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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
PERFICIENT, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock
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(2) Aggregate number of securities to which transaction applies:
2,200,000
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
$3,500,000 cash; $2,527,500 Promissory Notes; 2,200,000 shares of
common stock valued at $19.75 per share (average of high and low sale
price on March 13, 2000).
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(4) Proposed maximum aggregate value of transaction:
$49,477,500
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(5) Total fee paid:
$9,895.50
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[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid: ______________________________________________
(2) Form, Schedule or Registration Statement No.: ________________________
(3) Filing Party: ________________________________________________________
(4) Date Filed: __________________________________________________________
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PERFICIENT, INC.
7600-B North Capital of Texas Highway
Austin, Texas 78731
March __, 2000
Dear Fellow Stockholder:
On behalf of the Board of Directors of Perficient, Inc. ("Perficient"),
I cordially invite you to attend a Special Meeting of Stockholders (the "Special
Meeting") of Perficient, Inc. The Special Meeting will be held at ______________
on April ____, 2000 at 10:00 a.m. central standard time. The formal notice of
the Special Meeting appears on the next page. During the Special Meeting,
stockholders who are present will have the opportunity to meet and ask questions
of our senior management team.
THE PROPOSALS. At the Special Meeting, you will be asked to consider
the following proposals:
(1) the issuance of up to 2,200,000 shares of Perficient common stock,
par value $.001, to the stockholders of Compete Inc. ("Compete") in a merger
under which Compete will become a wholly-owned subsidiary of Perficient; and
(2) an amendment to Perficient's 1999 Stock Option/Stock Issuance Plan
to increase the number of shares authorized under the plan from 700,000 to
1,850,000.
THE SHARE ISSUANCE. At the Perficient Special Meeting, you will be
asked to consider and approve a proposal to authorize the issuance of up to
2,200,000 shares of common stock, par value $.001 per share, of Perficient, to
the stockholders of Compete. The shares will be issued in a merger between a
wholly owned subsidiary of Perficient and Compete. Compete is an internet
consulting firm that employs over fifty professionals from four locations in the
United States and abroad.
Under the merger agreement, shares of Compete common stock and certain
options to purchase Compete common stock will be converted in the aggregate into
rights to receive 2,200,000 shares of Perficient common stock, plus cash to be
paid in lieu of fractional shares, $3,500,000 in cash and $2,527,500 in
non-interest bearing promissory notes payable six months from the closing. In
addition, other 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.
The merger is subject to several conditions, including approval of the
share issuance by Perficient stockholders. A summary of the basic terms and
conditions of the merger, as well as certain financial and other information
relating to Perficient and Compete, are set forth in the accompanying proxy
statement. A copy of the merger agreement is attached to the
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accompanying proxy statement as Appendix A. If the approval of the stockholders
of Perficient is received, the merger is expected to be concluded shortly
thereafter.
Our Board of Directors unanimously approved the merger agreement, the
merger and the share issuance and recommends that you vote FOR the share
issuance in connection with the merger.
THE EMPLOYEE PLAN AMENDMENT. At the Perficient Special Meeting, you
will also be asked to consider a proposed amendment to the Perficient 1999 Stock
Option/Stock Issuance Plan to increase the number of shares authorized under the
employee plan from 700,000 to 1,850,000. This increase is necessary to have
options available for grants made to our employees as well as to Compete
employees and stockholders and employees of other companies that may be acquired
in the future by Perficient. The merger is not conditioned upon the approval by
you of this proposed amendment. Our Board of Directors has approved the proposed
amendment to the employee plan and recommends that you vote FOR its approval.
THE SPECIAL MEETING. All stockholders are invited to attend the Special
Meeting in person. The share issuance and the amendment to the employee plan
require the affirmative vote of a majority of shares of Perficient common stock
cast in person or by proxy at the Perficient Special Meeting. Officers,
directors and other stockholders of Perficient, owning in the aggregate more
than 50% of the issued and outstanding shares of Perficient common stock have
agreed to vote their shares in favor of the share issuance. Stockholders are
urged to review carefully the information contained in the accompanying proxy
statement.
Whether or not you expect to attend the Perficient Special Meeting in
person, please complete, sign and promptly return the enclosed proxy card in the
enclosed postage-prepaid envelope to assure representation of your shares. You
may revoke your proxy at any time before it has been voted, and if you attend
the meeting you may vote in person even if you have previously returned you
proxy card.
We believe that interaction between stockholders and management is
important and hope that you will be able to attend the Special Meeting. Your
interest and support in the affairs of Perficient are appreciated.
Whether or not you are able to attend the Special Meeting, it is
important that your views be represented. To be sure that happens, please sign
and date the enclosed proxy card and return it in the envelope provided. If you
plan to attend the Special Meeting, please check the appropriate box on the
proxy card.
Sincerely,
Steven G. Papermaster
Chairman of the Board
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PERFICIENT, INC.
7600-B North Capital of Texas Highway
Austin, Texas 78731
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL , 2000
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NOTICE IS HEREBY GIVEN that a Special Meeting of the Stockholders of Perficient,
Inc. ("Perficient") will be held at ____________________ on April ____, 2000 at
10:00 a.m., Central Standard Time for the following purposes:
(1) To approve the issuance of up to 2,200,000 shares of Perficient
common stock in connection with the acquisition of Compete Inc.
("Compete") through a merger (the "Merger") of Compete with and into
Perficient Compete, Inc., a subsidiary of Perficient ("Merger Sub"),
under an Agreement and Plan of Merger by and among Perficient, the Sub,
Compete and the Shareholders of Compete dated as of February 16, 2000
(the "Merger Agreement");
(2) To approve an amendment to the Perficient 1999 Stock Option/Stock
Issuance Plan to increase the number of shares of Perficient common
stock underlying the Plan to 1,850,000 shares; and
(3) To approve such other matters that come before the Special Meeting
concerning the Merger and the related matters, or any adjournment
thereof, that are required to be approved by the stockholders of
Perficient.
The Board of Directors of Perficient has fixed the close of business on
March ___, 2000 as the record date for the determination of
stockholders of Perficient entitled to notice of and to vote at the
Special Meeting. Only holders of record of Perficient common stock at
the close of business on that date will be entitled to notice of and to
vote at the Special Meeting or any adjournments or postponements
thereof. The share issuance, the employee plan amendment and other
related matters are more fully described in the accompanying proxy
statement and the Appendices thereto, which form a part of this notice
and should be read carefully by all stockholders.
Your attention is directed to the accompanying Proxy Statement for further
information regarding each proposal to be made.
ALL STOCKHOLDERS ARE ASKED TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AND
RETURN IT PROMPTLY BY MAIL IN THE ENCLOSED SELF-ADDRESSED ENVELOPE, WHICH DOES
NOT REQUIRE POSTAGE IF MAILED IN THE UNITED STATES.
By Order of the Board of Directors
John A. Hinners
Secretary
March ____, 2000
Austin, Texas
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PERFICIENT, INC.
7600-B North Capital of Texas Highway
Austin, Texas 78731
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PROXY STATEMENT FOR SPECIAL MEETING
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This Proxy Statement is furnished by the Board of Directors (the "Board
of Directors") of Perficient, Inc., a Delaware corporation ("Perficient"), in
connection with the solicitation of proxies to be used at the Special Meeting of
Stockholders (the "Special Meeting") to be held on April ____, 2000 at
________________________________ at 10:00 a.m., central standard time, and at
any adjournment thereof. This Proxy Statement and the accompanying Notice and
Proxy are being mailed to stockholders on or about March ______, 2000. The
principal executive offices of Perficient are located at the address listed
above.
Only stockholders of record at the close of business on the record
date, March __, 2000 (the "Record Date"), will be entitled to vote at the
Special Meeting and at all adjournments thereof.
On the Record Date, there were outstanding and entitled to vote
4,065,047 shares of Perficient's common stock, $.001 par value per share. Each
outstanding share of Perficient common stock is entitled to one vote on each
matter to be voted upon. A majority of the shares of Perficient common stock
entitled to vote at the Special Meeting will constitute a quorum for the
transaction of business. Holders of Perficient common stock have no cumulative
voting rights.
VOTING OF PROXIES
If a proxy is properly signed by a stockholder and is not revoked, the
shares represented thereby will be voted at the Special Meeting in the manner
specified on the proxy, or if no manner is specified with respect to any matter
therein, such shares will be voted by the person designated therein (a) "FOR"
the approval of the issuance (the "Stock Issuance") of up to 2,200,000 shares of
Perficient common stock in connection with the acquisition of Compete Inc.
("Compete") through a merger (the "Merger") of Compete with and into Perficient
Compete, Inc., a wholly-owned subsidiary of Perficient (the "Merger Sub"), in
accordance with the Agreement and Plan of Merger by and among Perficient, the
Merger Sub, Compete and the Shareholders of Compete dated as of February 16,
2000 (the "Merger Agreement"); (b) "FOR" the approval of the amendment (the
"Option Plan Amendment") to the Perficient 1999 Stock Option/Stock Issuance Plan
(the "Employee Plan ") to increase the number of shares of Perficient common
stock underlying the plan to 1,850,000 shares; and (c) "FOR" the approval of
such other matters that come before the Special Meeting concerning the Merger
and the related matters, or any adjournment thereof, that are required to be
approved by our stockholders.
The Stock Issuance. The Merger Agreement provides for the merger of
Compete with and into the Merger Sub, which will then become a wholly owned
subsidiary of Perficient. As part of the consideration to be paid in connection
with the Merger, the outstanding shares of Compete common stock and certain
options to purchase Compete Common Stock that vest on the completion of the
Merger, will be converted into the right to receive 2,200,000 shares of
Perficient common stock. Cash will be paid in lieu of fractional shares. The
Merger Agreement
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provides that Perficient will withhold a total of 1,100,000 of the shares of
Perficient common stock issuable to Compete stockholders in the Merger for a
period of one year to cover certain contingencies relating to the retention of
employees and to cover the indemnification obligations of the Compete
stockholders under the Merger Agreement.
The Merger is subject to various conditions, including approval of the
Stock Issuance by Perficient stockholders. Officers, directors and other
stockholders, owning in the aggregate, more than 50% of the issued and
outstanding shares of Perficient common stock have agreed to vote their shares
in favor of the Stock Issuance. We expect that the Merger will be consummated
shortly after all stockholder approvals are obtained. If the Merger is not
consummated by July 1, 2000, subject to extension under certain conditions,
either party may terminate the Merger Agreement.
A summary of the material terms and conditions of the Merger, specified
financial and other information relating to Perficient and Compete are set forth
in this proxy statement. A copy of the Merger Agreement is attached hereto as
Appendix A. For a more detailed description of the Stock Issuance and the Merger
Agreement, see "Proposal 1 - Approval of Issuance of Shares of Perficient Common
Stock in the Compete Merger."
The Option Plan Amendment. Perficient stockholders will also be asked
to consider a proposed amendment to our 1999 Employee Stock Option/Stock
Issuance Plan to increase the number of shares authorized under the Employee
Plan from 700,000 to 1,850,000. This increase will be needed to have options
available for grants made to our executive officers, as well as Compete
employees and stockholders and employees of other companies acquired by us or
that may be acquired in the future. For a more detailed description of the
Employee Plan and the Option Plan Amendment, see "Proposal 2 - Approval of
Amendment to the 1999 Stock Option/Stock Issuance Plan."
Perficient stockholder approval of the issuance of up to 2,200,000
shares of Perficient common stock in connection with the acquisition of Compete
is required by Nasdaq Rule 4310. This rule provides that stockholder approval is
required in connection with the acquisition of the stock or assets of another
company where, due to the present or potential issuance of common stock, or
securities convertible into or exercisable for common stock, other than a public
offering for cash, the number of shares of common stock to be issued is or will
be equal to or in excess of 20% percent of the number of shares outstanding
before the issuance of the stock or securities.
The directors of Perficient and certain stockholders, owning in the
aggregate in excess of 50% of the Perficient common stock, have entered into a
Voting Agreement whereby they have agreed to vote in favor of the matters before
the Special Meeting. Therefore, the approval of the stock issuance and the
Employee Plan Amendment is assured.
A proxy may be revoked by the stockholder at any time prior to the
voting thereof by giving notice of revocation in writing to the Secretary of
Perficient, by duly executing and delivering to the Secretary of Perficient a
proxy bearing a later date, or by voting in person at the Special Meeting.
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The affirmative vote of the holders of at least a majority of the
outstanding shares of Perficient common stock present, in person or by proxy,
and entitled to vote at the Special Meeting is required for the ratification and
approval of, unless otherwise required by the Delaware General Corporation Law
or Perficient's Certificate of Incorporation, any and all matters which may be
put to a stockholder vote at the Special Meeting. Votes will NOT be considered
cast if the shares are not voted for any reason, including an abstention
indicated as such on a written proxy or ballot, directions are given in a
written proxy to withhold votes, or if the votes are withheld by a broker. Votes
cast, either in person or by proxy, will be tabulated by Continental Stock
Transfer & Trust Company, our transfer agent.
STEVEN G. PAPERMASTER JOHN T. MCDONALD
Chairman of the Board Chief Executive Officer
Proxy Statement dated March __, 2000, and first mailed to stockholders on March
__, 2000.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS SHOULD NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY PERFICIENT. THIS PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, PERFICIENT COMMON STOCK TO ANY
COMPETE STOCKHOLDER IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT BE MADE
LAWFULLY.
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NEITHER THE DELIVERY OF THIS PROXY STATEMENT TO THE PERFICIENT
STOCKHOLDERS NOR ANY DISTRIBUTION OF PERFICIENT COMMON STOCK TO THE COMPETE
STOCKHOLDERS PURSUANT TO THE MERGER SHALL IMPLY THAT THERE HAS BEEN NO CHANGE
IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF PERFICIENT OR COMPETE
SINCE THE DATE HEREOF.
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FORWARD LOOKING STATEMENTS
Some of the statements contained in or considered a part of this proxy
statement discuss future expectations, contain projections of results of
operations or financial condition or state other forward-looking information.
Those statements are subject to known and unknown risks, uncertainties and other
factors that could cause the actual results to differ materially from those
contemplated by the statements. The "forward-looking" information is based on
various factors and was derived using numerous assumptions. In some cases, you
can identify these so-called forward-looking statements by words like "may,"
"will," "should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential," or "continue" or the negative of those words and other
comparable words. You should be aware that those statements only reflect our
predictions. Actual events or results may differ substantially. Important
factors that could cause our actual results to be materially different from the
forward-looking statements are disclosed under the headings "Risks Particular to
the Acquisition of Compete," and "Risks Particular to Our Business" throughout
this Proxy Statement.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY.................................................................. 1
QUESTIONS AND ANSWERS.................................................... 8
THE SPECIAL MEETING...................................................... 12
Date, Time and Place; Matters to Be Considered...................... 12
Record Date and Voting.............................................. 12
Share Ownership of Management and Certain Stockholders.............. 13
Revocability of Proxies............................................. 13
No Appraisal Rights................................................. 13
Solicitation of Proxies............................................. 14
PROPOSAL 1 - APPROVAL OF ISSUANCE OF SHARES OF PERFICIENT COMMON STOCK
IN THE COMPETE MERGER.................................................... 14
General............................................................. 14
Nasdaq Requirement for Stockholder Approval......................... 14
Background of the Merger............................................ 15
Recommendation of Perficient Board of Directors and Reasons for the
Merger and the Stock Issuance..................................... 17
Accounting Treatment................................................ 19
Federal Income Tax Consequences..................................... 19
Regulatory Matters.................................................. 19
No Appraisal Rights................................................. 19
Federal Securities Law Consequences; Resale Registration Statement.. 19
Fee to Kuhn & Associates............................................ 21
Listing of Perficient Common Stock to be Issued in the Merger on
Nasdaq............................................................ 21
The Merger Agreement................................................ 21
Selected Historical and Unaudited Pro Forma Combined Financial Data
of Perficient and Compete......................................... 30
Comparative Per Share Data.......................................... 36
INFORMATION ABOUT PERFICIENT AND COMPETE................................. 37
Business of Perficient.............................................. 37
Business of Compete................................................. 46
Risk Factors........................................................ 48
Risks Particular to the Acquisition of Compete.................. 48
Risks Particular to Our Business................................ 50
Market Price and Dividend Information............................... 53
Management's Discussion and Analysis of Financial Condition and
Results of Operations of Perficient and Compete................... 54
Security Ownership of Perficient's Management....................... 59
Management of Perficient............................................ 61
Compensation of Directors and Executive Officers.................... 64
Description of Perficient Capital Stock............................. 67
Experts............................................................. 71
PROPOSAL 2 - APPROVAL OF AMENDMENT TO THE 1999 EMPLOYEE STOCK
OPTION/ISSUANCE PLAN..................................................... 71
Reasons for the Proposal............................................ 72
</TABLE>
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<TABLE>
<S> <C>
Description of the Employee Plan.................................... 72
Other Stock Option Grants........................................... 74
Recommendation of our Board......................................... 74
Expenses of Solicitation............................................ 74
OTHER MATTERS............................................................ 74
APPENDICES
APPENDIX A - Agreement and Plan of Merger................................ A-i
INDEX TO FINANCIAL STATEMENTS............................................ F-i
FINANCIAL STATEMENT FOR PERFICIENT, INC. ................................ F-1
FINANCIAL STATEMENTS FOR LOREDATA, INC. ................................. F-17
FINANCIAL STATEMENTS FOR COMPETE, INC. .................................. F-27
</TABLE>
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SUMMARY
The following is a brief summary of certain information contained
elsewhere in this proxy statement. This summary is not intended to be a complete
description and is qualified in its entirety by, and should be read in
conjunction with, the more detailed information contained elsewhere in this
proxy statement and the documents incorporated herein by reference.
