file with the
Securities and Exchange Commission (the "Commission") no more than on one
occasion, a Registration Statement and such other documents, including a
prospectus, as may be necessary (in the opinion of both counsel for the
Company and counsel for such Holders), in order to comply with the provisions
of the Securities Act, so as to permit a public offering and sale of the
Registrable Securities by the Holder PROVIDED, HOWEVER, that the Company
shall not be required to effect a Registration pursuant to this Section 2(b)
unless at least 250,000 shares of the Registrable Securities are proposed to
be sold in such registration (as adjusted for any stock split, stock dividend
or similar change in the Common Stock). The Company shall not be required to
maintain the effectiveness of any such registration for greater than nine
months. The form on which such registration shall be filed shall be
determined by the Company from among the forms then available to it under the
Securities Act for such registration.
(d) Notwithstanding the foregoing, the Company may delay
filing a registration statement and may withhold efforts to cause the
registration statement to become or remain effective, if the Company
determines in good faith that such registration might (i) interfere with or
affect the negotiation or completion of any transaction that is being
contemplated by the Company at the time the right to delay is exercised, or
(ii) involve initial or continuing disclosure obligations that might not be
in the best interest of the Company's shareholders. Notwithstanding the
foregoing, (A) the Company shall not be entitled to exercise its right to
defer filing or effectiveness of a registration pursuant to a Demand
Registration Request for more than ninety (90) consecutive days, and (B) the
Company may not exercise the foregoing right more than two times in any
365-day period, with not less than ninety (90) days between the end of one
suspension period and the beginning of the next one.
3. REGISTRATION PROCEDURES.
(a) If the Company is required to effect the registration
of the Registrable Securities under the Securities Act as provided in Section
2, the Company shall, as expeditiously as possible (and in all events subject
to Section 2):
(i) prepare and file with the Commission the
requisite registration statement to effect such registration (including such
audited financial statements as may be
4
<PAGE>
required by the Securities Act or the rules and regulations promulgated
thereunder) and thereafter cause such registration statement to become and
remain effective, PROVIDED, HOWEVER, that before filing such registration
statement or any amendments thereto, the Company will furnish to each Holder
copies of all such documents proposed to be filed, which documents will be
subject to its review in accordance with Section 3(b);
(ii) prepare and file with the Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such
registration statement until such time as all of such Registrable Securities
have been disposed of in accordance with the intended methods of disposition
by each Holder set forth in such registration statement;
(iii) furnish to each Holder (or underwriter, if
any, of the securities being sold by such Holder) such number of conformed
copies of such registration statement and of each such amendment and
supplement thereto (in each case including all exhibits), such number of
copies of the prospectus contained in such registration statement (including
each preliminary prospectus and any summary prospectus) and any other
prospectus filed under Rule 424 under the Securities Act, in conformity with
the requirements of the Securities Act, and such other documents as, such
Holder (and each such underwriter, if any) may reasonably request in order to
facilitate the public sale or other disposition of the Registrable Securities;
(iv) use its best efforts to register or qualify
all Registrable Securities and other securities covered by such registration
statement under such other securities laws or blue sky laws of such
jurisdictions as any Holder (and any underwriter of the Registrable
Securities being sold) shall reasonably request, to keep such registrations
or qualifications in effect for so long as such registration statement
remains in effect, and take any other action which may be necessary or
advisable to enable such Holder (and underwriter, if any) to consummate the
disposition in such jurisdictions of the Registrable Securities except that
the Company shall not for any such purpose be required to qualify generally
to do business as a foreign corporation in any jurisdiction wherein it would
not but for the requirements of this subdivision (iv) be obligated to be so
qualified or to consent to general service of process in any such
jurisdiction;
(v) use its best efforts to cause all Registrable
Securities covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary to enable each Holder to consummate the disposition of such
Registrable Securities;
(vi) notify each Holder (and the managing
underwriter or underwriters, if any) promptly and confirm such advice in
writing promptly thereafter:
(A) when the registration statement, the
prospectus or any prospectus supplement related thereto or post-effective
amendment to the registration statement
5
<PAGE>
has been filed, and, with respect to the registration statement or any
post-effective amendment thereto, when the same has become effective:
(B) of any request by the Commission for
amendments or supplements to the registration statement or the prospectus or
for additional information;
(C) of the issuance by the Commission of
any stop order suspending the effectiveness of the registration statement or
the initiation of any proceedings by any Person for that purpose;
(D) if at any time the representations