THE SPECIAL MEETING (PAGE 12)
The Special Meeting will be held at 10:00 a.m. on April ___, 2000. At
the Special Meeting, Perficient stockholders will be asked to approve the
following:
- The issuance of up to 2,200,000 shares of Perficient common
stock in connection with the acquisition of Compete through a
merger of Compete with and into the Merger Sub;
- An amendment to the Perficient 1999 Stock Option/Stock
Issuance Plan to increase the number of shares of Perficient
common stock underlying the plan to 1,850,000 shares; and
- Such other matters that come before the Special Meeting
concerning the acquisition by merger and the related matters,
or any adjournment thereof, that are required to be approved
by the stockholders of Perficient.
The Special Meeting will be held at ________________________. You can vote, or
submit a proxy to vote, at the Special Meeting if you were a record holder of
Perficient common stock at the close of business on March ___, 2000. You can
vote your shares by attending the meeting and voting in person or you can mark
the enclosed proxy card with your vote, sign it and mail it in the enclosed
return envelope. You can revoke your proxy at any time before it has been voted.
RECORD DATE AND VOTING (PAGE 12)
Our Board of Directors has fixed March ___, 2000 as the record date for
determination of holders of Perficient common stock entitled to notice of and to
vote at the Special Meeting. Only holders of record of Perficient common stock
at the close of business on the record date will be entitled to notice of and to
vote at the Special Meeting or any adjournment thereof.
Approval of each of the Stock Issuance and Option Plan Amendment
requires the affirmative vote of the majority of the total votes cast regarding
each proposal.
PROPOSAL 1 - THE STOCK ISSUANCE
GENERAL (PAGE 14)
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If the Stock Issuance is approved and the Merger is consummated,
Compete will merge with and into Merger Sub and become a wholly owned subsidiary
of Perficient. As partial consideration for the Merger, the outstanding shares
of Compete common stock and certain options to purchase Compete Common Stock
will be converted into the right to receive an aggregate of 2,200,000 shares of
Perficient common stock and the right to receive cash and a promissory note.
Cash will be paid in lieu of fractional shares. The Merger Agreement provides
that Perficient will withhold and deposit in escrow one-half of the shares of
Perficient common stock issued to Compete stockholders in the Merger to cover
certain contingencies relating to the retention of employees and to cover the
indemnification obligations of the Compete stockholders under the Merger
Agreement.
RISKS RELATED TO THE STOCK ISSUANCE AND THE MERGER (PAGE 48)
Risks related to the Stock Issuance and the Merger include, among
others,
- immediate and substantial dilution of Perficient stockholders'
percentage equity and voting interest
- ability of the Compete stockholders to influence Perficient
following the Merger
- inability of Perficient to successfully integrate Compete into
its operations
- possible loss of contracts with customers and other third
parties
DESCRIPTION OF THE MERGER
The Merger Agreement (page 21)
The Merger Agreement is included as Appendix A to this Proxy Statement.
It is the legal document that governs the Merger.
Structure of the Merger (page 21)
The Merger Agreement provides that Perficient will acquire Compete by
merger, with Compete being merged into Merger Sub, a wholly owned subsidiary of
Perficient. Merger Sub will be the surviving corporation, as a wholly owned
subsidiary of Perficient. We hope to complete the Merger as soon as possible
following the Special Meeting.
What We Will Issue In the Merger - The Stock Issuance (page 21)
When we complete the Merger, all shares of Compete common stock
outstanding and certain options to purchase Compete Common Stock will be
converted into the right to receive, among other things, an aggregate of up to
2,200,000 shares of Perficient common stock, one-half of which will be held in
escrow subject to the retention of employees and to indemnify us under
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certain circumstances. The 2,200,000 shares of Perficient common stock will be
allocated among the Compete stockholders in proportion to the number of shares
of Compete that each holds. Perficient will pay cash in lieu of any fractional
shares. We will also issue options to purchase common stock of Perficient to
holders of options to purchase common stock of Compete, that will be exercisable
to purchase the number of shares of Perficient Common Stock the option holder
would have had had he or she exercised the option in full immediately prior to
the Merger and used the cash and amounts due under the notes to buy Perficient
Common Stock.
Some Compete Directors and Officers Will Become Executive Officers of
Perficient (page 24)
When we complete the Merger, a number of Compete officers will become
directors and/or members of management of Perficient. Our Board of Directors
will elect Sam J. Fatigato, the Chief Executive Officer of Compete, as Chief
Operating Officer of Perficient and as a member of the Board of Directors of
Perficient.
Indemnification (page 25)
We will make various customary representations and warranties to
Compete stockholders, and the Compete stockholders will make various customary
representations and warranties to us. The shares deposited into escrow issued by
us in the Merger will be held in escrow subject to claims by us.
Resale Registration Statement (page 19)
The Perficient common stock issued to Compete stockholders in
connection with the Merger will be "restricted securities" which cannot be
resold until they are registered under the Securities Act or unless an exemption
is available. However, the Merger Agreement provides to the Compete stockholders
demand registration rights and piggy back registration rights. The demand
registration rights provide that commencing 12 months after the effective time
of the Merger, the Compete stockholders can require that Perficient prepare and
file a registration statement covering the resale of all of the Perficient
common stock by the Compete stockholders, and maintain the effectiveness of the
resale registration statement. Compete stockholders that will receive a majority
of the shares of Perficient common stock issued in the Merger will be senior
officers and/or directors of Perficient and will be subject to resale
restrictions even after their stock has been registered under our internal
policies regarding sale of shares by officers and directors.
THE COMPANIES (PAGE 37)
PERFICIENT, INC.
7600-B North Capital of Texas Highway
Suite 220
Austin, Texas 78731
Telephone No.: (512) 306-7337
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We enable high growth Internet software companies to achieve success by
providing them virtual professional services organizations (or V-PSOs). V-PSOs
allow our partners 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 the partner's organization. We
employ over 50 information technology professionals (65 total employees) from
our New York, New London and London, England facilities. Our partners are
leading Internet software "enablers" that provide the platform for building the
e-business infrastructure, such as Vignette Corporation, International Business
Machines Corp. ("IBM"), Plumtree Software, Inc. and Motive Communications, Inc.
COMPETE, INC.
1019 School Street
Lisle, Illinois 60532
Telephone No.: (630) 969-1252
Compete provides Internet consulting services. It has a business model
similar to ours in that it has a strong product vendor affinity and low sales
costs. Compete employs more than fifty billing professionals from its Chicago
area, San Francisco, Raleigh and Auckland, New Zealand facilities. Its partners
include IBM, and Integral Systems, Inc.
OUR REASONS FOR THE MERGER (PAGE 17)
Our Board of Directors considered a variety of factors in approving the
Merger Agreement and decided that it would recommend that Perficient
stockholders approve the Stock Issuance. The addition of Compete provides us
with the following:
- a significant increase in revenues
- a significant increase in qualified information technology
consultants
- a significant diversification of the sources of Perficient's
revenues
- the addition of experienced members of management
- a relationship with IBM
- two additional United States offices and personnel in two
additional locations from which to provide services to our
partners and their end-user customers
- other advantages discussed below
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WHAT PERFICIENT STOCKHOLDERS WILL HOLD AFTER THE MERGER (PAGE 21)
Perficient stockholders will continue to own their existing shares
after the acquisition of Compete. There will be no change to the corporate
structure of Perficient. Perficient stockholders should not send in their stock
certificates in connection with the Merger.
WHAT COMPETE STOCKHOLDERS WILL RECEIVE AS PART OF THE MERGER (PAGE 21)
As part of the Merger, Compete stockholders and certain holders of
vested Compete stock options will receive $3,500,000 in cash promissory notes in
the amount of 2,527,000 and the right to receive up to 2,200,000 shares of
Perficient common stock in exchange for each share of Compete common stock or
Compete stock option they own. The amount that Compete's Stockholders will
receive may be reduced if Compete's net working capital at the Closing is below
certain amounts.
OWNERSHIP OF PERFICIENT AFTER THE MERGER (PAGE 21)
We will issue approximately 2,200,000 shares of Perficient common stock
to Compete stockholders as part of the consideration to be paid in connection
with the Merger and we will grant stock options to Compete's employees. Based on
that number, following the Merger, Compete stockholders, including optionees who
were not shareholders prior to the Merger, will own approximately 35% of the
outstanding shares of Perficient common stock (assuming all Perficient and
Compete stock options are exercised) and the pre-merger holders of Perficient
common stock will hold the remaining 65% of the outstanding shares of Perficient
common stock. This information is based on the number of shares of Perficient
common stock outstanding on February 29, 2000 and a price on the Closing Date of
Perficient's stock at $21.50.
INTERESTS OF OFFICERS AND DIRECTORS IN THE MERGER (PAGE 21)
The directors and executive officers of Perficient do not have any
substantial interest, direct or indirect, by security holdings or otherwise in
Compete.
CONDITIONS TO THE MERGER (PAGE 26)
The Merger will be completed if certain conditions, including the
following are met:
- receipt of all required consents and approvals from government
and other agencies;
- the approval of the stockholders of Perficient to the Stock
Issuance at or prior to the effective time;
- Sam J. Fatigato having been elected to the Board of Directors
of Perficient at or prior to the effective time; and
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- receipt of other customary contractual conditions set forth in
the Merger Agreement.
If legally permitted, Perficient or Compete may each waive conditions
for the benefit of their respective company and stockholders and complete the
Merger even though one or more of these conditions has not been met. We cannot
assure you that the conditions will be satisfied or waived or that the Merger
will occur.
TERMINATION OF THE MERGER AGREEMENT (PAGE 27)
The Merger Agreement may be terminated and the Merger abandoned at any
time prior to the completion of such Merger under the following conditions:
- By mutual consent of Perficient and Compete upon the vote of a
majority of the members of each company's Board of Directors;
- By either Perficient or Compete if the other party has
materially breached any of the representations, warranties,
covenants or agreements set forth in the Merger Agreement.; or
- By either Perficient or Compete if the Merger is not completed
by July 1, 2000 subject to our right to extend the time by up
to 30 days under certain limited circumstances.
TERMINATION FEES AND EXPENSES (PAGE 28)
If Compete terminates the Merger Agreement and abandons the Merger
solely because Perficient failed to obtain the necessary stockholder approval at
the Special Meeting, Perficient must pay Compete the amount of its total costs
incurred in connection with the transaction, including legal and accounting
expenses, within two business days of the termination. If the transaction is not
completed for any other reason, Perficient and Compete will bear their own costs
and expenses.
REGULATORY APPROVALS (PAGE 19)
There are no federal or state regulatory requirements applicable to the
Merger. Additionally, no federal or state regulatory approvals must be obtained
in connection with the Merger.
ACCOUNTING TREATMENT (PAGE 19)
The Merger of Compete with and into the Merger Sub shall be accounted
for by the purchase method of accounting.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES (PAGE 19)
The Merger will not result in any federal income tax consequences to
Perficient stockholders. The Merger will result in federal income tax
consequences to Compete stockholders to the extent that the cash proceeds
received as part of the Merger will be taxed at the same rate as capital gains.
NO APPRAISAL RIGHTS (PAGE 19)
While Section 262 of the Delaware General Corporation Law provides
appraisal rights (sometimes referred to as "dissenters' rights") to stockholders
of a Delaware corporation in certain situations, these appraisal rights are not
available to the stockholders of Perficient in connection with this proposed
acquisition of Compete.
AFTER CONSIDERING THESE FACTORS, OUR BOARD OF DIRECTORS CONCLUDED THAT
THE MERGER IS IN THE BEST INTERESTS OF PERFICIENT AND ITS STOCKHOLDERS AT LARGE.
OUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE ISSUANCE OF SHARES OF
PERFICIENT'S COMMON STOCK PURSUANT TO THE MERGER AGREEMENT AND HAS DIRECTED THAT
SUCH ISSUANCE BE SUBMITTED TO THE STOCKHOLDERS OF PERFICIENT. THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE STOCK ISSUANCE.
PROPOSAL 2 - THE EMPLOYEE OPTION PLAN AMENDMENT (PAGE 71)
Perficient stockholders are being asked to approve an amendment to our
1999 Stock Option/Stock Issuance Plan to increase the number of shares
authorized under the Option Plan from 700,000 to 1,850,000 shares of Perficient
common stock. This increase will be needed to have options available for grants
made to our employees as well as Compete employees and employees of other
companies acquired by us or that may be acquired in the future. With our recent
acquisitions and the proposed Merger, our number of employees has grown or will
grow significantly, and we need additional options to grant to employees to
serve as an incentive for superior performance.
The Amendment to the Perficient Employee Plan is not a condition to the
Closing of the Merger however, it will be necessary for the Company to have
sufficient stock options to grant to Compete employees, as provided for in the
Merger Agreement.
OUR BOARD OF DIRECTORS BELIEVES THAT THE OPTION PLAN AMENDMENT IS IN
THE BEST INTERESTS OF PERFICIENT AND ITS STOCKHOLDERS, AND UNANIMOUSLY
RECOMMENDS THAT YOU VOTE FOR THE OPTION PLAN AMENDMENT.
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QUESTIONS AND ANSWERS
Q. WHY AM I RECEIVING THESE MATERIALS?
A. We have entered into an agreement with Compete to acquire Compete by
merger into our subsidiary by exchanging Perficient Common Stock, cash and notes
for all of the outstanding stock of Compete held by its stockholders. Each of
Perficient's and Compete's respective Boards of Directors and Compete's
Stockholders have approved the Merger Agreement. To accomplish the Merger, we
will be issuing in excess of 20% of the outstanding Perficient common stock.
Under the rules of the Nasdaq SmallCap Market, current Perficient stockholders
must approve the issuance of these additional shares. We are sending you these
materials to help you decide whether to approve the Stock Issuance.
Additionally, we are requesting approval of an amendment to the Company's
current Employee Plan.
Q. WHEN IS THE SPECIAL MEETING?
A. The Special Meeting will take place on April____, 2000 at 10:00 a.m.
central standard time.
Q. WHAT WILL COMPETE STOCKHOLDERS RECEIVE IN THE MERGER?
A. As part of the merger of Compete with and into Merger Sub, Compete
stockholders and certain holders of stock options that vest because of the
Merger will receive in the aggregate, $3,500,000 in cash, a promissory note in
the amount of $2,527,500 and 2,200,000 shares of Perficient Common Stock. On a
per share basis, each Compete shareholder (or vested option holder, as the case
may be) will receive approximately $1.24 cash per share, a promissory note in
the amount of $0.89 and the right to receive 0.78 shares of Perficient common
stock in exchange for each share of Compete common stock they own.
Example:
- If a person currently owns 100,000 shares of Compete common
stock, then after the merger he will receive approximately
$124,000 in cash, a promissory note in the amount of $89,000,
and 78,000 shares of Perficient common stock. The value of
the Perficient common stock that a Compete stockholder will
receive depends on the price of Perficient common stock
immediately after the Merger.
- On February 29, 2000 the closing price of Perficient common
stock on the Nasdaq SmallCap Market was $21.50. Applying the
0.78 exchange ratio, on that date, each holder of Compete
common stock would be entitled to receive Perficient common
stock with a market value of approximately $16.77 for each
share of Perficient common stock. However, the market price
for Perficient common stock is likely to change between now
and the merger. You are urged to obtain current price quotes
for Perficient common stock.
The consideration paid to the Compete shareholders may be reduced
according to a formula depending upon the value of certain of Compete's assets
on the Closing Date. Perficient will not issue fractional shares. Instead,
holders of Compete common stock will receive cash for
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<PAGE> 19
any fractional shares of Perficient common stock owed to them based on the
market value of Perficient common stock on the last trading day before the
Merger occurs.
Q. WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A. We are working toward completing the Merger as quickly as possible. We
hope to complete the Merger by July 1, 2000. If the Merger is not completed by
July 1, 2000, subject to certain extension provisions in the Merger Agreement,
either party may terminate the Merger Agreement.
Q. DOES THE PERFICIENT BOARD OF DIRECTORS RECOMMEND VOTING IN FAVOR OF THE
STOCK ISSUANCE?
A. Our Board of Directors has unanimously determined that the Stock
Issuance is fair to and in the best interests of the Perficient stockholders,
and unanimously recommends that stockholders vote FOR the approval of the Stock
Issuance and the transactions contemplated thereby.
Q. HOW WILL THE STOCK ISSUANCE AFFECT MY OWNERSHIP OF PERFICIENT?
A. You will have the same number of shares of Perficient common stock you
presently have, with substantially all of the rights you now hold. However, your
shares will represent a significantly smaller percentage of the total shares of
the combined company that will be outstanding after all of the shares are issued
pursuant to the Stock Issuance, as compared to your current percentage ownership
in Perficient. After the Merger, however, Perficient will have significantly
more resources than does the current Perficient, including twice the number of
revenue-generating information technology consultants, a diversified revenue
base, a relationship with IBM personnel, four additional locations in the United
States and abroad who can provide services and additional experienced
management.
Q. WHO CAN VOTE ON THE STOCK ISSUANCE, THE AMENDMENT TO THE OPTION PLAN
AND THE ADOPTION OF THE COMPETE PLAN?
A. Holders of Perficient common stock at the close of business on March
____, 2000, the Record Date relating to the Meeting, may vote on the Stock
Issuance and the Option Plan Amendment.
Q. WHAT DO I NEED TO DO NOW?
A. Read this Proxy Statement. Then, if you choose to vote by proxy,
complete your proxy card and indicate how you want to vote. Sign and mail the
proxy card in the enclosed return envelope as soon as possible. You should
complete, sign and return your proxy card even if you currently expect to attend
the Special Meeting and vote in person. Mailing in a proxy card now will not
prevent you from later canceling or "revoking" your proxy right up to the day of
the Special Meeting, and you will ensure that your shares get voted if you later
find you are unable to attend. If you sign and send in the proxy card and do not
indicate how you want to vote, your proxy will be voted FOR the Stock Issuance
and FOR the Option Plan Amendment.
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Q. CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A. Yes. You can change your vote at any time before the vote is taken at
the Special Meeting. You can do this in one of three ways. First, you can send a
written notice dated later than your proxy card stating that you would like to
revoke your current proxy. Second, you can complete and submit a new proxy card
dated later than your original proxy card. If you choose either of these two
methods, you must submit your notice of revocation or your new proxy card to the
Secretary of Perficient at 7600-B North Capital of Texas Highway, Suite 220,
Austin, Texas 78731. We must receive the notice or new proxy card before the
vote is taken at the Special Meeting. Third, you can attend the Special Meeting
and vote in person. Simply attending the Special Meeting, however, will not
revoke your proxy. If you have instructed a broker to vote your shares, you must
follow the directions received from your broker as to how to change your vote.
Q. IF MY BROKER HOLDS MY SHARES IN "STREET NAME," WILL MY BROKER VOTE MY
SHARES FOR ME?
A. YOUR BROKER WILL VOTE YOUR SHARES ONLY IF YOU TELL THE BROKER HOW TO
VOTE. TO DO SO, FOLLOW THE DIRECTIONS YOUR BROKER PROVIDES. WITHOUT
INSTRUCTIONS, YOUR BROKER WILL NOT VOTE YOUR SHARES AND THE FAILURE TO VOTE WILL
HAVE THE SAME EFFECT AS A VOTE AGAINST THE APPROVAL OF THE SHARE ISSUANCE AND A
VOTE AGAINST THE APPROVAL OF THE OPTION PLAN AMENDMENT.
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<PAGE> 21
WHO CAN HELP ANSWER YOUR QUESTIONS
If you have more questions about the Special Meeting or the Stock Issuance, or
the Option Plan Amendment you should contact:
Perficient
7600-B North Capital of Texas Highway
Austin, Texas 78731
Attention: John A. Hinners, Secretary
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<PAGE> 22
THE SPECIAL MEETING
This proxy statement is first being mailed or delivered by Perficient
to its stockholders on or about ________________, and is accompanied by the
notice of the Special Meeting and a form of proxy that is solicited by the
Perficient Board of Directors for use at the Special Meeting and at any
adjournments or postponements thereof.
DATE, TIME AND PLACE; MATTERS TO BE CONSIDERED
The Special Meeting is scheduled to be held on April __, 2000, at
__________ a.m. local time at the __________________________________. At the
Special Meeting, Perficient stockholders will be asked to consider and approve:
- the Stock Issuance;
- the Option Plan Amendment; and
- such other matters as may properly be submitted to a vote at
the Special Meeting.
Approval of the Stock Issuance and the Option Plan Amendment by the
Perficient stockholders is a condition to the Merger.
RECORD DATE AND VOTING
Our Board of Directors has fixed March ___, 2000 as the record date for
determination of holders of Perficient common stock entitled to notice of and to
vote at the Special Meeting. Only holders of record of our common stock at the
close of business on the record date, will be entitled to notice of and to vote
at the Special Meeting or any adjournment thereof. On February 29, 2000, there
were issued and outstanding, and entitled to vote, 4,065,047 shares of
Perficient common stock.
Each holder of our common stock of record on such date will be entitled
to one vote on all matters to be voted upon at the Special Meeting. Holders of a
majority of the common stock represented at the Special Meeting may approve all
of the proposals submitted to the stockholders.
A quorum consists of a majority of our outstanding common stock
represented in person or by proxy and entitled to vote at the Special Meeting.
Any stockholder present in person or by proxy who abstains from voting on any
particular matter will be counted in determining whether or not a quorum is
present. For purposes of voting on the matters described in this proxy
statement, at any meeting of stockholders at which a quorum is present, the
required vote is as follows:
- the affirmative vote of a majority of the shares of common
stock present or represented by proxy at the Special Meeting
is required to approve the Stock Issuance and the Option Plan
Amendment and in such a case, the aggregate
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<PAGE> 23
number of votes cast by all stockholders present in person or
by proxy will be used to determine whether a motion will
carry,
If the enclosed proxy card is executed properly and received by
Perficient by April __, 2000 in time to be voted at the Special Meeting, the
shares represented thereby will be voted in accordance with the instructions
marked thereon. EXECUTED PROXIES WITH NO INSTRUCTIONS INDICATED THEREON WILL BE
VOTED "FOR" THE STOCK ISSUANCE AND THE OPTION PLAN AMENDMENT.
Our Board of Directors is not aware of any matters other than the Stock
Issuance and the Option Plan Amendment that may be properly brought before the
Special Meeting. If any other maters properly come before the Special Meeting or
any adjournments or postponements of the Special Meeting and are voted on, the
persons named in the accompanying proxy will vote the shares represented by all
properly executed proxies on such matters in such manner as shall be determined
by a majority of the Board of Directors of Perficient.
SHARE OWNERSHIP OF MANAGEMENT AND CERTAIN STOCKHOLDERS
On the Record Date, Perficient directors, executive officers and their
affiliates owned and were entitled to vote 2,215,892 shares of Perficient common
stock, or approximately 55% of the shares of Perficient common stock outstanding
on the Record Date.
The directors of Perficient and certain stockholders, owning in the
aggregate in excess of 50% of the Perficient common stock have entered into a
Voting Agreement in which they have agreed to vote in favor of the matters
before the Special Meeting.
REVOCABILITY OF PROXIES
The accompanying form of proxy is for use at the meeting if a holder of
Perficient common stock is unable to attend in person. The presence of a
stockholder at the Special Meeting will not automatically revoke such
stockholder's proxy. However, a stockholder may revoke a proxy at any time prior
to its exercise by:
- delivering to John Hinners, Secretary, Perficient, Inc.,
7600-B North Capital of Texas Highway, Suite 220, Austin,
Texas a written notice of revocation prior to the Special
Meeting or a duly executed proxy bearing a later date or
- attending the Special Meeting and voting in person.
All shares represented by valid proxies received pursuant to this
solicitation, and not revoked before they are voted, will be voted in the manner
specified therein.
NO APPRAISAL RIGHTS
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<PAGE> 24
Under the Delaware general corporation law, the stockholders of
Perficient are not entitled to appraisal rights with respect to the issuance of
shares of Perficient in connection with the Stock Issuance or any other matters
addressed herein.
SOLICITATION OF PROXIES
The costs of soliciting proxies in the form enclosed herewith will be
borne entirely by Perficient. In addition to the solicitation of proxies by
mail, proxies may be solicited by our officers and directors and our regular
employees, without additional remuneration, by personal interviews, telephone,
telegraph or otherwise. Copies of solicitation materials may be furnished to
brokers, custodians, nominees and other fiduciaries for forwarding to beneficial
owners of shares of our common stock and normal handling charges may be paid for
such forwarding services.
PROPOSAL 1. APPROVAL OF ISSUANCE OF SHARES OF PERFICIENT COMMON STOCK
IN THE COMPETE MERGER
GENERAL
The Merger Agreement provides that, at the effective time, Compete will
merge with and into Merger Sub, whereupon Compete will become a wholly-owned
subsidiary of Perficient and Compete's common stock and options to purchase
Compete Common Stock that vest as a result of the Merger will be converted into,
among other things, the right to receive, without interest, a number of shares
of Perficient common stock equal to 2,200,000 shares of Perficient common stock
(or options to purchase Perficient Common Stock in the case of the vested option
holders), $3,500,000 in cash and $2,527,500 in non-interest bearing promissory
notes payable six months from the Closing. Cash will be paid in lieu of
fractional shares. At the effective time, each issued and outstanding share of
Compete common stock will be converted into 0.78 shares of Perficient common
stock.
Based upon the number of shares of Perficient common stock outstanding
as of February 29, 2000 the former holders of Compete common stock will hold
approximately 35% of the total outstanding shares of Perficient.
NASDAQ REQUIREMENT FOR STOCKHOLDER APPROVAL
The Nasdaq SmallCap Market ("Nasdaq") regulations require that we
obtain approval of our stockholders in connection with a transaction, other than
a public offering, involving the sale or issuance by us of common stock (or
securities convertible into, or exercisable for, common stock) equal to 20% or
more of the common stock, or 20% or more of the voting power of our securities,
which were outstanding before the issuance of the common stock in connection
with the Merger. As a result, even though the Stock Issuance is not required to
be approved by Perficient's stockholders under the terms of the Delaware General
Corporation Law, such stockholder approval is required under the regulations of
Nasdaq to which Perficient is subject. A majority of the total votes cast in
person or by proxy at the Special Meeting are required to approve the Stock
Issuance.
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BACKGROUND OF THE MERGER
On November 15, 1999, we retained Kuhn & Associates to assist us in
identifying potential acquisition candidates that complement our business model
and fit our stated acquisition plan.
On November 16, 1999, Ryan Kuhn of Kuhn & Associates identified Compete
as a potential acquisition candidate for us.
On December 2, 1999, Mr. Kuhn contacted Sam J. Fatigato, the Chairman
and Chief Executive Officer of Compete, to inquire as to the interest of Compete
and its stockholders in engaging in a transaction with us.
On December 9, 1999, Mr. Kuhn mailed to Mr. Fatigato information with
respect to Perficient and a description of the characteristics that we were
seeking in an acquisition partner.
On December 16, 1999, Mr. Kuhn met for the first time with members of
management of Compete, including Mr. Fatigato, and Matthew Clark, the Chief
Financial Officer of Compete. At the meeting, Mr. Kuhn discussed with Messrs.
Fatigato and Clark the results of operations of Compete, its projected
performance and the business models incorporated in such analysis.
On December 16, 1999, following his meeting with Compete, Mr. Kuhn had
a telephone meeting with Andrew Roehr, a vice president of Perficient, to review
with him the information that he had received and analyzed. Messrs. Fatigato and
Clark participated in such call and responded to questions from Mr. Roehr. At
this meeting, each party expressed the view that the network architectures,
business strategies and management teams of the respective companies were
compatible and that a merger should be further explored.
On December 16, 1999, Mr. Roehr also met with Mr. Fatigato and Joseph
Klewicki, a Compete executive, in Chicago, Illinois to discuss further the
compatibility of Perficient and Compete.
From December 16, 1999 through December 31, 1999, Mr. Roehr and other
members of the Perficient management team requested copies of financial and
other information from the management of Compete and reviewed and analyzed such
information.
On December 30, 1999, an expanded meeting occurred in Chicago between
several members of management of both Perficient and Compete. Present at such
meeting were Messrs. Fatigato and Clark and Eric Simone, Robert Anderson and
Andrew Sweet from Compete and Mr. Roehr and John T. McDonald, the Chief
Executive Officer of Perficient. The parties discussed, on a more detailed
level, the and potential terms of an acquisition transaction.
Between January 6 and 12, 2000, the parties outlined a detailed
framework of how the two companies could fit together structurally, including
functional areas of responsibility.
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<PAGE> 26
On January 10, 2000, Mr. McDonald contacted the members of our Board of
Directors to notify them of the discussions that were taking place with respect
to Compete.
On January 11, 2000, our Board of Directors received from Mr. McDonald
a package containing financial and other information with respect to Compete.
On January 11, 2000 the first draft of a Letter of Intent, which
outlined proposed terms of a merger, was delivered by Mr. McDonald to Mr.
Fatigato.
On January 12, 2000, Messrs. Fatigato, Clark, Simone and Klewicki met
in Austin, Texas with Mr. McDonald and John Hinners, the Chief Financial Officer
of Perficient, to complete the negotiations of the Letter of Intent. The Letter
of Intent was signed on January 12, 2000, subject to the approval of
Perficient's Board of Directors, and both parties commenced various reviews of
each other's operations, businesses and finances.
On January 14, 2000, our Board of Directors met to discuss the proposed
transaction with Compete. At the meeting, Mr. McDonald presented to the Board a
description of the business of Compete, including a description of the members
of management and their qualification, the locations of Compete's offices, and
the partners and business relationships of Compete. Mr. McDonald also presented
to the Board a review of the financial statements and the results of operations
of Compete. Mr. McDonald reviewed with the Board the proposed terms of the
Merger and reviewed a copy of the proposed Letter of Intent. Finally, Mr.
McDonald reviewed with the Board the rationale and benefits to Perficient of the
proposed Merger.
From January 12, 2000 through the date that the Merger Agreement was
signed, there were numerous meetings held between representatives of Perficient
and Compete to negotiate the Merger Agreement and the related documents. In
addition, during such time Perficient completed its due diligence investigation
into the business affairs of compete.
From January 6 to 12, 2000, representatives of Perficient and Compete
met to discuss and plan the integration of the operating networks of each
company. On January 12, 2000 senior management of each company met to plan
technical and operational integration activities. During January and February,
each company conducted on-site reviews of the other's operational centers.
During the period from January 12, 2000 to February 17, 2000,
representatives of Perficient and Compete, including their counsel and
accountants, had several meetings, in person or by telephone, to discuss the
Merger and to prepare and negotiate a definitive merger agreement. These
meetings also included discussions of:
- the structure of the transaction;
- tax and accounting treatment;
- preparation of the requisite financial statements; and
- similar matters.
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<PAGE> 27
On February 16, 2000, Perficient and Compete executed the Merger
Agreement. A press release announcing the Merger was released.
We filed this proxy statement on March ___, 2000 on a preliminary basis
and on ____________, 2000 on a definitive basis.
RECOMMENDATION OF THE PERFICIENT BOARD OF DIRECTORS AND REASONS FOR THE MERGER
AND THE STOCK ISSUANCE.
On January 12, 2000, our Board of Directors concluded unanimously that
the Merger was in the best interests of Perficient and our stockholders,
authorized and approved the Merger, the Merger Agreement and the issuance of
shares of Perficient common stock in connection with the Merger, and recommended
that its stockholders approve the Stock Issuance.