and warranties of the Company cease to be true and correct;
(E) of the receipt by the Company of any
notification with respect to the suspension of the qualification of any
Registrable Securities for sale under the securities or blue sky laws of any
jurisdiction or the initiation or threat of any proceeding for such purpose;
(vii) notify each Holder, at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, upon discovery that, or upon the happening of any event as a result of
which, the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then
existing, promptly but within a reasonable period of time given the
circumstances, file with the Commission such amendments or supplements to
such registration statement so that such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing and promptly furnish
to such Holder (and each underwriter, if any) a reasonable number of copies
of such supplement to or an amendment of such prospectus as they may
reasonably request;;
(viii) make every reasonable effort to obtain the
withdrawal of any order suspending the effectiveness of the registration
statement;
(ix) otherwise use reasonable efforts to comply
with all applicable rules and regulations of the Commission and will furnish
to each Holder at least five business days prior to the filing thereof a copy
of any amendment or supplement to such registration statement or prospectus
and shall not file any thereof to which any Holder shall have reasonably
objected on the grounds that such amendment or supplement does not comply in
all material respects with the requirements of the Securities Act or of the
rules or regulations thereunder;
(x) make available for inspection by any Holder,
any underwriter participating in any disposition pursuant to the registration
statement and any attorney or accountant retained by such Holder or such
underwriter (each, an "Inspector"), all financial and other records,
pertinent corporate documents and properties of the Company (the "Records"),
and cause the Company's officers, directors and employees to supply all
information reasonably
6
<PAGE>
requested by any such Inspector in connection with such registration in order
to permit a reasonable investigation within the meaning of Section 11 of the
Securities Act;
(xi) provide and cause to be maintained a transfer
agent and registrar for all Registrable Securities covered by such
registration statement from and after a date not later than the effective
date of such registration statement;
(xii) enter into such agreements and take such
other actions as any Holder shall reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities;
(xiii) use its best efforts to list all
Registrable Securities covered by such registration statement on any
securities exchange on which any of the securities of the same class as the
Registrable Securities are then listed;
(xiv) use its best efforts to provide a CUSIP
number for the Registrable Securities, not later than the effective date of
the registration statement; and
(xv) file such periodic and other reports as may
be required pursuant to the Exchange Act.
(b) Each Holder agrees that, upon receipt of any notice
from the Company of the occurrence of any event of the kind described in
subdivision (vii) of this Section, such Holder will forthwith and for a
reasonable time discontinue disposition of Registrable Securities pursuant to
the registration statement relating to such Registrable Securities until such
Holder's receipt of the copies of the supplemented or amended prospectus
required by subdivision (vii) of this Section.
(c) Notwithstanding the foregoing, at such time as the
Company is eligible to register any of the Registrable Securities on a
registration statement on Form S-3, the Company may utilize such a
registration statement to cause the registration of such shares.
4. INDEMNIFICATION BY THE COMPANY.
(a) GENERAL RIGHTS.
(i) In the event of any registration of any
securities of the Company under the Securities Act, the Company will, and
hereby does agree to, indemnify and hold harmless in the case of any
registration statement of the Company, the Holders and any underwriter
including the respective directors, officers, agents and controlling persons
(within the meaning of Section 15 of the Securities Act and Section 20 of the
Exchange Act), if any, of each Holder and such underwriters against any
losses, claims, damages, liabilities or expense, joint or several, to which
the Holder (or any underwriter) or any such director, officer, agent or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions
or proceedings, whether commenced or threatened, in respect thereof) arise
out of or based upon any untrue statement or alleged
7
<PAGE>
untrue statement of any material fact contained in any registration statement
under which securities were registered under the Securities Act, any
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and the Company will
reimburse each Holder (or any underwriter) and each such director, officer,
agent and controlling person for any legal or any other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability, action or proceeding; PROVIDED THAT the Company
shall not be liable in such case to the extent that any such loss, claim,
damage, liability or action or proceeding in respect thereof or expense
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration
statement, any such preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement exclusively in reliance upon and in
conformity with information furnished to the Company through an instrument
duly executed by such Holder, specifically stating that it is for use in the
preparation thereof. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of any Holder (or
underwriter, if any) or any such director, officer, agent or controlling
person and shall survive the transfer of such securities by such Holder.