The decision of our Board of Directors was based upon potential
benefits of the Merger, including the following:
- the advantages of a strategic combination with Compete, which
would result in a combined company with a substantially
greater base of service providers, marketing opportunities and
resources;
- a significant increase in revenues;
- a significant diversification of the sources of our revenues;
- a relationship with IBM;
- the expansion of our international services business,
particularly the addition of capacity in some key geographic
areas;
- the business, reputation and capabilities of the management of
Compete, as well as the compatibility of the management teams,
business models and corporate cultures of Perficient and
Compete;
- the addition of experienced members of Compete's management to
the combined company;
- the addition of experienced information technology
professionals; and
- the achievement of operating and revenue efficiencies as a
result of the Merger.
In its evaluation of the Merger, our Board reviewed several factors,
including the following:
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<PAGE> 28
- historical information concerning Perficient's and Compete's
respective businesses, financial performance and condition,
operations and management;
- the status and quality of Compete's relationship with IBM;
- Compete's backlog of services business;
- Our management's view of the financial condition, results of
operations and businesses of Perficient and Compete before and
after giving effect to the Merger and information regarding
the Merger's effect on stockholder value;
- reports from management and accounting advisors as to the
results of the due diligence investigation of Compete;
- the potential impact of the Merger on our clients, employees,
suppliers, licensors, licensees and other business partners;
and
- the potential impact of the Merger on our business, including
economies of scale, compatibility of the networks and
management and consolidation of operating centers.
In its deliberations concerning the Merger, our Board of Directors also
considered various additional risks and uncertainties, including:
- the risk of immediate and substantial dilution of the
percentage equity and voting interest of Perficient;
- the risk that the Compete stockholders may be able to
significantly influence Perficient following the Stock
Issuance; and
- the risk that we may not be able to successfully integrate
Compete into our operations.
These risks are described in more detail under "Risks Particular to the
Acquisition of Compete" below. Our Board concluded that on balance the potential
benefits of the Merger and Stock Issuance to us and our stockholders
significantly outweigh the risks associated with the Merger and Stock Issuance.
The discussion of the information and factors considered by our Board is not
intended to be exhaustive. In view of the variety of factors considered in
connection with its evaluation of the Merger and the Stock Issuance, our Board
did not find it practicable to, and did not quantify or otherwise assign
relative weight to, the specific factors considered in reaching its
determination. After careful consideration, our Board of Directors has
unanimously determined the Merger Agreement, the Merger and the Stock Issuance
to be advisable and fair to and in the best interests of Perficient and its
stockholders.
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<PAGE> 29
ACCOUNTING TREATMENT
The merger between the Merger Sub and Compete shall be accounted for as
a "purchase." Under the purchase method of accounting, tangible and identifiable
intangible assets acquired and liabilities assumed are recorded at their
estimated fair values. The excess of the purchase price, including estimated
fees and expenses related to the Merger, over the net assets acquired is
classified as good will on the unaudited pro forma combined condensed balance
sheet included in this Proxy Statement. The estimated fair values and useful
lives of assets acquired and liabilities assumed are based on a preliminary
valuation and are subject to final valuation adjustments which may cause certain
of the intangibles to be amortized over a shorter life than the goodwill
amortization period of 20 years.
FEDERAL INCOME TAX CONSEQUENCES
The Merger will not result in any federal income tax consequences to
Perficient stockholders. The Merger is intended to qualify as a tax free
reorganization. However, the Merger will result in federal income tax
consequences to Compete stockholders to the extent that the cash proceeds
received as part of the merger will be taxed at the same rate as capital gains.
Perficient will assume the tax liability for the conversion of Compete from the
cash basis to the accrual basis of accounting for tax purposes. The Merger
Consideration contains an adjustment for this amount. Compete and Perficient
have also agreed that Compete's shareholders will remain individually
responsible for the income tax liabilities incurred, as shareholders of an
S-corporation, until the date after the Merger subject to a cap. Compete's
shareholders shall be permitted to take tax distributions to offset these tax
liabilities, if certain financial targets of Compete are met.
REGULATORY MATTERS
There are no federal or state regulatory requirements applicable to the
Merger. Additionally, no federal or state regulatory approvals must be obtained
in connection with the Merger.
NO APPRAISAL RIGHTS
While Section 262 of the Delaware General Corporation Law provides
appraisal rights (sometimes referred to as "dissenters' rights") to stockholders
of Delaware corporations in certain situations, these appraisal rights are not
available to the stockholders of Perficient in connection with this proposed
Merger.
FEDERAL SECURITIES LAW CONSEQUENCES; RESALE REGISTRATION STATEMENT
The shares of Perficient common stock to be issued in connection with
the Merger have not been registered under the Securities Act of 1933, as amended
(the "Securities Act") and therefore will be "restricted securities" which
cannot be resold in the United States unless they are registered under the
Securities Act or unless an exemption from registration is available. In
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general, restricted securities may be sold in the public market only if
registered under the Securities Act or sold in compliance with Rule 144 under
the Securities Act. Under Rule 144 as currently in effect, any person (or
persons whose shares are aggregated) who has beneficially owned restricted
securities for at least one year is entitled to sell, within any three-month
period, a number of those securities that does not exceed the greater of 1% of
the then-outstanding shares of the issuer in the same class or the average
weekly trading volume in the public market during the four calendar weeks
preceding the filing of the seller's Form 144 on the date of sale, provided that
certain requirements concerning the availability of public information
concerning the issuer, the manner of sale and the filing of the seller's Form
144 are satisfied. A person who is not an affiliate, has not been an affiliate
within three months prior to the sale and has beneficially owned restricted
securities for at least two years is entitled to sell those securities under
Rule 144(k) without regard to any of the other limitations described above. Rule
144 also provides that affiliates who are selling shares that are not restricted
securities must nonetheless comply with the same restrictions applicable to
restricted securities with the exception of the holding period requirement.
Each Compete stockholder has agreed to refrain for a one-year period
beginning on the closing date of the merger to refrain from (a) selling,
offering to sell, contracting to sell, granting any option to sell, any shares
of Perficient common stock received in connection with the merger or securities
convertible into or exchangeable for shares of Perficient common stock; (b)
proposing, or publicly disclosing an intent to propose, any of the foregoing; or
(c) assisting or advising any other persons or entities in connection with the
foregoing. However the foregoing prohibition does not apply to (i) private sales
by the estate of any Compete stockholder upon the death of such stockholder but
only to the extent of estate tax liability related to the transfer of the shares
upon the death of the stockholder, and (ii) sales upon the exercise of
piggy-back registration rights, if and only if, certain current stockholders of
Perficient who are officers or directors of Perficient participate in any such
public offering.
Under the Merger Agreement, we have granted to the Compete stockholders
demand and piggy back registration rights. In accordance with the demand
registration rights, at the request of a majority of the Compete stockholders,
we will be obligated to prepare and file, after 12 months following the
effective time of the Merger, a registration statement covering the resale by
the Compete stockholders of the Perficient common stock issued to them in
connection with the Merger (the "Resale Registration Statement"). We have
further agreed to use our reasonable best efforts to cause the Resale
Registration Statement to be declared effective and to keep the Resale
Registration Statement continuously effective until the earlier of (1) the date
on which the Compete stockholders have disposed of all shares of Perficient
common stock issued to them in connection with the Merger or (2) the date the
Perficient common stock issued to them is otherwise eligible for public resale
under applicable securities laws. We have also agreed, if necessary during the
time that the Resale Registration Statement is required to be maintained
effective, to amend or supplement the Resale Registration Statement when
required by the registration form or the instructions applicable to such form,
or by the Securities Act or the rules and regulations thereunder, and the
Compete stockholders have agreed, subject to certain limitations, to discontinue
disposition of the Perficient common stock covered by the Resale Registration
Statement until appropriate amendments or supplements have been received by
them. Certain Compete stockholders that will receive a majority of the shares of
Perficient
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<PAGE> 31
common stock issued in the Merger will be senior officers and/or directors of
Perficient and will be subject to resale restrictions even after their stock has
been registered under our internal policies regarding sale of shares by officers
and directors. We will pay all expenses incurred in preparing and filing the
Resale Registration Statement. We have agreed to register on From S-8 the shares
of Perficient common stock issuable upon conversion of all Compete options being
assumed and converted under the terms of the Merger Agreement.
FEE TO KUHN & ASSOCIATES
In connection with this transaction, we have agreed to pay to Kuhn &
Associates a fee for their services rendered in identifying Compete as an
acquisition candidate. The fee is payable, one-half in cash and one-half in
common stock at the closing in accordance with a formula. Assuming a price of
our Common Stock of $21.50, Kuhn & Associates would be entitled to receive at
the closing of the Merger, $366,638 and 17,053 shares of our Common Stock.
LISTING OF PERFICIENT COMMON STOCK TO BE ISSUED IN THE MERGER ON NASDAQ
We have agreed to file a Notification for Additional Listing of Shares
with The Nasdaq SmallCap Market and the Boston Stock Exchange so that the shares
of Perficient common stock to be issued in the Merger will be included for
quotation on The Nasdaq Stock Market, subject to official notice of issuance.
THE MERGER AGREEMENT
STRUCTURE: EFFECTIVE TIME
The Merger Agreement contemplates the merger of Compete with and into
Perficient Compete (the "Merger Sub"), with the Merger Sub surviving the merger
as a wholly-owned subsidiary of Perficient and continuing its corporate
existence under the laws of the State of Delaware. Upon consummation of the
Merger, the separate corporate existence of Compete will terminate. The Merger
will become effective on the date of filing of certificates of merger with the
Secretary of State of the State of Delaware and with the Secretary of State of
the State of Illinois (or at such later date as is specified in the certificates
of merger), which is expected to occur as promptly as possible, but in no event
later than the third business day after all of the conditions precedent to the
merger have been satisfied or waived.
MERGER CONSIDERATION
Perficient intends to acquire all of the outstanding shares of Compete
common stock through a Merger of Compete with and into the Merger Sub, a
wholly-owned subsidiary of Perficient.
The total consideration to be paid by Perficient in connection with the
Merger consists of (i) $3,500,000 in cash, (ii) $2,527,500 in non-interest
bearing promissory notes that are due to be paid in full within six (6) months
following the closing of the Merger, and (iii) the issuance of up to an
aggregate of 2,200,000 shares of Perficient common stock. This merger
consideration will be split among the holders if Compete common stock and the
four holders of Compete options whose options vest on the consummation of the
Merger (the "Vested Option Holders"). On a per share basis, one share of Compete
common stock (including holders of stock options under Compete's stock option
plan that become fully-vested at the closing of the acquisition of Compete) is
convertible into approximately (i) $1.24 in cash, (ii) $0.89 in a promissory
note, and (iii) up to 0.78 shares of Perficient common stock. The Compete Vested
Option Holders will receive options to purchase their pro rata share of
Perficient common stock instead of the
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<PAGE> 32
common stock directly and their merger consideration will be adjusted for the
exercise price of their options. Up to one-half of the shares of Perficient
common stock being issued in connection with the Merger may be forfeited by
Compete stockholders and Vested Option Holders under certain conditions more
fully described in the Merger Agreement relating to the continued employment of
Compete's employees and indemnification for Compete's breach of a
representation, warranty or covenant under the Merger Agreement. The merger
consideration is also subject to downward adjustment if Compete's net working
capital is below certain levels. Assuming no forfeiture or adjustment of any
shares of Perficient common stock by the Compete stockholders, if the merger had
occurred on February 29, 2000, the total consideration to be paid by Perficient
in connection with the Merger would have been $53,327,500 (based upon the
closing price of Perficient common stock of $21.50 on February 29, 2000 and not
including the excess fair market value over exercise price of the unvested
Compete options that are assumed by us, which are described further below). Of
course, the foregoing example is for illustrative purposes only, and the actual
value of the transaction may change depending on the price of Perficient common
stock on the closing date.
The number of shares of Perficient common stock being issued in
connection with the Merger will be adjusted in the event of any
reclassification, recapitalization or exchange of shares or if a stock split,
combination, stock dividend, stock rights or dividend shall be declared by our
Board of Directors prior to the closing of the acquisition.
In addition, no fractional shares of Perficient common stock will be
issued in connection with the acquisition of Compete. Instead, Compete
stockholders that would otherwise be entitled to receive fractional shares will
receive cash for any fractional share of Perficient common stock owed them based
on the average closing price of Perficient common stock on the Nasdaq SmallCap
Market for the twenty (20) consecutive trading days ending on the trading date
immediately before the closing date.
COMPETE STOCK OPTIONS
In connection with the Merger, we have agreed either to assume the
obligations of Compete under the Compete Inc. Employees' Stock Option Plan or to
obtain from the Compete employees who hold stock options, their consent to
replace the Compete options with options to purchase Perficient Common Stock
under the Perficient Option Plan. We intend to solicit such consent. The stock
options underlying Compete's stock option plan that do not become fully vested
upon consummation of the Merger will be converted, at the effective time of the
Merger, into stock options to purchase approximately .78 shares of Perficient
common stock, plus the number of shares of Perficient common stock that could be
purchased for approximately $2.13 (assuming a purchase price for Perficient
common stock equal to the closing price for the stock for the 20 trading days
ended the day before the date of the Merger). Each unvested stock option to
purchase a share of Compete common stock under Compete's stock option plan will,
at the effective time of the merger, be converted into and will represent the
right to receive a stock option to purchase approximately 0.88 shares of
Perficient common stock (assuming a price per share of Perficient common stock
of $21.50) under our Employee Plan. There are currently outstanding options to
purchase 448,349 shares of Compete Common Stock that would therefore convert
into approximately 393,415 shares of Perficient Common Stock. The other material
terms of the Compete stock options assumed (including vesting) shall remain
unchanged.
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<PAGE> 33
CERTAIN COVENANTS
Interim Operations of Compete. From the date of execution of the Merger
Agreement until the effective time of the Merger, Compete is required to conduct
its business in the ordinary course consistent with past practice and to use its
reasonable best efforts to preserve intact its business organization and
relationships with customers and to keep available the services of its
employees. In particular, during this period, Compete may not, without our prior
written consent, declare or pay dividends or make any distribution in respect of
its common stock (other than permitted tax distributions); issue any securities
other than upon the exercise of outstanding stock options; amend its
organizational documents; make any capital expenditures in excess of $25,000;
enter into any new line of business; enter into any merger or consolidation;
acquire a substantial portion of assets of any person; acquire any material
assets outside the ordinary course of business; take any action that would make
any representation and warranty of Compete under the Merger Agreement materially
untrue in any respect; change its methods of accounting in effect as of December
31, 1998; enter into any arrangement with a current or former director, officer
or employee or increase any compensation to any director, officer of employee;
incur any indebtedness outside the ordinary course of business; sell any
material assets; make any tax election; pay any claim outside the ordinary
course of business; enter into any lease in an amount equal to or exceeding
$20,000 individually or $100,000 in the aggregate; waive any material right; or
agree or commit to any of the foregoing.
Interim Operations of Perficient and the Sub. From the date of
execution of the Merger Agreement until the effective time of the Merger, we and
our Merger Sub are required to notify a representative of Compete prior to
taking any of the following actions: declare or pay dividends or make any
distribution in respect of its common stock; issue any securities other than
upon the exercise of outstanding stock options; amend its organizational
documents; enter into any new line of business; enter into any merger or
consolidation; acquire a substantial portion of assets of any person; acquire
any material assets outside the ordinary course of business; take any action
that would make any representation and warranty by us or the Merger Sub under
the Merger Agreement materially untrue in any respect; change our methods of
accounting in effect as of December 31, 1998; incur any indebtedness outside the
ordinary course of business in excess of $100,000; sell any material assets;
make any tax election; pay any claim outside the ordinary course of business;
enter into any lease in an amount equal to or exceeding $20,000 individually or
$100,000 in the aggregate; waive any material right; or agree or commit to any
of the foregoing.
Special Meeting; Proxy Material. We have agreed under the Merger
Agreement to cause a meeting to be duly called and held as soon as reasonably
practicable for the purpose of voting on the approval and adoption of the Merger
Agreement. In connection with the meeting, we have agreed that we will (i)
promptly prepare and file with the SEC, use our reasonable best efforts to have
cleared by the SEC and thereafter mail to our stockholders as promptly as
practicable a proxy statement for the meeting and all other proxy materials for
such meeting, (ii) hold the meeting as promptly as practicable, (iii) recommend
to our stockholders the approval of each of the matters through our Board of
Directors, and (iv) use our reasonable best
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efforts to obtain the necessary approval by our stockholders of the Merger
Agreement and the transactions contemplated thereby.
No Solicitation. Compete has agreed in the Merger Agreement that it
will not, and that it will cause its subsidiaries and the directors, officers,
employees, representatives, agents and advisors and financial and legal advisors
of Compete not to, directly or indirectly take any action to solicit or hold
discussions or negotiations with, or assist or provide any information to, any
person, entity or group concerning (i) any merger, consolidation, business
combination, share exchange, or other similar transaction involving Compete;
(ii) any sale, lease, exchange, mortgage, pledge, license transfer or other
disposition of any shares of Compete common stock or significant assets of
Compete; or (iii) the issuance of any new shares of capital stock of Compete.
Compete's Covenant to Retain Employees. Compete and its stockholders
have agreed to immediately notify us if they have any knowledge of the intention
of an employee of Compete to terminate his employment with Compete. In addition,
Compete and its stockholders have agreed that from the date of the Merger
Agreement and continuing to the effective time of the Merger, they will not take
any action or fail to take any action that will result in the termination of an
employee of Compete without first consulting with us and providing us with an
opportunity to provide advice with respect to any such action or inaction.
Compete must notify us of the terms of any proposal, diversion,
negotiation or inquiry relating to a merger or a disposition of a significant
portion of its capital stock or assets or similar transaction involving Compete
and the identity of the party making such proposal or inquiry.
Employment Agreements. Pursuant to the Merger Agreement, we will enter
into employment agreements with Sam J. Fatigato and Matthew Clark. Mr. Fatigato
will be the Chief Operating Officer and a member of the Board of Directors of
Perficient following the Merger. Mr. Fatigato's employment agreement will extend
for a one-year term beginning on the closing date of the Merger and will provide
for an annual salary of $135,000. Additionally, Mr. Fatigato will be eligible to
receive bonuses and stock options from time to time as determined by our Board
of Directors. In the event that we terminate Mr. Fatigato's employment without
cause, we will pay him severance in an amount equal to the lesser of three
months' salary or the amount of salary due for the remainder of the term of his
employment agreement. In the event of a change in control, either we or our
successor will pay Mr. Fatigato three months' salary if he is terminated after
such change of control or if he terminates his employment with us within six
months of obtaining actual knowledge of such change of control. Finally, Mr.
Fatigato has agree to refrain from competing with us for a period of thirty (30)
months following the termination of his employment.
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Perficient Board's Covenant to Recommend. Our Board has agreed to
recommend the approval and adoption of the Merger Agreement to our stockholders.
Best Efforts. Each party has agreed to use its best efforts to take, or
cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable to consummate the transactions contemplated by
the Merger Agreement as soon as practicable.
Certain Employee Benefits Matters. The Merger Agreement provides that,
for one year following the effective time of the merger, we will use our best
efforts to provide Compete's employees with retirement, health, welfare and
other employee benefits that are substantially equivalent to those benefits we
currently provide to our employees.
Indemnification and Insurance of Compete Directors and Officers.
Pursuant to the Merger Agreement, (i) we have agreed that for six years after
the Effective Time, we will provide exculpation and indemnification for each
person who is or becomes prior to the effective time, an officer, director or
employee of Compete which is the same as the exculpation and indemnification
provided to Compete's officers, directors and employees in its articles of
incorporation and by-laws or other organizational documents in effect on the
date of the Merger Agreement; and (ii) we will maintain in effect for six years
after the effective time certain directors' and officers' liability insurance
coverage for Compete directors and officers.
Certain Other Covenants. The Merger Agreement contains certain mutual
covenants of the parties, including covenants relating to: actions to be taken
so as not to jeopardize the intended tax or accounting treatment of the merger;
public announcements; notification of certain matters; access to information;
identification of affiliates; further assurances; cooperation in connection with
certain governmental filings and in obtaining consents and approvals; and
confidential treatment of non-public information.
CERTAIN REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains, subject to certain exceptions,
representations and warranties made by Compete and its stockholders as to, among
other things: due organization and good standing; corporate authorization to
enter into the contemplated transactions; governmental approvals required in
connection with the contemplated transactions; absence of any breach of
organizational documents and certain material agreements as a result of the
contemplated transactions; capitalization; ownership of subsidiaries; financial
statements; absence of certain material adverse changes since December 31, 1999;
absence of undisclosed material liabilities; compliance with laws and court
orders; litigation; finders' fees; tax matters; employee matters; material
contract matters; environmental matters; property matters; insurance matters;
labor matters; and intellectual property rights.
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The Merger Agreement contains, subject to certain exceptions,
representations and warranties made by Perficient and the Merger Sub as to,
among other things: due organization and good standing; corporate authorization
to enter into the contemplated transactions; governmental approvals required in
connection with the contemplated transactions; absence of any breach of
organizational documents as a result of the contemplated transactions;
capitalization; ownership of subsidiaries; finders' fees; SEC reports; voting
requirements; no prior activities; labor matters; and absence of certain
material adverse changes since September 30, 1999.
Generally, the representations and warranties in the Merger Agreement
survive the effective time of the Merger for one year except for the
representations and warranties made by Compete and its stockholders with respect
to tax matters and environmental matters, which survive the effective time for
three years.
CONDITIONS TO THE MERGER
Conditions to Each Party's Obligations to Effect the Merger. The
obligations of Perficient, the Merger Sub, Compete and the stockholders of
Compete to consummate the Merger are subject to the satisfaction of the
following conditions:
(i) receipt of all regulatory approvals; and
(ii) no applicable law or regulation, judgment, injunction, order
or decree prohibiting or enjoining the consummation of the
merger.
Conditions to the Obligations of Perficient and the Sub. The
obligations of Perficient and the Merger Sub to effect the Merger are further
subject to the satisfaction of the following conditions:
(i) the approval of the stockholders of Perficient to the Merger
at or prior to the effective time;
(ii) the representations and warranties of Compete and its
shareholders contained in the Merger Agreement being true in
all material respects at and as of the effective time as if
made at and as of such time;
(iii) the performance of all obligations by Compete and its
shareholders under the Merger Agreement at or prior to the
effective time;
(iv) Perficient having received the legal opinion of counsel to
Compete;
(v) Compete having received all consents and approvals from third
parties required to be obtained by it at or prior to the
effective date;
(vi) Compete having been licensed, qualified or authorized to
conduct business in all jurisdictions in which the nature of
the business conducted by it or the character
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or location of properties or assets owned or leased by it
makes such licensing or qualification necessary and having
satisfied and paid all expenses, taxes, assessments, penalties
and other payments to such jurisdictions;
(vii) Compete having terminated its Stockholders Agreement;
(viii) Compete having terminated or amended the agreement with one of
its employees; and
(ix) Compete having submitted to Perficient a calculation of income
tax payable by its stockholders attributable to their
ownership of Compete common stock in form and substance
reasonably satisfactory to Perficient.
Conditions to the Obligations of Compete. The obligations of Compete to
effect the merger is further subject to the satisfaction of the following
conditions:
(i) the representations and warranties of Perficient and the
Merger Sub contained in the Merger Agreement being true in all
material respects at and as of the effective date as if made
at and as of such time;
(ii) the performance in all material respects by Perficient and the
Merger Sub of their obligations under the Merger Agreement at
or prior to the effective time;
(iii) the stockholders of Perficient having approved the Stock
Issuance on of or prior to the effective time;
(iv) Sam J. Fatigato having been elected to the Board of Directors
of Perficient at or prior to the effective time to fill a
vacancy to be created by the resignation from the Board of
Bryan Menell;
(v) the satisfaction of Compete that the Merger will be treated
for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code; and
(vi) Compete having received the legal opinion of counsel to
Perficient.
TERMINATION OF THE MERGER AGREEMENT
Right to Terminate: The Merger Agreement may be terminated and the
acquisition of Compete abandoned at any time prior to the effective time as
follows:
(a) by mutual consent of Perficient and Compete in a written
instrument, if the Board of Directors of each so determines by a vote of a
majority of the members of its entire Board;
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(b) by either Perficient or Compete (provided, however, that
the right to terminate the Merger Agreement shall not be available to any party
whose failure to fulfill any of its obligations under the Merger Agreement has
been the cause of or resulted in the failure of the closing to occur) if there
shall have been a material breach of any of the representations, warranties,
covenants or agreements set forth in the Merger Agreement on the part of the
other party; or
(c) by either Perficient or Compete if the Closing shall not
have occurred by July 1, 2000, which date may be increased by an additional 30
days at the request of Perficient, if the closing is delayed solely because any
requisite regulatory approval or approval by the stockholders of Perficient has
not been obtained due to issues relating to information in the Proxy Statement
supplied by or regarding Compete (including its financial statements) and
Perficient is diligently undertaking such efforts required to obtain the same.
In the event that the Merger Agreement is validly terminated by either
Perficient or Compete as provided above, the Merger Agreement shall become void
and have no effect except that the provisions of the Merger Agreement relating
to "no solicitation" and "no disclosure" shall survive the termination of the
Merger Agreement. Upon valid termination, there shall be no further obligation
on the part of Perficient, the Sub or Compete, or their respective officers or
directors or the stockholders of Compete except for the obligations under the
provisions relating to no solicitation and no disclosure. However, no party
shall be relieved or released from any liabilities or damages arising out of its
intentional breach of any provision of the Merger Agreement.
Termination Fees and Expenses. If Compete terminates the Merger
Agreement and abandons the transaction solely because Perficient failed to
obtain the necessary stockholder approval at the Special Meeting, Perficient
must pay Compete the amount of its transaction costs incurred in connection with
the proposed merger, including legal and accounting fees and expenses, within
two (2) business days of the termination. If the acquisition of Compete is not
completed for any other reason, Perficient and Compete will bear their own costs
and expenses.
AMENDMENTS; EXTENSION; WAIVER
Subject to compliance with applicable law, the Merger Agreement may be
amended by the parties thereof, by action taken or authorized by their
respective Boards of Directors. Notwithstanding the foregoing, non-material
amendments to the Merger Agreement may be made without the authorization of the
respective Boards of Directors of the parties thereof. The Merger Agreement may
not be amended except by an instrument in writing signed on behalf of each of
the parties thereof.
At any time prior to the effective time of the Merger, the parties
thereof, by action taken or authorized by their respective Board of Directors,
may, to the extent legally allowed, (a) extend the time for the performance of
any of the obligations or other acts of the other parties to the Merger
Agreement, (b) waive any inaccuracies in the representations and warranties
contained in the Merger Agreement in any document delivered pursuant to the
Merger Agreement and (c) waive compliance with any of the agreements or
conditions contained in the
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Merger Agreement. Any agreement on the part of a party to the Merger Agreement
to any such extension or waiver shall be valid only if set forth in a written
instrument signed on behalf of such party, but such extension or waiver shall
nor operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
INTERESTS OF CERTAIN PERSONS IN THE MERGER AND RELATED MATTERS
The directors and executive officers of Perficient do not have any
substantial interest, direct or indirect, by security holdings or otherwise in
any matter to be acted upon at the Special Meeting.
RIGHTS OF PERFICIENT STOCKHOLDERS
The rights of our stockholders are currently governed by the Delaware
General Corporation Law ("DGCL") and by our certificate of incorporation and
bylaws. The rights of Compete stockholders are currently governed by the
Illinois Business Corporation Act ("IBCA") and Compete's certificate of
incorporation and bylaws. Accordingly, upon consummation of the Merger, the
rights of our stockholders and of Compete stockholders who become Perficient
stockholders in the Merger will be governed by the DGCL and Perficient
certificate of incorporation and bylaws. Our certificate of incorporation and
bylaws are not being amended in connection with the Merger and therefore the
rights of our existing stockholders will be unaffected by the Merger.
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SELECTED HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
THE FOLLOWING UNAUDITED PRO FORMA DATA GIVES EFFECT TO THE MERGER AS IF
ALL SUCH TRANSACTIONS HAD BEEN CONSUMMATED ON DECEMBER 31, 1999 IN THE CASE OF
BALANCE SHEET DATA AND JANUARY 1, 1999 WITH RESPECT TO FINANCIAL DATA AND
OPERATIONS DATA. THE PRO FORMA INFORMATION GIVES EFFECT TO THE MERGER UNDER THE
PURCHASE METHOD OF ACCOUNTING AND TO THE ASSUMPTIONS AND ADJUSTMENTS DESCRIBED
IN THE ACCOMPANYING NOTES TO THE PRO FORMA COMBINED CONDENSED FINANCIAL
STATEMENTS.
THE PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS ARE BASED ON THE
HISTORICAL FINANCIAL STATEMENTS OF PERFICIENT, LOREDATA AND COMPETE AND THEIR
RELATED NOTES THERETO INCLUDED ELSEWHERE HEREIN. THESE PRO FORMA STATEMENTS ARE
PRESENTED FOR INFORMATIONAL PURPOSES ONLY AND MAY NOT NECESSARILY BE INDICATIVE
OF THE RESULTS THAT ACTUALLY WOULD HAVE OCCURRED HAD THE MERGER BEEN CONSUMMATED
AT THE DATES INDICATED, NOR ARE THEY NECESSARILY INDICATIVE OF FUTURE OPERATING
RESULTS OR FINANCIAL POSITION.
<TABLE>
<CAPTION>
PERFICIENT INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of December 31, 1999
Perficient LoreData Compete Adjustments Pro Forma
------------ ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash $5,818,918 $0 $43,172 ($385,000) (a)
(3,500,000) (b)
5,317,000 (c)
(366,638) (d)
(150,000) (e)
(77,000) (f) $6,700,452
Accounts receivable, net 563,334 128,148 1,149,214 -- 1,840,696
Other assets 142,422 -- -- -- 142,422
Income tax receivable 10,916 -- -- -- 10,916
----------------------------------------------------------------------------
Total current assets 6,535,590 128,148 1,192,386 838,362 8,694,486
Property and equipment 114,640 114,792 541,603 (35,535) (g)
(296,070) (h) 439,430
Accumulated depreciation (33,813) (35,535) (296,070) 35,535 (i)
296,070 (j) (33,813)
Goodwill, net -- -- 90,000 58,498,826 (k)
2,352,472 (l)
(90,000) (m)
55,000 (n) 60,906,298
Accumulated amortization -- -- (35,000) 35,000 (o) 0
Other assets -- 2,729 8,724 -- 11,453
----------------------------------------------------------------------------
Total assets $6,616,417 $210,134 $1,501,643 $61,689,660 $70,017,854
============================================================================
Liabilities and stockholders' equity
Liabilities
Current liabilities:
Accounts payable $165,175 $33,279 $164,558 $ -- $363,013
Short term borrowings 0 43,776 400,000 2,415,690 (p)
107,810 (q) 2,971,276
</TABLE>
-30-
<PAGE> 41
<TABLE>
<S> <C> <C> <C> <C> <C>
Other current liabilities 199,150 34,015 150,649 -- 383,814
----------------------------------------------------------------------------
Total current liabilities 364,326 111,070 715,207 2,527,500 3,718,103
Note payable to related party,
less current portion -- 48,968 -- -- 48,968
Capital lease obligation -- -- 119,515 -- 119,515
----------------------------------------------------------------------------
Total liabilities 364,326 160,038 834,722 2,527,500 3,886,586
Stockholders' equity:
Common Stock 3,503 1,000 20,495 2,200 (r)
162 (s)
(1,000) (t)
(20,495) (u)
400 (v)
17 (w) 6,282
Treasury Stock -- -- (243,696) 243,696 (x) 0
Additional paid-in capital 7,777,392 12,668 4,595,413 52,619,392 (y)
1,940,406 (z)
(12,668) (aa)
(4,595,413) (bb)
5,316,600 (cc) 67,653,790
Note receivable from stockholder -- (53,828) -- 53,828 (dd) 0
Unearned stock compensation (152,000) -- (4,593,413) 4,593,413 (ee) (152,000)
Retained earnings (deficit) (1,376,804) 90,256 888,122 (90,256) (ff)
(888,122) (gg) (1,376,804)
----------------------------------------------------------------------------
Total stockholders' equity 6,252,091 50,096 666,921 59,162,160 66,131,268
----------------------------------------------------------------------------
Total liabilities and stockholders'
equity $6,616,417 $210,134 $1,501,643 $61,689,660 $70,017,854
============================================================================
</TABLE>
See notes to unaudited pro forma condensed consolidated balance sheet
-31-
<PAGE> 42
PERFICIENT, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
The following pro forma adjustments to the unaudited condensed consolidated
balance sheet assume the mergers had been consummated on December 31, 1999.