(ii) Each Holder will, if Registrable Securities
held by him are included in the securities as to which such registration,
qualification or compliance is being effected, severally (but not jointly)
indemnify and hold harmless the Company and the directors, officers, agents
and controlling persons, if any, of the Company against any losses, claims,
damages, liabilities or expense to which the Company and the directors,
officers, agents and controlling persons, if any, of the Company may become
subject under the Securities Act insofar as such losses, claims, damages,
liabilities or expense arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in any registration
statement under which the Registrable Securities were registered under the
Securities Act, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent (and only to the extent) that such loss, claim,
damage, liability or expense occurs in exclusive reliance upon and in
conformity with written information furnished by such Holder expressly for
use in connection with such registration; provided that such Holder shall be
liable under this paragraph for only that amount of losses, claims, damages,
liabilities or expense as does not exceed the proceeds to such Holder as a
result of the sale of Registrable Securities pursuant to such registration.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Company or any such director,
officer, agent or controlling person.
(b) NOTICES OF CLAIMS, ETC. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in the preceding subdivisions of this Section,
such indemnified party will, if a claim in respect thereof is to be made
against an indemnifying party, give written notice to the latter of the
commencement of such action, PROVIDED THAT the failure of any indemnified
party to give notice as provided herein shall not relieve the indemnifying
party of its obligations under the preceding
8
<PAGE>
subdivisions of this Section, except to the extent that the indemnifying
party is actually prejudiced in a material manner by such failure to give
notice. In case any such action is brought against an indemnified party,
unless in such indemnified party's reasonable judgment a conflict of interest
between such indemnified and indemnifying parties may exist in respect of
such claim, the indemnifying party shall be entitled to participate in and to
assume the defense thereof, jointly with any other indemnifying party
similarly notified, to the extent that the indemnifying party may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party shall not be liable to
such indemnified party for any legal or other expenses subsequently incurred
by the latter in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall, without the consent of
the indemnified party, consent to entry of any judgment or enter into any
settlement of any such action which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party of
a release from all liability, or a covenant not to sue, in respect to such
claim or litigation. No indemnified party shall consent to entry of any
judgment or enter into any settlement of any such action the defense of which
has been assumed by an indemnifying party without the consent of such
indemnifying party.
(c) OTHER INDEMNIFICATION. Indemnification similar to that
specified in the preceding subdivisions of this Section (with appropriate
modifications) shall be given by the Company and the Holders with respect to
any required registration or other qualification of securities under any
Federal or state law or regulation of any governmental authority, other than
the Securities Act.
(d) INDEMNIFICATION PAYMENTS. The indemnification required
by this Section shall be made by periodic payments of the amount thereof
during the course of the investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred.
(e) CONTRIBUTION. If the indemnification provided for in
the preceding subdivisions of this Section is unavailable to an indemnified
party in respect of any loss, claim, damage, liability or expense referred to
therein, then each indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, claim, damage, liability or
expense, in such proportion as is appropriate to reflect the relative fault
of the Company on the one hand and of such Holder or underwriter, as the case
may be, on the other in connection with the statements or omissions which
resulted in such loss, claim, damage, liability or expense, as well as any
other relevant equitable considerations. The relative fault of the Company on
the one hand and of such Holder or underwriter, as the case may be, on the
other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or omission to state a
material fact relates to information supplied by the Company, by such Holder
or by the underwriter and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission,
PROVIDED THAT the foregoing contribution agreement shall not inure to the
benefit of any indemnified party if indemnification would be unavailable to
such indemnified party by reason of the provisions contained in the first
sentence of subdivision (a) of this Section and in no event shall the
obligation of any indemnifying party to contribute under this subdivision (e)
exceed the amount that such indemnifying party would
9
<PAGE>
have been obligated to pay by way of indemnification if the indemnification
provided for under subdivisions (a) or (b) of this Section had been available
under the circumstances. Notwithstanding the provisions of this subdivision
(e), neither the Holders nor the underwriter shall be required to contribute
any amount in excess of the amount by which (i) in the case of any Holder,
the net proceeds received by such Holder from the sale of Registrable
Securities or (ii) in the case of an underwriter, the total price at which
the Registrable Securities purchased by it and distributed to the public were
offered by the public exceeds, in either such case, the amount of any damages
that such Holder or underwriter has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11 the Securities
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation.
5. MISCELLANEOUS.
(a) NO INCONSISTENT AGREEMENTS. The Company will not
hereafter enter into any agreement with respect to its securities which is
inconsistent with the rights granted to the holders of Registrable Securities
in this Agreement.
(b) ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES. The
Company will not take any action, or permit any change to occur, with respect
to its securities which would adversely affect the ability of the Holders to
include Registrable Securities in a registration statement undertaken
pursuant to this Agreement or which would adversely affect the ability of the
Holders to sell such Registrable Securities in any such registration
(including, without limitation, effecting a stock split or a combination of
shares).