The LoreData, Inc. and Compete, Inc. acquisitions will be accounted for using
the purchase method. The cost of the acquisition will be allocated to the fair
value of the assets acquired as of the closing dates, January 3, 2000 for
LoreData, and an assumed Effective Date of February 29, 2000 for Compete, based
upon valuations which are not yet complete. Accordingly, the allocations of the
purchase price may change upon completion of the valuation.
Following are the pro forma adjustments referenced in the unaudited condensed
consolidated balance sheet:
<TABLE>
<CAPTION>
LoreData * Compete
------------- -------------
<S> <C> <C>
The estimated acquisition purchase price and preliminary allocations are as
follows:
Purchase price of acquisition $ 2,402,568 $ 59,165,747
============= =============
Net equity of the Acquisitions at December 31, 1999
(book value of net assets):
Common Stock 1,000 (t) 20,495 (u)
Additional paid in capital 12,668 (aa) 4,595,413 (bb)
Note receivable from stockholder (53,828)(dd) --
Unearned stock compensation -- (4,593,413)(ee)
Treasury stock -- (243,696)(x)
Retained earnings 90,256 (ff) 888,122 (gg)
------------- -------------
50,096 666,921
Eliminate intangible assets previously recorded by:
Goodwill -- (90,000)(m)
Accumulated amortization -- 35,000 (o)
Adjustments to record assets at fair value:
Fixed assets (35,535)(g) (296,070)(h)
Accumulated depreciation 35,535 (i) 296,070 (j)
Goodwill 2,352,472 (l) 58,498,826 (k)
Imputed interest on Note payable to Compete shareholders 55,000 (n)
------------- -------------
$ 2,402,568 $ 59,165,747
============= =============
Record cash, note payable and stock for acquisitions:
Cash $ 385,000 (a) $ 3,500,000 (b)
Cash (Broker fee) -- 366,638 (d)
Cash (estimated transaction costs) 77,000 (f) 150,000 (e)
Short term borrowings -- 2,419,690 (p)
Imputed interest payable -- 107,810 (q)
Additional paid in capital 1,940,406 (z) 52,619,392 (y)
Common Stock issued to shareholders of acquisitions 162 (s) 2,200 (r)
Common Stock issued to brokers -- 17 (w)
------------- -------------
$ 2,402,568 $ 59,165,747
============= =============
Record proceeds of February 7, 2000 private placement, on pro forma basis, to
provide cash to complete acquisitions. Perficient sold 400,000 shares for $14
per share and raised $5.3 million, net of costs.
Cash $-- $ 5,317,000(c)
Common stock -- (400)(v)
Additional paid in capital -- (5,316,600)(cc)
</TABLE>
* The references in this column correspond to the references on the Unaudited
Condensed Consolidated Balance Sheet.
** The note payable to Compete shareholders is non-interest bearing.
Interest is imputed using the Company's cost of capital (8.75% as of
February 29, 2000).
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<PAGE> 43
PERFICIENT, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
For the year ended December 31, 1999
<TABLE>
<CAPTION>
Perficient, Inc. LoreData, Inc. Compete, Inc. Adjustments Pro Forma
---------------- -------------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Consulting revenues $ 3,154,936 $ 1,348,480 $ 6,643,577 $ -- $ 11,146,993
Cost of consulting revenues 1,541,389 968,584 4,087,063 -- 6,597,036
----------- ----------- ----------- ------------ ------------
Gross margin 1,613,547 379,896 2,556,514 0 4,549,957
Selling, general and administrative 2,197,560 371,421 2,149,642 107,810 (a) 4,826,433
Stock compensation 956,000 -- -- 956,000
Intangibles amortization -- -- -- 19,463,672 (b)
784,157 (c) 20,247,829
----------- ----------- ----------- ------------ ------------
Income (loss) from operations (1,540,013) 8,475 406,872 (20,355,639) (21,480,305)
Interest income (expense) 114,138 (7,265) (23,694) 83,179
Income (loss) before income taxes (1,425,875) 1,210 383,178 (20,355,639) (21,397,126)
Other expense -- -- 30,000 -- 30,000
Provision (benefit) for income taxes (20,912) -- 3,135 -- (17,777)
----------- ----------- ----------- ------------ ------------
Net Income (loss) ($1,404,963) $ 1,210 $ 350,043 ($20,355,639) ($21,409,349)
=========== =========== =========== ============ ============
</TABLE>
See notes to unaudited pro forma condensed consolidated statement of operations.
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<PAGE> 44
<TABLE>
<S> <C> <C> <C> <C> <C>
Supplemental Data:
Net income (loss) per share:
Basic and diluted (1) $ (0.47) $ 12.10 $ 0.13 $ -- $ (4.14)
=========== ======= ========== ============ ============
Shares used in computing net
income (loss) per share (2) 3,000,556 100 2,668,952 -- 5,166,138
=========== ======= ========== ============ ============
Diluted supplemental weighted average
shares outstanding -- 100 2,728,696 -- 5,577,380
=========== ======= ========== ============ ============
Supplemental Data:
Net Income (Loss) as reported $(1,404,963) $ 1,210 $ 350,043 $(20,355,639) $(21,409,349)
Non-cash charges (3) 978,950 28,814 158,737 20,247,829 21,414,330
Provision (benefit) for income taxes(4) (20,912) 0 3,135 (3,135) (20,912)
----------- ------- ---------- ------------ ------------
Supplemental net income before non-cash
charges $ (405,101) $30,024 $ 505,645 $ (104,675) $ 25,853
=========== ======= ========== ============ ============
Supplemental net income before non-cash
charges per share - basic $ (0.14) $300.24 $ 0.19 $ -- $ 0.01
=========== ======= ========== ============ ============
Supplemental net income before non-cash
charges per share - diluted $ -- $300.24 $ 0.19 $ -- $ 0.00
=========== ======= ========== ============ ============
</TABLE>
(1) The computation of net loss and diluted supplemental net loss per share
excludes Perficient Common Stock issuable upon exercise of certain employee
stock options, as their effect is antidilutive.
(2) Pro Forma diluted supplemental shares outstanding include estimate of
1,231,709 shares for contingent consideration issuable to certain selling
shareholders under the terms of the merger agreements.
(3) Non-cash charges include stock compensation, amortization of intangible
assets, including Goodwill, and depreciation expense.
(4) Supplemental net income and supplemental income per share data include a tax
provision at an assumed effective rate of 37% for all periods presented.
This information is not necessarily indicative of the results we would have
obtained had we owned and operated these businesses as of the beginning of the
period discussed. We have based these supplemental adjustments on estimates,
available information we deem appropriate.
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<PAGE> 45
PERFICIENT, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
As of December 31, 1999
The accompanying Unaudited Pro Forma Condensed Consolidated Statements of
Operations for the year ended December 31, 1999 reflect the pro forma
adjustments described below as if the acquisitions occurred on January 1, 1999.
The Unaudited Pro Forma Condensed Consolidated Statements of Operations combine
the historical results of operations of Perficient with those of LoreData and
Compete. The statements reflect the following adjustments:
(a) Represents imputed interest expense on the 6-month Note Payable to
Compete shareholders. The imputed interest is calculated using
Perficient's cost of capital (our bank's prime rate as of February 29,
2000 or 8.75%, the most recent rate available before the date of this
report). The imputed interest expense is charged to income and
reduces Purchased Goodwill.
<TABLE>
<S> <C>
Imputed interest expense on Note payable to Compete
shareholders $107,810
========
</TABLE>
(b) Represents Goodwill amortization associated with the Compete
Acquisition using an assumed amortization period of 3 years and an assumed
price of Perficient stock of $21.50 per share (closing price on February
29, 2000, the most recent price practicable before the date of this
report. The calculation of Goodwill is as follows:
<TABLE>
<S> <C>
Component of purchase price for Compete, Inc.
Cash $ 3,500,000
Note 2,527,500
Stock (2,200,000 shares) 47,300,000
Assumption of Existing Stock Option Plan * 4,954,972
Transaction Broker Fees: 733,275
Estimated acquisition costs (Legal, accounting, etc.) 150,000
------------
Total purchase price 59,165,747
Less: Net assets of Compete, Inc. (666,921)
Less: Imputed interest on Note payable to Compete shareholders (107,810)
------------
Total Goodwill 58,391,016
------------
Goodwill amortization (using 3 year amortization $ 19,463,672
period) ============
</TABLE>
* Assumes the assumption of current outstanding options of Compete. The
cost is measured by the difference in the aggregate exercise price of
all unvested options and the fmv of Perficient common stock of $21.50
on February 29, 2000 per share, the most recent price practicable
before the date of this report.
(c) Represents Goodwill amortization associated with the LoreData
Acquisition using an assumed amortization period of 3 years and the actual
closing price of price of Perficient stock of $12.00 per share on the
Effective Date of January 3, 2000. The calculation of Goodwill is as
follows:
<TABLE>
<S> <C>
Component of Purchase Price for LoreData, Inc.
Cash $ 385,000
Stock (161,714 shares) 1,940,568
Estimated acquisition costs (Legal, accounting, etc.) 77,000
------------
Total purchase price 2,402,568
Less: Net assets of LoreData, Inc. (50,096)
------------
Total Goodwill 2,352,472
------------
Goodwill amortization (using 3 year amortization $ 784,157
period) ============
</TABLE>
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<PAGE> 46
COMPARATIVE PER SHARE DATA
COMPARATIVE PER SHARE INFORMATION
We have summarized below the income (loss) from continuing operations before
extraordinary items, cash dividends per common share and the book value per
common share data for Perficient and LoreData and Compete on a historical, pro
forma combined and pro forma equivalent basis. We combined historical
consolidated financial information of Perficient, LoreData and Compete using the
purchase method of accounting for business combinations. Each of Perficient,
LoreData and Compete's fiscal year ends on December 31.
The unaudited "pro forma--combined" and the unaudited "pro forma
equivalent--LoreData and Compete" information assumes that the mergers occurred
on January 1, 1999. The unaudited "pro forma combined" information combines the
financial information of Perficient for the fiscal year ended December 31, 1999,
with the financial information of LoreData and Compete for the fiscal year ended
December 31, 1999.
The unaudited "pro forma equivalent--LoreData and Compete" information was
calculated by multiplying the corresponding pro forma combined data by the
exchange ratio of 1,617:1 for LoreData and .78 for Compete. This information
shows how each share of LoreData and Compete common stock would have
participated in net earnings, cash dividends and book value of Perficient if the
merger had been completed at the beginning of the earliest period presented.
However, these amounts do not necessarily reflect future per share levels of net
earnings, cash dividends or book value of Perficient. The following information
which is unaudited comparative and unaudited pro forma per share data is derived
from the historical and unaudited pro forma combined condensed financial
statements of Perficient and LoreData and Compete.
YOU SHOULD READ THE INFORMATION IN THIS SECTION ALONG WITH PERFICIENT,
LOREDATA AND COMPETE'S HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS AND
ACCOMPANYING NOTES INCLUDED IN THIS PROXY STATEMENT. YOU SHOULD ALSO READ THE
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS AND ACCOMPANYING
DISCUSSION AND NOTES INCLUDED IN THIS PROXY STATEMENT STARTING ON PAGE 30.
AT OR FOR YEAR ENDED
DECEMBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PERFICIENT LOREDATA COMPETE PRO FORMA
--------------- --------- ------------- -----------
<S> <C> <C> <C> <C>
HISTORICAL
Basic earnings per common share from continuing
operations $(0.47) $ 12.10 $0.13 --
Diluted earnings per common share from continuing
operations -- $ 12.10 $0.13 --
Cash dividends declared per common share na na na --
Book value per outstanding common share $ 2.08 $500.96 $0.25 --
PRO FORMA--COMBINED
Basic and diluted earnings per common share from
</TABLE>
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<PAGE> 47
<TABLE>
<S> <C> <C> <C> <C>
continuing operations -- -- -- $ (4.14)
Cash dividends declared per common share -- -- -- na
Book value per outstanding common share -- -- -- $ 12.80
PRO FORMA EQUIVALENT--LOREDATA AND COMPETE
Basic and diluted earnings per common share from
continuing operations -- $(6,702) $ (3.23) --
Cash dividends declared per common share -- na na --
Book value per outstanding common share -- $20,701 $ 9.98 --
Basic supplemental weighted average
shares outstanding 3,000,556 100 2,668,952 5,166,138
Diluted supplemental weighted average
shares outstanding -- 100 2,728,696 5,577,380
</TABLE>
BUSINESS OF PERFICIENT
You should read the following description of our business in
conjunction with the information included elsewhere in this proxy statement.
This description contains certain forward-looking statements that involve risks
and uncertainties. Our actual results could differ significantly from the
results discussed in the forward-looking statements as a result of certain of
the factors set forth in "Risk Factors" and elsewhere in this proxy statement.
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 experts
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.
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<PAGE> 48
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:
- 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
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<PAGE> 49
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 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.
-39-
<PAGE> 50
- FOCUS ON CORE BUSINESS. Our partners can remain focused on
their core business of developing and selling high-quality
software, while leveraging a small, focused internal services
organization across more customers with better success than
building and maintaining a large internal full-time staff.
OUR STRATEGY
Our objective is to become the leading provider of virtual professional
service organizations to rapidly growing Internet software companies. To achieve
this objective, our strategy is to:
Focus on High-Growth, Service-Intensive Segments of the Internet Software Market
We view Internet software as the most attractive sector of the software
industry. Within the Internet software market, we will try to identify segments
that we believe will grow rapidly and will require significant services. We
focus on Internet software so that we can more readily acquire leading-edge
specialized skills that are in high demand in the marketplace. We intend to
leverage our accumulated 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
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<PAGE> 51
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 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.
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<PAGE> 52
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. See "Business of Compete" for
information concerning the partners of Compete, including IBM.
Our arrangement with Vignette allows Vignette to issue assignment
orders to us, but they are not committed to use our services. We are paid for
time and materials and are reimbursed for expenses. The agreement may be
terminated by Vignette or us at any time upon minimal notice. Upon termination,
we remain obligated to complete any unfinished assignments. The agreement also
provides that we will not work for Vignette's competitors and neither party may
hire the other party's employees. Our Chairman of the Board, Steven G.
Papermaster, sits on the Board of Directors of Vignette.
In addition to Vignette, we have added 3 partners: 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
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<PAGE> 53
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 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.
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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 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.
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
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December 14, 2000. The rent is currently $795 per month. Please read "Certain
Transactions" and "Principal Stockholders" for more information.
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.
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 its 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.
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BUSINESS OF COMPETE
OVERVIEW
Compete provides Internet consulting services including systems
development, implementation and education services to companies in a wide array
of industries, including financial services, insurance, government, automotive
and health care. Compete's services are utilized by customers that desire to
build and educate Businesses or to leverage their existing operations by
incorporating into them elements of eBusinesses. eBusinesses are businesses that
combine the reach and efficiency of the Internet with both emerging and existing
technologies to enable companies to strengthen relationships with customers and
business partners, create new revenue opportunities, reduce costs, improve
operating efficiencies, optimize supply chains, shorten cycle times and improve
communications.
Compete has established a "partner" relationship with International
Business Machines Corp. ("IBM"). As part of its partner relationship, Compete
utilizes and implements IBM's Websphere(TM), VisualAge Generator(TM), Java(TM)
and Smalltalk(TM) programs to enhance their customers' eBusiness strategy.
Compete has agreements with many of its end-user customers that are
typically in effect for short durations and enable the customers to modify or
terminate Compete's services on minimal prior notice. If a customer defers,
modifies or cancels an engagement or chooses not to retain Compete for future
projects, Compete must be able to rapidly redeploy its employees to other
engagements in order to minimize under-utilization of employees and the
resulting harm to its operating results.
COMPETE'S CONSULTING SERVICES
Compete provides Internet consulting services across a wide range of
industries, with particular expertise in financial services, telecommunications,
insurance and healthcare. Compete builds and deploys mission critical,
enterprise applications essential to running core business systems. Typical
engagements include implementation, training and mentoring services to provide
skills transfer and rapid deployment of new technology for clients.
Compete has nearly doubled its staff of technical professionals each of
the last three years. As of February 29, 2000, Compete employs 58 full-time
people, 50 as billable consultants and 8 in management and administration.
Compete has a demonstrated ability to cost-effectively attract and retain
experienced technical consultants. Compete has performed services across the
United States and selectively around the world, with principle locations in
Chicago, San Francisco, Raleigh and Auckland, New Zealand.
Because of its experience in enterprise applications, Compete intends
to continue to develop business to business partner relationships. Compete's
targeted businesses are those that combine the reach and accessability of the
Internet with existing core system and data assets.
FOCUS ON IBM TECHNOLOGY
Compete supports key IBM technologies such as WebSphere(TM),
VisualAge(TM) and Universal Database(TM). Compete is a Premier level IBM
Business Partner and has deployed and assisted in developing hundreds of
references for IBM software products. Accordingly, Compete has developed an
important strategic relationship with the IBM Software Group, including
executive management, product development and field sales.
COMPETITION
Competition in the eBusiness services market is intense and Compete
expects the competition in this market to intensify for the foreseeable future.
Compete faces competition from companies selling eBusiness software and
services, and from the in-house development efforts of companies seeking to
engage in eBusiness. Compete's current competitors include the following:
- 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
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- Information technology staffing firms, such as Keane, Inc. and
Renaissance Worldwide;
- Internet service firms, such as Proxicom, Inc. and USWeb
Corporation; and
- Internal information technology departments of current and
potential partners, including IBM, as well as other computer equipment
and services companies.
Because relatively low barriers to entry characterize Compete's market,
Compete also expects other companies to enter its market.
Most of Compete's competitors have longer operating histories, larger
client bases, greater name recognition and possess significantly greater
financial, technical and marketing resources than Compete does. As a result, its
competitors may be able to better attract companies to which Compete markets its
services and adapt more quickly to new technologies or evolving customer
requirements. Many competitive factors are outside of Compete's control, such as
the ability of its competitors to hire, retain and motivate qualified
information technology professionals.
EMPLOYEES
Compete's most important assets are its information technology
professionals that provide Internet and software education, consulting and
systems development and implementation services to its end-user customers.
Compete's business is labor intensive. The Internet and software industries are
rapidly growing with many new companies entering the market. In addition, there
are limited persons with the experience, technological background and know-how
who are able to provide the services necessary to Compete's end-user customers.
Accordingly, Compete's future success depends in large part upon its ability to
attract, train, retain, motivate and manage highly skilled information
technology professionals. Furthermore, there is a high rate of attrition among
such personnel. Any inability to attract, train and retain highly skilled
information technology professionals would impair Compete's ability to
adequately manage and staff its existing projects and to bid for or obtain new
projects, which in turn would adversely affect its operating results.
As of February 29, 2000, Compete had 58 full-time employees. Of its
total employees, 50 are information technology professionals and 8 are involved
in sales, general administration and marketing. Compete employees are not
represented by any collective bargaining unit, and it has never experienced a
work stoppage. Compete believes its employee relations are good.
PROPERTIES
Compete leases approximately 4,320 square feet of office space in
Lisle, Illinois from Chicago Title and Trust Company under a lease expiring on
September 14, 2001. Compete also leases approximately 1,457 square feet of
office space in San Francisco, California from BRE/CBL, LLC under a lease
expiring on April 14, 2002.
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LEGAL PROCEEDINGS
Compete is not currently a party to any material legal proceedings.
RISK FACTORS
RISKS PARTICULAR TO THE ACQUISITION OF COMPETE
THE CONSIDERATION BEING PAID BY US IN THE MERGER WILL REMAIN FIXED DESPITE ANY
INCREASE OR DECREASE IN THE STOCK PRICES OF PERFICIENT OR COMPETE.
Upon completion of the Merger, each share of Compete common stock will
be converted into the right to receive (i) $1.24 in cash, (ii) $0.89 in a
promissory note to be repaid within six months following the closing, and (iii)
0.78 shares of Perficient common stock. In addition, options to purchase a total
of 448,349 shares of Compete common stock will be converted so that an option to
purchase one share of Compete common stock will be converted into an option to
purchase 0.78 shares of Perficient common stock plus the number of shares of
Perficient shares purchasable for $2.13, calculated in the manner set forth in
the Merger Account. This exchange ratio is a fixed number and will not be
adjusted in the event of any increase or decrease in the price of either Compete
common stock or Perficient common stock. The prices of Compete common stock and
Perficient common stock when the Merger takes place may vary from their prices
at the date of this Proxy Statement and at the date of the Special Meeting. Such
variations may be the result of changes in the business, operations or prospects
of Compete or Perficient, market assessments of the likelihood that the
acquisition will be consummated, the timing thereof, and the prospects of
Compete, Perficient, or the combined company, regulatory considerations, general
market and economic conditions and other factors. Because the completion of the
acquisition may occur at a date later than the Special Meeting, there can be no
assurance that the prices of Compete common stock and Perficient common stock on
the date of the Special Meeting will be indicative of their respective prices at
the completion of the Merger.
COMPETE IS DEPENDENT UPON A CONTINUING RELATIONSHIP WITH IBM AND A LIMITED
NUMBER OF CLIENTS.
Compete has developed an important relationship with IBM. Substantially
all of its consulting projects involve IBM-based systems and technologies. IBM
accounted for 33% of Compete's revenue during 1998 and 12% of Compete's revenue
during 1999. Any termination of the relationship with IBM would have a material
adverse effect on Compete's operating results and financial condition after the
Merger. IBM only retains the services offered by Compete on a case-by-case basis
and may choose at any time to use any other firm or to provide the services that
Compete performs for itself. Therefore, any downturn in IBM's business or any
shift in its decisions to continue to use the services offered by Compete could
also result in substantially reduced sales by us after the Merger. During 1999,
approximately 57% of Compete's sales were derived from services provided to
three customers. Although Compete generally provides services on a
project-to-project basis, any losses of the relationships with these three
service providers would have a material adverse effect on Compete's results of
operations.
WE MAY HAVE DIFFICULTY INTEGRATING THE BUSINESS OF COMPETE INTO OUR EXISTING
OPERATIONS.
The acquisition of Compete involves the integration of two companies
that have previously operated independently, with focuses on different
geographical markets and software
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products utilizing different personnel. We cannot assure you that we will be
able to integrate the operations of Compete without encountering difficulties or
experiencing the loss of key Compete employees, customers or suppliers, or that
the benefits expected from such integration will be realized. In addition, we
cannot assure you that the management teams of Perficient and Compete will be
able to satisfactorily work with one another.
YOU WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION OF YOUR PERCENTAGE
EQUITY AND VOTING INTEREST.
We will issue up to 2,200,000 shares of common stock in connection with
the Merger, of which one-half of the shares of common stock issued will be
reserved and withheld in escrow to cover possible indemnification obligations.
We will also convert additional compete options into options to purchase
approximately 393,415 shares of Perficient's common stock (assuming a value of
Perficient's common stock as of February 29, 2000, the most recent practicable
date prior to the printing of this Proxy Statement, of $21.50 per share). The
2,200,000 shares would represent approximately 31% of the number of shares of
our common stock outstanding on a fully-diluted basis as of February 29, 2000.
Accordingly, the Merger will have the effect of substantially reducing the
percentage equity and voting interest held by each of our stockholders.
THE COMPETE STOCKHOLDERS MAY BE ABLE TO SIGNIFICANTLY INFLUENCE US
FOLLOWING THE STOCK ISSUANCE.
The substantial ownership of our common stock by Compete's current
stockholders after the Merger will provide them with the ability to exercise
substantial influence in the election of directors and other matters submitted
for approval by Perficient's stockholders. Following the closing of the Merger,
the ownership of our common stock by the nine Compete's stockholders and vested
option holders, including those who will become directors and/or executive
officers of Perficient will represent approximately 31% of the outstanding
shares of Perficient. This concentration of ownership of our common stock may
make it difficult for other Perficient stockholders to successfully approve or
defeat matters which may be submitted for action by our stockholders. It may
also have the effect of delaying, deterring or preventing a change in control of
Perficient without the consent of the Compete stockholders. In addition, sales
of our common stock by the Compete stockholders to a third party may result in a
change of control of Perficient.
WE MAY LOSE RIGHTS UNDER CONTRACT WITH CUSTOMERS AND OTHER THIRD
PARTIES AS A RESULT OF THE MERGER.
Perficient and Compete each have contracts with suppliers, customers,
licensors, licensees and other business partners. The Stock Issuance may trigger
requirements under some of these contracts to obtain the consent, waiver or
approval of the other parties. If we cannot do so, we may lose some of these
contracts or have to renegotiate the contracts on terms that may be less
favorable. In addition, many of these contracts are for a short term or can be
terminated following a short notice period. A loss of any of these contracts
would reduce our revenues and may, in the case of some contracts, affect rights
that are important to the operation of our business.
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WE WILL FACE ADVERSE ACCOUNTING CONSEQUENCES BY COMPLETING THIS MERGER.
The Merger will be accounted for under the purchase method of
accounting. Compete's assets would be recognized at their fair value and any
excess of the purchase price over such fair value, other than amounts charged to
in-process research and development costs, if any, will be recognized as
goodwill on Perficient's balance sheet. The goodwill will be amortized as an
expense over its anticipated useful life. Since the amount of goodwill will be
substantial, purchase accounting treatment could materially adversely affect the
combined company's financial results throughout the amortization period.
COMPETE WILL FACE MANY OF THE SAME RISK FACTORS AS WE DO.
Because Competes business is very similar to ours, it faces many of the
same risks as we do. Our investment in Compete is subject to, among others, the
following Risk factors:
- Compete's limited operating history makes evaluating its
business difficult.
- Compete's partners are not obligated to use its services.
- Compete may align itself with partners that fail.
- Compete's success will depend upon retaining its management
team.
- Compete's quarterly operating results will be volatile and may
cause our stock price to fluctuate.
- Compete focuses solely on companies in the market for Internet
software and could be damaged by any downturn in this
industry.
RISKS PARTICULAR TO OUR BUSINESS
WE HAVE LOST MONEY DURING MOST OF THE QUARTERS DURING WHICH WE HAVE BEEN IN
BUSINESS AND WE EXPECT TO LOSE MONEY IN THE FUTURE.
We have incurred operating losses in most of the quarters during which
we have been in business. We cannot assure you of any operating results and we
will likely experience large variations in quarterly operating results. In
future quarters, our operating results may not meet public market analysts' and
investors' expectations. If that happens, the price of our common stock may
fall.
We expect to incur net losses at least through the end of 2000. We
plans to increase its 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.
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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 its relationship with
Vignette would have a material adverse effect on our operating results and
financial condition. Vignette only retains our services on a case-by-case basis
and may choose at any time to use any other firm or to provide the services that
we performs for itself. Therefore, any downturn in Vignette's business or any
shift in its decisions to continue to use our services could also result in
substantially reduced sales by us.
OUR PARTNERS ARE NOT OBLIGATED TO USE OUR SERVICES.
Our contracts with our partners do not obligate them to use our
services. A partner may choose at any time to use another consulting firm or to
perform the services we provides 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 seeks 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 aligns ourselves with
companies that fail to become market leaders, our business may suffer because
our partners will not have significant demand for our services. We invest
substantial resources to train our information technology professionals
regarding the use and features of our partners' software, and we will lose this
investment if our partners fail.
WE HAVE 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
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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 its
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.
WE ARE, AND WILL CONTINUE TO BE, CONTROLLED BY OUR OFFICERS AND DIRECTORS, WHICH
COULD RESULT IN US TAKING ACTIONS THAT OTHER STOCKHOLDERS DO NOT APPROVE.
Our executive officers, directors and existing 5% and greater
stockholders beneficially own or control approximately 68% of the voting power
of our common stock. Following the Merger, our executive officers and directors
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-
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negotiated takeover attempt. This concentration of ownership may discourage a
potential acquirer from making an offer to buy us, which, in turn, could
adversely affect the market price of our common stock. You should read
"Management," "Principal Stockholders" and "Description of Securities" for more
information on control of us.
OUR COMMON STOCK COULD BE DELISTED FROM THE NASDAQ SMALLCAP MARKET AND THE
BOSTON STOCK EXCHANGE, WHICH WOULD MAKE TRADING IN OUR STOCK MORE DIFFICULT.
Our shares are listed on the Nasdaq SmallCap Market and the Boston
Stock Exchange. However, our shares could be subsequently delisted, which would
force us to list our shares on the OTC Bulletin Board or some other quotation
medium, such as "pink sheets," depending upon our ability to meet the specific
listing requirements of those quotation systems. As a result, an investor would
find it more difficult to dispose of, or to obtain accurate quotations for, the
price of our shares. Delisting may also reduce the visibility, liquidity and
price of our common stock.
If our common stock is delisted from the Nasdaq SmallCap Market and
does not trade on another national securities exchange, we may become subject to
"penny stock" regulations that impose additional sales practice disclosure and
market making requirements on broker-dealers who sell or make a market in our
stock. In such instance, the rules of the Securities and Exchange Commission
would generally define "penny stock" to be common stock that has a market price
of less than $5.00 per share. If our stock becomes subject to penny stock
regulations, it would adversely affect the ability and willingness of
broker-dealers who sell or make a market in our common stock and of investors to
sell our stock in the secondary market.
MARKET PRICE AND DIVIDEND INFORMATION
Shares of Perficient common stock are listed on the Nasdaq SmallCap
market under the symbol "PRFT" and on the Boston Stock Exchange under the symbol
"PRF".
The table below sets forth, for the calendar quarters indicated, the
reported high and low closing prices of Perficient common stock as reported on
the Nasdaq SmallCap Market. We have not declared any dividends on our common
stock during any period covered by the table.
<TABLE>
<CAPTION>
1999 MARKET PRICE
HIGH LOW
<S> <C> <C>
Third Quarter 12.00 6.25
Fourth Quarter 17.88 6.50
</TABLE>
On February 16, 2000, the last full trading day prior to the public
announcement of the proposed Merger, the closing price on the Nasdaq SmallCap
Market was $26.00 per share of Perficient common stock after a high of $26.50
and low of $25.625 during the course of trading that day. On February 29, 2000,
the closing price on the Nasdaq SmallCap Market was $21.50 per share of
Perficient common stock. Under the terms of the Merger Agreement, Compete
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stockholders may receive up to 2,200,000 shares of Perficient common stock
regardless of the value of Perficient common stock on any particular date.
We do not presently expect to pay dividends on Perficient common stock
after the acquisition of Compete or in the foreseeable future. We intend to
retain future earnings, if any, to fund the development and growth of its
business. Future dividends, if any, will be determined by our Board of
Directors.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PERFICIENT
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with our financial
statements and notes thereto and the other financial information included
elsewhere in this filing. In addition to historical information, this
management's discussion and analysis of financial condition and results of
operations and other parts of this filing contain forward-looking information
that involve risks and uncertainties. Our actual results could differ materially
from those anticipated by such forward-looking information as a result of
certain factors, including but not limited to, those set forth under "risk
factors" and elsewhere in this filing.
We were incorporated in September 1997 and began generating revenue in
February 1998. We generate revenues from professional services performed for
end-user customers of our partners and associated reimbursable out-of-pocket
expenses. We refer to the Internet companies with which we work as our
"partners." To date, our limited number of partners have consisted of Internet
software companies and we expect that Internet software companies will comprise
our partners for the foreseeable future. Our contractual relationships are with
our partners rather than their end-user customers. We perform services on a
time-and-materials basis and are reimbursed for expenses. We recognize revenue
for fees as services are performed and reimbursable expenses as incurred.
We established our first partner relationship with Vignette
Corporation, an Internet relationship management software company, in February
1998. During 1999, we established partner relationships with four additional
internet software companies. Most of our revenues for the near future are
expected to be derived from Vignette with smaller portions derived from these
newer partner relationships. In December, 1999, we began providing services to
Plumtree, Inc. Total revenue during 1999 from partners other than Vignette 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.
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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 ended
December 31, 1999 consisted of $694,000 and $2,648,000, respectively, in fees
generated by our information technology professionals and $132,000 and $507,000,
respectively, of reimbursable expenses. During the twelve month period ended
December 31, 1999, 96% of our revenues came from Vignette.
Cost of Consulting Revenues. Cost of revenues, consisting of direct
costs, primarily salaries and benefits for information technology professionals
assigned to projects and of reimbursable expenses, increased from $401,000 for
the twelve months ended December 31, 1998 to $1,541,000 for the twelve months
ended December 31, 1999. The number of information technology professionals who
have agreed to perform services for the Company increased from 8 for the twelve
months ended December 31, 1998 to 43 for the twelve months ended December 31,
1999. This amount would be 94 on a pro forma basis giving effect to the Merger.
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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%
for the twelve months ended December 31, 1999 and the margin of consulting fees
over direct costs of consulting fees, without respect to reimbursable expenses,
was 61%.
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.
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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 $5,550,000 from the private placement to fund the cash portion of
the purchase price of Compete and for our operations and general corporate
purposes and to pay the promissory note payable six months from the closing.