(c) AMENDMENTS AND WAIVERS. Except as otherwise provided
herein, the provisions of this Agreement may be amended and the Company may
take any action herein prohibited, or omit to perform any act herein required
to be performed by it, if and only if the Company has obtained the written
consent of the Holders.
(d) SUCCESSORS AND ASSIGNS. The rights to cause the Company
to register securities granted to a Holder by the Company under this
Agreement may be transferred or assigned by a Holder only to a transferee or
assignee of not less than 50,000 shares of Registrable Securities (as
presently constituted and subject to subsequent adjustments for stock splits,
stock dividends, reverse stock splits, and the like), provided that the
Company is given written notice at the time of or within a reasonable time
after said transfer or assignment, stating the name and address of the
transferee or assignee and identifying the securities with respect to which
such registration rights are being transferred or assigned and, provided
further, that the transferee or assignee of such rights assumes the
obligations of such Holder under this Agreement. All covenants and agreements
in this Agreement by or on behalf of any of the parties hereto will bind and
inure to the benefit of the respective successors and assigns of the parties
hereto whether so expressed or not. In addition, whether or not any express
assignment has been made, the provisions of this Agreement which are for the
benefit of purchasers or holders of Registrable Securities are also for the
benefit of, and enforceable by, any subsequent holder of Registrable
Securities.
10
<PAGE>
(e) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the law of the State of New York without giving
effect to conflicts of law principles thereof.
(f) CONSTRUCTION. Section headings of this Agreement are
for reference purposes only and are to be given no effect in the construction
or interpretation of this Agreement.
(g) SEVERABILITY. In the event that any provision hereof
would, under applicable law, be invalid or enforceable in any respect, such
provision shall be construed by modifying or limiting it so as to be valid
and enforceable to the maximum extent compatible with, and permissible under,
applicable law. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement which shall remain in full force and effect.
(h) JOINT AGREEMENT. The provisions of this Agreement and
each document delivered pursuant hereto shall be deemed to be the joint
effort of each of the parties hereto and shall not be construed more severely
or strictly against any one or more parties.
(i) NOTICES. Except as otherwise provided in this
Agreement, all notices, requests and other communications shall be in writing
and shall be given to the Holder addressed to it in the manner set forth in
the Subscription Agreement applicable to such Holder or at such other address
as any Holder shall have furnished to the Company in writing, and to the
Company, to the attention of its Chief Executive Officer, or at such other
address, or to the attention of such other officer, as the Company shall have
furnished to the Holders. Each such notice, request or other communication
shall be effective (i) if given by mail, 72 hours after such communication is
deposited in the mails with first class postage prepaid, addressed as
aforesaid or (ii) if given by any other means (including, without limitation,
by air courier), when delivered at the address specified above, PROVIDED that
any such notice, request or communication shall not be effective until
received.
(j) COUNTERPARTS. This Agreement may be executed
simultaneously in counterparts, each of which shall be deemed an original,
but all such counterparts shall together constitute one and the same
instrument.
(k) UNDERWRITER HOLDBACK. All Holders that purchase less
than 150,000 shares of the Registrable Securities in the Offering pursuant to
the Memorandum agree that if the Company proposes to offer securities
pursuant to a Registration Statement under the Securities Act pursuant to a
firm commitment underwritten public offering, then such Holders will, if
requested by the Underwriter of such proposed public offering, enter into
such agreement that may be requested, agreeing not to sell, pledge,
hypothecate or otherwise dispose of any Registrable Securities for the same
period of time that is requested of officers, directors and principal
stockholders of the Company.
(k) SPECIFIC PERFORMANCE. The parties hereto acknowledge
that there would be no adequate remedy at law if any party fails to perform
any of its other obligations hereunder,
11
<PAGE>
and accordingly agree that each party, in addition to any other remedy to
which it may be entitled at law or in equity, shall be entitled to compel
specific performance of the obligations of any other party under this
Agreement in accordance with the terms and conditions of this Agreement in
any court of the United States or any State thereof having jurisdiction. Any
remedy hereunder is subject to certain equitable defenses and to the
discretion of the court before which any proceedings therefor may be brought.
(l) ENTIRE AGREEMENT. This Agreement embodies the entire
agreement between the parties and understanding between the Company and the
Holders relating to the subject matter hereof and supersedes all prior
agreements and understandings relating to such subject matter.
12
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
PERFICIENT, INC.
By:
-----------------------
Name: John T. McDonald
Title: Chief Executive Officer
--------------------------
--------------------------
--------------------------
13
<PAGE>
PERFICIENT, INC. PROPRIETARY & CONFIDENTIAL
EXHIBIT 10.18
SUBCONTRACT AGREEMENT
This Subcontract Agreement is made as of November 4, 1999 ("Date") by
and between Plumtree, Inc. ("Company") with principal offices at 500 Sansome St,
San Fransisco, CA. 94111 and Perficient, Inc. ("Consultant") with principal
offices at 7600 - B North Capital of TX Hwy, Suite 220, Austin, TX 78735.
1. SCOPE OF SERVICES; PROJECT ASSIGNMENTS
1.1 Company may issue Project Assignments to Consultant in
the form attached to this Agreement as EXHIBIT A ("Project Assignment").
Subject to the terms of this Agreement, Consultant shall render the services
(the "Services") and provide the deliverables (the "Deliverables") as set
forth in the Project Assignment(s) accepted in writing by Consultant by the
completion dates set forth therein.
1.2 Each Project Assignment shall provide the specific
Services authorized by Company, the schedule or term, the applicable rates
and charges therefor, and other appropriate terms and conditions.
1.3 Each Project Assignment shall provide acceptance
criteria for the Services and Deliverables described in such Project
Assignment ("Acceptance Criteria"). Upon completion of such Services and
Deliverables, Consultant shall notify Company of such completion ("Notice").
For the Services and Deliverables described in each such Project Assignment,
Company shall have five (5) business days (the "Acceptance Period") from
receipt of Notice to determine whether the completed Services and
Deliverables conform to the applicable Acceptance Criteria. Upon expiration
of the Acceptance Period, the completed Services and Deliverables shall be
deemed accepted by Company unless Consultant has received from Company prior
to the expiration of the Acceptance Period a written statement detailing any
nonconformance ("Notice of Nonconformance"). If Consultant receives a Notice
of Nonconformance during the Acceptance Period, Consultant shall re-perform
such Services and provide substitute Deliverables, at no cost to Company for
Consultant's time expended. The Acceptance Period and procedure of this
Section shall repeat itself with respect to such re-performed services and
substitute Deliverables until accepted or deemed accepted by Company
("Acceptance").
2. PAYMENT
2.1 Training Period: Each individual with no prior
experience with Company's products shall be considered a trainee for a period
of 4 weeks during which the following applies:
1
<PAGE>
PERFICIENT, INC. PROPRIETARY & CONFIDENTIAL
a. Company shall provide a one week training class
at no charge to each individual hired by Consultant on their behalf.
b. During the one (1) week training class for a new
individual, Consultant shall not invoice Company for either hours or out of
pocket expenses.
c. In the period of 3 weeks following the
completion of the training class, Consultant will bill Company for an
individual's time at 50% of the individual's standard rate assuming 100
utilization on an internal or external assignment. Utilization will be
computed based on an eight (8) hour day x the number of business days in a
billing period. Company shall pay all out of pockets expenses incurred as a
result of such assignments (e.g. travel, per-diems) during said period.
2.2 Company shall pay Consultant the fees identified in the
applicable Project Assignment for time incurred by Consultant in performance
of its obligations, as adjusted to reflect any changes in the scope of work
that Company authorizes in writing, and to which Consultant agrees in
writing. Company shall also reimburse Consultant for any actual, reasonable
travel and out-of-pocket expenses incurred in performing Services. The fees
do not include taxes, shipping or insurance. If Consultant is required to pay
any federal, state or local taxes based on the Services or Deliverables, such
taxes will be billed to and paid by Company. Consultant shall be responsible
for taxes based on Consultant's net income.
2.3 Unless invoicing is tied to deliverable milestones
specified under a given Project Assignment, Consultant will invoice Company
monthly for work done by Consultant during the preceding month. All invoices
are due and payable thirty (30) days after the invoice date. Invoices not
paid within such period shall accrue interest at the rate of 1.5% per month
or the maximum rate allowed by law, whichever is less.
3. CONFIDENTIALITY
3.1 Except for purposes permitted under this Agreement,
each party hereby agrees to not disclose or use any materials or information
received by it hereunder which are marked as confidential or proprietary, or
if disclosed verbally, reduced to writing and marked confidential within
thirty (30) days after the date of disclosure ("Confidential Information").
Each party agrees to take precautions to prevent any unauthorized disclosure
or use of the other party's Confidential Information consistent with
precautions used to protect such party's own confidential information, but in
no event less than reasonable care. The obligations of the parties hereunder
shall not apply to any materials or information which a party can
demonstrate, through documented evidence (a) is now, or hereafter becomes,
through no act or failure to act on the part of the receiving party,
generally known or available; (b) is known by the receiving party at the time
of receiving such information as evidenced by its records; (c) is hereafter
furnished to the receiving party by a third party, as a matter of right and
without restriction on disclosure; (d) is independently developed by the
receiving party without
2
<PAGE>
PERFICIENT, INC. PROPRIETARY & CONFIDENTIAL
use of any Confidential Information; or (e) is the subject of a written
permission to disclose provided by the disclosing party. Notwithstanding any
other provision of this Agreement, disclosure of Confidential Information
shall not be precluded if such disclosure:
a. is in response to a valid order of a court or
other governmental body of the United States or any political subdivision
thereof; provided, however, that the responding party shall first have given
notice to the other party hereto in order that such other party may obtain a
protective order requiring that the Confidential Information so disclosed be
used only for which the order was issued and the responding party uses
reasonable efforts to have such information be treated as confidential and
under seal;
b. is otherwise required by law; or
c. is otherwise necessary to establish rights or
enforce obligations under this Agreement, but only to the extent that any
such disclosure is necessary.
3.2 Notwithstanding anything to the contrary herein,
Consultant's use or dissemination of information of general application which
may be retained in the memory of employees of Consultant, including formulae,
patterns, compilations, programs, devices, methods, techniques or processes,
shall not be considered a breach of Consultant's confidentiality obligations.
3.3 In the event of any breach of this Section, the parties
agree that the non-breaching party will suffer irreparable harm for which
money damages would be an inadequate remedy. Accordingly, the non-breaching
party shall be entitled to seek injunctive relief, in addition to any other
available remedies at law or in equity.
4. INTELLECTUAL PROPERTY
4.1 All right, title and interest to any copyrights,
patents or other intellectual property rights embodied in Deliverables or
other works developed by Consultant in the course of providing the Services,
including but not limited to, any new or useful art, discovery, improvement,
technical development, or invention, whether or not patentable, and all
related know-how, designs, mask works, trademarks, formulae, processes,
manufacturing techniques, trade secrets, ideas, artworks, software or other
copyrightable or patentable work (collectively, "Rights"), are the sole and
exclusive property of Company and/or its licensors. Consultant is hereby
granted a non-exclusive, worldwide license under the Rights to use, reproduce
and create derivative works of the Deliverables on engagements entered into
on behalf of Company.
4.2 Consultant has the necessary right, title, and interest
to produce the Deliverables and provide the Services to Company, and
Deliverables will be free of liens
3
<PAGE>
PERFICIENT, INC. PROPRIETARY & CONFIDENTIAL
and encumbrances, and do not infringe any third party intellectual property
rights. Consultant shall indemnify and hold Company harmless from any claims
that Deliverables infringe any third party intellectual property rights.
Consultant's indemnity obligations under this Section shall not exceed the
amount payable by Company to Consultant under the Project Assignment related
to such alleged infringement, provided, however, that if such infringement is
caused by the deliberate or willful misconduct of Consultant, the amount of
such indemnity shall be limited to Company's actual damages (including
reasonable attorney fees).
4.3 Except as prohibited pursuant to Article 3
("Confidentiality"), Consultant may in its sole discretion develop, use,
market and license any products or services that are similar or related to
those developed or performed by Consultant for Company. Consultant shall not
be required to disclose to Company information concerning any developments
that Consultant considers confidential.
5. SOFTWARE LICENSE
5.1 Company will provide Consultant with copies of any
Company's software programs and/or other software code and related
documentation which Consultant requires access to in order to perform
Services or provide Deliverables pursuant to a Project Assignment
(collectively, the "Software"). Company grants Consultant a royalty-free,
revocable, and nonexclusive license to possess, install and use the Software
for such limited purposes and for internal use.
6. RECORDS AND REPORTING
6.1 Consultant shall maintain complete and accurate records
of the work performed hereunder, the amounts invoiced and hours worked. Such
records shall be in accordance with standard accounting practices and shall
include, but not be limited to, time sheets and receipts for reimbursable
expenses.
6.2 Company shall have the right to inspect and audit
Consultant's records at Consultant's place of business during normal business
hours at any time during the term of this Agreement and for a period of one
(1) year thereafter, upon giving Consultant thirty (30) days prior written
notice. Any information received or acquired by Company during such audit
shall be deemed Confidential Information of Consultant and subject to the use
and disclosure restrictions set forth herein.
7. LIMITED WARRANTY; DISCLAIMER
Consultant warrants the Services and Deliverables and will
conform to the Acceptance Criteria and generally accepted industry standards
and practices for similar deliverables or services. If Consultant fails to
perform the Services or provide the Deliverables as warranted, and Company
reports such failure to Consultant in writing
4
<PAGE>
PERFICIENT, INC. PROPRIETARY & CONFIDENTIAL
during the thirty (30) day period after Acceptance, Consultant will, without
charge for its time expended, re-perform the Services and provide substitute
Deliverables as necessary. At Consultant's option and in its sole discretion,
Consultant may elect not to re-perform the Services or provide Substitute
Deliverables and instead, refund certain amounts paid by Company and
terminate this Agreement or the applicable Project Assignment. The above is
Company's sole and exclusive remedy for breach of warranty by Consultant with
regard to the provision of Services and Deliverables. EXCEPT FOR THE WARRANTY
PROVIDED IN THIS ARTICLE 7 ("LIMITED WARRANTY; DISCLAIMER"), CONSULTANT MAKES
NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY (INCLUDING, WITHOUT
LIMITATION, ANY WARRANTY OF NONINFRINGEMENT, MERCHANTABILITY, OR FITNESS FOR
A PARTICULAR PURPOSE) REGARDING THE SERVICES OR ANY DELIVERABLE.
8. TERM AND TERMINATION
This Agreement is effective as of the Effective Date and
will continue in perpetuity unless terminated as set forth below. Either
party may terminate this Agreement, with or without cause, at any time upon
ninety (90) days prior written notice to the other party. However, no such
termination will be effective until any outstanding Project Assignments have
been completed. The rights and obligations contained in Articles 2
("Payment"), 3 ("Confidentiality") 4 ("Intellectual Property"), 7 ("Limited
Warranty;Disclaimer"), 8 ("Term and Termination"). 10 ("Limitation of
Liability") and [11 or 12] ("General Terms and Conditions") shall survive any
termination or expiration of this Agreement.
9. INDEPENDENT CONTRACTOR
Consultant agrees that it is an independent contractor and
that it will perform under this Agreement as an independent contractor.
Nothing in this Agreement shall be deemed to make Consultant an agent,
employee or partner of Company. Consultant shall not be entitled to any of
the fringe benefits of Company and shall have no authority to bind, commit,
contract for or otherwise obligate Company in any manner whatsoever.
Furthermore, Consultant shall withhold and pay Social Security, income taxes,
and other employment taxes for itself and its employees.
10. LIMITATION OF LIABILITY
Notwithstanding any other provisions of this Agreement,
Consultant's liability to Company under any particular Project Assignment is
limited to the amounts paid to Consultant under such Project Assignment.
Furthermore, neither party will be liable to the other party or any third
party for any loss of use, interruption of business or any special,
incidental, exemplary or consequential damages of any kind (including lost
profits), regardless of the form of action, whether in contract, tort
(including negligence), strict product liability or otherwise, even if
Consultant has been advised of the possibility of such damages. The foregoing
provisions limiting damages and excluding
5
<PAGE>
PERFICIENT, INC. PROPRIETARY & CONFIDENTIAL
consequential damages are independent of any exclusive remedies for breach of
warranty set forth herein.
11. INSURANCE
11.1 Consultant agrees to carry Workers Compensation
Insurance.
11.2 Consultant agrees to carry Commercial General
Liability insurance covering all operations of the Consultant with a combined
single limit of $1,000,0000.
11.3 Consultant agrees to carry Automobile Liability
Insurance covering bodily injury and property damage liability arising out of
the use by or on behalf of the Consultant with combined limits not less than
$500,000.
11.4 Consultant agrees to carry Errors and Omissions
Insurance covering loss or damage arising out of negligent acts or errors or
omissions which arise from professional services provided by Consultant under
this Agreement with limits no less than $500,000 per occurrence.
11.5 Upon request Consultant will provide evidence of the
coverage listed above in the form of certificates of insurance or copies of
insurance policies.
6
<PAGE>
PERFICIENT, INC. PROPRIETARY & CONFIDENTIAL
12. GENERAL TERMS AND CONDITIONS
12.1 During the term of this agreement and for a period of
one (1) year thereafter both parties mutually agree not to solicit or hire
any employee of either company, or any person who has within the prior six
(6) months been an employee of either company without the express written
permission of both parties.
12.2 In the event that any dispute arises between the
parties hereto with regard to any of the provisions of this Agreement or the
performance of any of the terms and conditions hereof, the prevailing party
in any such dispute shall be entitled to recover costs and expenses
associated with resolving such dispute, including but not limited to
reasonable attorneys' fees expert witness fees and costs and fees on appeal.
12.3 This Agreement is governed in all respects by the laws
of the United States of America and the State of Texas as such laws are
applied to agreements entered into and to be performed entirely within Texas
between Texas residents, without regard to its conflict or choice of law
principles.
12.4 All notices or reports permitted or required under
this Agreement shall be in writing and shall be by personal delivery,
telegram, telex, telecopier, facsimile transmission, or by certified or
registered mail, return receipt requested, and deemed received upon personal
delivery, five (5) days after deposit in the mail, or upon acknowledgment of
receipt of electronic transmission. Notices shall be sent to the addresses
set forth on the signature page or such other address as either party may
specify in writing. Notices shall be sent to the applicable designated person
identified in the applicable Project Assignment.
12.5 If any provision of this Agreement is unenforceable or
invalid under any applicable law or be so held by applicable court decision,
such unenforceability or invalidity shall not render this Agreement
unenforceable or invalid as a whole. In such event, such provision shall be
changed and interpreted so as to best accomplish the objectives of such
unenforceable or invalid provision within the limits of applicable law or
court decisions.
12.6 The failure of either party to require performance by
the other party of any provision hereof shall not affect the full right to
require such performance at any time thereafter; nor shall the waiver by
either party of a breach of any provision hereof be taken or held to be a
waiver of the provision itself
12.7 Company acknowledges that the laws and regulations of
the United States may restrict the export and re-export of commodities and
technical data of United States origin, including the Deliverables. Company
agrees that it will not export or re-export the Deliverables in any form,
without the appropriate United States and foreign governmental licenses.
7
<PAGE>
PERFICIENT, INC. PROPRIETARY & CONFIDENTIAL
12.8 Neither party shall be liable hereunder by reason of
any failure or delay in the performance of its obligations hereunder (except
for the payment of money) on account of strikes, shortages, riots,
insurrection, fires, flood, storm, explosions, acts of God, war, governmental
action, labor conditions, earthquakes, material shortages, or any other cause
beyond the reasonable control of such party.
12.9 Neither party may assign, voluntarily, by operation of
law or otherwise, any rights or delegate any duties under this Agreement
without the other party's prior written consent, except in the case of a
merger, acquisition, reorganization, consolidation, reincorporation or sale
of all or substantially all of the assets of the party. Any attempt to do so
without that consent will be void. This Agreement will bind and inure to the
benefit of the parties and their respective successors and permitted assigns.
12.10 This Agreement (including any fully executed Project
Assignments) completely and exclusively states the agreement of the parties
regarding its subject matter. It supersedes, and its terms govern, all prior
or contemporaneous proposals, agreements, or other communications between the
parties, oral or written, regarding such subject matter. This Agreement shall
not be modified except by a subsequently dated written amendment or
supplemental Project Assignment signed on behalf of Consultant and Company by
their duly authorized representatives, and any provision on a Project
Assignment purporting to supplement or vary the provisions hereof shall be
void.
IN WITNESS WHEREOF, the parties have executed this Project
Assignment as of the date last written below.
"Consultant" "Company"
Perficient, Inc Plumtree Software
By: By:
------------------------- -----------------------------
Name: Andrew J. Roehr Name:
-----------------------------
Title: Chief Technology Officer Title:
-----------------------------
8
<PAGE>
Exhibit 21
----------
Subsidiaries
The following are the direct and indirect subsidiaries of Perficient, Inc.
Name Jurisdiction of Formation
- - ---- -------------------------
Perficient LoreData, Inc. Delaware
Perficient Compete, Inc. Delaware
Perficient International, Ltd. United Kingdom
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 5,818,918
<SECURITIES> 0
<RECEIVABLES> 563,334
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,535,590
<PP&E> 114,640
<DEPRECIATION> (33,813)
<TOTAL-ASSETS> 6,616,417
<CURRENT-LIABILITIES> 364,326
<BONDS> 0
0
0
<COMMON> 3,503
<OTHER-SE> 6,248,588
<TOTAL-LIABILITY-AND-EQUITY> 6,616,417
<SALES> 3,154,936
<TOTAL-REVENUES> 3,154,936
<CGS> 0
<TOTAL-COSTS> 1,541,389
<OTHER-EXPENSES> 3,039,422
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,425,875)
<INCOME-TAX> (20,912)
<INCOME-CONTINUING> (1,404,963)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,404,963)
<EPS-BASIC> (0.47)
<EPS-DILUTED> (0.47)
</TABLE>