In connection with the acquisition of Compete, we agreed to pay to the
shareholders and vested option holders of Compete $3,500,000 in cash and we will
agree to pay $2,527,500 six months from the date of the closing of the Merger.
We will use the proceeds of the private placement to fund the initial cash
payment and expect that we will fund the repayment of the notes from working
capital.
If our capital is insufficient to fund our activities in either the
short or long term, we may need to raise additional funds. If we raise
additional funds through the issuance of equity securities, our existing
stockholders' percentage ownership will be diluted. These equity securities may
also have rights superior to our common stock. Additional debt or equity
financing may not be available when needed or on satisfactory terms. If adequate
funds are not available on acceptable terms, we may be unable to expand our
services, respond to competition, pursue acquisition opportunities or continue
our operations.
Recent Accounting Pronouncements
In June 1998 and 1999, the FASB issued SFAS No. 133, "Accounting for
Derivatives and Hedging Activities" and SFAS No. 137, "Accounting for
Derivatives and Hedging Activities - Deferral of the Effective Date of SFAS No.
133" ("SFAS 133"), respectively. SFAS 133 is effective for all fiscal quarters
beginning with the quarter ending June 30, 2000. SFAS 133 establishes accounting
and reporting standards of derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. We will
adopt SFAS 133 in our quarter ending June 30, 2000 and do not expect such
adoption to have an impact on our reported results of operations, financial
position or cash flows.
COMPETE
The following discussion and analysis of Compete's financial condition
and results of operations should be read in conjunction with its 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. Compete's actual results could differ
materially from those anticipated by
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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.
Compete was incorporated in 1994. Compete offers Internet systems
development and architecture services, implementation services, and education to
companies in a wide array of industries, including financial services,
insurance, government, automotive and health care. Compete has developed strong
product affinity expertise around IBM's Visual Age Java, Generator, and
Websphere family of products. Compete generates revenues from professional
services, education and training performed for end-user customers of these
products. The majority of Compete's business is effected on a time and material
basis both directly with the end-user customers and as a subcontractor for IBM.
Compete recognizes revenue as services are performed and reimbursable expenses
as incurred.
Compete's plan is to continue to focus its efforts on services related
to Websphere, VA Java, and VA Generator systems. Compete also intends to expend
efforts to develop relationships with new technology partners beyond IBM.
Compete believes that to meet the demand for these services it will have to
continue to rapidly increase our number of technology consultants. Historically
Compete has funded its growth through cash generated by operations, and Compete
anticipates being able to do so in 2000.
The number of billable information technology professionals who have
agreed to perform services for Compete has increased from 13 at December 31,
1997 to 25 at December 31, 1998 and to 45 at December 31, 1999. Compete expects
its number of information technology professionals to grow significantly during
the next 12 months. Compete's personnel costs represent a high percentage of its
operating expenses and are relatively fixed in advance of each quarter.
Accordingly, if revenues do not increase at a rate equal to expenses, or
anticipated business does not materialize, Compete could incur losses and its
business, financial condition, operating results and liquidity will be
materially and adversely affected.
Results Of Operations
Fiscal Years Ended December 31, 1998 Compared To Fiscal Year Ended December 31,
1999
Consulting Revenues. Revenues increased from $4,181,458 for the twelve
months ended December 31, 1998 to $6,643,577 for the twelve months ended
December 31, 1999. The increases in revenues reflected the increase in the
number of projects performed and in the number of information technology
professionals employed, which increased from 25 at year end 1998 to 45 at year
end 1999. Compete's revenues for the twelve months ended December 31, 1998 and
ended December 31, 1999 consisted of $3,763,217 and $6,043,022, respectively, in
fees generated by its information technology professionals and $418,240 and
$600,555 respectively, of reimbursable expenses. During the twelve month period
ended December 31, 1999, 77% of Compete's revenues came from its five largest
customers.
Cost of Consulting Revenues. Cost of revenues, which consists primarily
of salaries and benefits for information technology professionals and of project
related expenses, which for the most part are reimbursable, increased from
$2,626,430 for the twelve months ended December 31, 1998 to $4,087,063 for the
twelve months ended December 31, 1999.
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Gross Margin. Gross margin increased from $1,555,028 for the twelve
months ended December 31, 1998 to $2,566,514 for the twelve months ended
December 31, 1999. Gross margin as a percentage of consulting revenues was 38%
for the twelve months ended December 31, 1999 and the margin of consulting fees
over direct costs of consulting fees, without respect to reimbursable and
project related expenses, was 44%.
Selling, general and administrative. Selling, general and
administrative expenses consist primarily of recruiting and training costs,
salaries and benefits of management and administrative staff, office expense,
travel costs and non-reimbursable expenses. Selling, general and administrative
expenses increased from $973,525 for the twelve months ended December 31, 1998
to $2,149,642 for the twelve months ended December 31, 1999. The increase in
selling, general and administrative expenses was primarily related to increases
in overhead costs necessary to support the growth in Compete's workforce.
Compete expects these expenses to increase in absolute dollar amounts in
connection with its planned expansion.
Operating income. Operating income decreased from $581,503 for the
twelve months ended December 31, 1998 to $406,872 for the twelve months ended
December 31, 1999. The decrease in operating income primarily reflects
additional management costs added in 1999 to support the growth in Compete's
workforce as well as a calculated investment to ramp up Compete's Websphere
capability.
Liquidity And Capital Resources
Compete has a line of credit with Citibank, which allows it to borrow
up to $750,000 against its qualifying accounts receivables. Borrowings under
this agreement, which expires June, 2000, bear interest at the bank's prime rate
+ 1%. As of December 31, 1999, there was $400,000 outstanding under this
agreement. Compete is currently in the process of extending the cap on its line
of credit to $1,500,000.
Cash generated from operations for the twelve months ended December 31,
1998 and 1999 was $218,021 and $220,913 respectively. As of December 31, 1999,
Compete had $43,172 in cash and working capital of $357,664 respectively. The
timing and amount of Compete's capital requirements will depend on a number of
factors, including demand for its services, competitive pressures and the
availability of complementary businesses that Compete may wish to acquire.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table sets forth certain information regarding the
beneficial ownership of Perficient common stock as of January 29, 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.
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<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER(1) AMOUNT AND PERCENT OF
- -------------------------------------- NATURE OF CLASS(2)
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 492,000 12.1
John T. McDonald(3) 519,392 12.8
525 East 72nd Street
New York, NY 10021
John A. Hinners(4)(5) 75,000 1.8
Steven G. Papermaster(6) 828,750 20.4
David S. Lundeen 325,750 8.0
Dr. W. Frank King(7) 20,000 *
Philip J. Rosenbaum(7) 20,000 *
Directors and executive officers as a group (6 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 January 29, 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 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. Does not include options to
purchase 50,000 shares of common stock that are not exercisable within
60 days of January 29, 2000
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(4) Includes 5,000 shares held in the name of the Aubry Smith Hinners
Section 2503 (c) Trust.
(5) Includes options to purchase 75,000 shares of Perficient common stock
exercisable within 60 days of January 29, 2000. Does not include
options to purchase 35,000 shares of Perficient common stock that are
not exercisable within 60 days of January 29, 2000.
(6) 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.
(7) Includes options for 20,000 shares exercisable within 60 days of
January 29, 2000.
MANAGEMENT OF PERFICIENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
Our executive officers, directors and certain key employees, and their
ages as of February 29, 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 and Chief Operating Officer (2)
Sam Fatigato.................... 38 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.
(2) Nominee for Director. Mr. Fatigato will also become Chief Operating
Officer upon the closing of the Merger.
EXECUTIVE OFFICERS AND DIRECTORS
JOHN T. MCDONALD joined Perficient in April 1999 as our Chief Executive
Officer. Since October 1998, Mr. McDonald has been the president of Beekman
Ventures, Inc., a New York-based firm specializing in private equity investments
in technology companies. From April 1996 to October 1998, Mr. McDonald was
president of VideoSite, Inc., a multimedia software company that is currently a
subsidiary of GTECH Corporation. GTECH acquired VideoSite in
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October 1997, 18 months after Mr. McDonald became VideoSite's president. From
May 1995 to April 1996, Mr. McDonald was a Principal with Zilkha & Co., a New
York-based merchant banking firm. From June 1993 to April 1996, Mr. McDonald
served in various positions at Blockbuster Entertainment Group, including
Director of Corporate Development and Vice President, Strategic Planning and
Corporate Development of NewLeaf Entertainment Corporation, a joint venture
between Blockbuster and International Business Machines Corporation. From 1987
to 1993, Mr. McDonald was an attorney with Skadden, Arps, Slate, Meagher & Flom
in New York focusing on mergers and acquisitions and corporate finance. Mr.
McDonald received a B.A. in Economics from Fordham University in 1984 and a J.D.
from Fordham Law School in 1987.
BRYAN R. MENELL founded Perficient in September 1997 and has served as
our President since inception. In 1991, Mr. Menell founded Exact Systems, Inc.,
a similar business providing services to customer management software vendors.
Exact was acquired by BSG Corporation, a systems integrator specializing in
emerging technologies, in January 1996. Mr. Menell continued to operate Exact's
business 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
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Technology and as vice president of finance of Blockbuster Video. Mr. Lundeen
received a B.S. in Engineering from the University of Michigan in 1984 and an
M.B.A. from the University of Chicago in 1988.
DR. W. FRANK KING became a member of our Board of Directors in June
1999. He has served as a Director of PSW Technologies, Inc., a publicly-traded
consulting services company, since October 1996. From 1992 to August 1998, Dr.
King served as President and Chief Executive Officer of PSW. From 1988 to 1992,
Dr. King was Senior Vice President of the Software Business group of Lotus, a
software publishing company. Prior to joining Lotus, Dr. King was with IBM, a
technology company, for 19 years, where his last position was Vice President of
Development for the Personal Computing Division. Dr. King currently serves on
the boards of directors of Auspex Systems, Inc., Best Software, Inc., Excalibur
Technologies Corporation and National 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.
SAM J. FATIGATO will become the Chief Operating Officer and a member of
the Board of Directors of Perficient upon the closing of the Merger. From 1996
until the present time, Mr. Fatigato served as Chief Executive Officer of
Compete, Inc. Prior to co-founding Compete, Mr. Fatigato was employed by IBM for
12 years, where he held various technical, sales and operational management
positions. Mr. Fatigato received a B.A. from Northwestern University in 1983.
CERTAIN KEY EMPLOYEES
BARRY DEMAK joined Perficient in July 1998 as the Vice President of
Business Development. From May 1996 until joining Perficient, Mr. Demak was
Manager, Worldwide Sales Operations at Cadence Design Systems, Inc., a provider
of design and consulting services and technology to electronics companies. From
August 1995 to May 1996, Mr. Demak was a manager in KPMG's Strategic Sales
Automation practice. Before joining KPMG and since May 1992, Mr. Demak was
responsible for sales and marketing for Metropolis Software. Mr. Demak received
a B.B.A. in Marketing and Finance from the University of Michigan.
ANDREW J. ROEHR became Chief Technology Officer of Perficient in May
1999. Prior to that time, Mr. Roehr had served as a consultant and advisor on
technology matters to us since August 1998. Since May 1986, Mr. Roehr has
provided consultative business and technology strategy services. From August
1998 to April 1999, Mr. Roehr served as Senior Technical Advisor to Powershift
Group, an Austin-based technology venture development firm. From May 1991 to
July 1998, Mr. Roehr was Director - Strategic Technology Services of BSG
Alliance IT, Inc., a subsidiary of BSG Corporation. Mr. Roehr received a B.A.
from Tufts University in 1987.
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We have hired during the last year, many of our current executive
officers to establish a team to manage our operations. These newly hired
officers include our Chief Executive Officer, hired in April 1999, our Chief
Financial Officer, hired in April 1999, and our Chief Technology Officer, hired
in May 1999. These individuals have not worked together previously and are in
the process of integrating as a management team. Their failure to work together
effectively would seriously harm our ability to carry out our business plan.
BOARD COMPOSITION AND COMMITTEES
We currently have six directors, each serving a term until the next
Special Meeting of stockholders. Gilford Securities Incorporated may designate
one person for election to our Board for the next three years. Gilford has not
yet designated any persons to the Board. In the event Gilford does not elect to
designate a Board nominee, then Gilford may designate one person to attend
meetings of Perficient's Board as an observer during such three year period.
Dr. King and Mr. Rosenbaum serve as the only members of the
compensation committee and the audit committee of the Board of Directors. The
compensation committee makes recommendations to the Board concerning salaries
and incentive compensation for our officers and employees and administers our
Employee Plan. The audit committee makes recommendations to the Board of
Directors regarding the selection of independent auditors, reviews the results
and scope of audits and other accounting-related services and reviews and
evaluates our internal control functions. At each Special Meeting of
stockholders, six directors will be elected by the holders of the common stock,
with the six nominees receiving the greatest number of votes serving as
directors. Following the Merger, the Company has agreed to nominate and
recommend Sam Fatigato as one of our directors, so long as he and the other
shareholders and accelerated option holders of Compete and their affiliates own
more than 10% of the shares of Perficient common stock issued to them in the
Merger. If Mr. Fatigato is not elected to the Board, he will continue to have a
right to attend and observe all Board meetings.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning the annual and
long-term compensation earned by the individuals who served as our Chief
Executive Officer during fiscal years 1998 and 1999 for services rendered in all
capacities during those years. Bryan R. Menell served as Perficient's Chief
Executive Officer from Perficient's inception until April 1999. Currently Mr.
Menell serves as Perficient's President. Upon the closing of the Merger, Mr.
Menell will resign from his position as President and become a Managing Director
of one of our practices. John T. McDonald joined Perficient in April 1999 and
assumed the duties of Chief Executive Officer. Barry Demak joined Perficient in
1999 and serves as a Vice President of Perficient. No other individual employed
by Perficient received a salary and bonus in excess of $100,000 during 1999.
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<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
NAME AND PRINCIPAL
POSITION YEAR SALARY ($) BONUS ($) SECURITIES UNDERLYING OPTIONS (#)
-------- ---- ---------- --------- ---------------------------------
<S> <C> <C> <C> <C>
John T. McDonald, Chief 1999 50,000 -- --
Executive Officer and 1998 -- -- --
Director
Bryan R. Menell, 1999 96,667 -- --
President 1998 80,000 -- --
Barry Demak, 1999 110,400 22,000 --
Vice President 1998 45,000 -- 150,000
</TABLE>
EMPLOYMENT ARRANGEMENTS
Mr. McDonald and Mr. Menell have employment agreements that each extend
for a one - year term. Mr. McDonald's employment agreement provides for a
monthly salary of $11,250 and three months' severance pay if we terminate him
without cause following a change in control. Mr. Menell's employment agreement
provides for a monthly salary of $10,000 and three months' severance pay if we
terminate him without cause following a change in control. Additionally, Mr.
McDonald and Mr. Menell have agreed to refrain from competing with us for a
period of two years following the termination of their employment.
We have a letter agreement with John A. Hinners, Chief Financial
Officer and Vice President, concerning his employment. Under this agreement,
following a change in control of Perficient, if Mr. Hinners is terminated or his
job responsibilities are significantly reduced or if he is required to relocate
or if our then current chief executive officer is terminated or not offered the
chief executive officer position in the surviving company, Mr. Hinners' stock
options to purchase 60,000 shares of Perficient common stock at an exercise
price of $0.50 per share, 20,000 of which have vested and the remainder of which
vest at a rate of 5,000 shares at the end of each three month period following
January 1, 2000 will become fully vested within six months after the
change-in-control event. Mr. Hinners will receive six months' severance pay for
any termination without cause.
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
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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 $14.00 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.
CERTAIN TRANSACTIONS
Sales of Securities
Within the last two years, we have made the following sales of our
common stock in transactions that were not registered under the Securities Act
of 1933:
- On April 15, 1998, we sold 221,000 shares to Powershift
Ventures, LLC for an aggregate purchase price of $22,100 and
119,000 shares to Mr. Lundeen, a director, for an aggregate
purchase price of $11,900. Mr. Papermaster, our Chairman of
the Board, is the president of Powershift Ventures, LLC and a
general partner of Powershift Ventures, L.P. Mr. Papermaster
became a director and Powershift Ventures, LLC became a 5%
stockholder in connection with this April 1998 stock purchase.
Mr. Lundeen became a director and 5% stockholder in connection
with his April 1998 stock purchase.
- On June 10, 1998, we sold 214,500 shares to Powershift
Ventures, LLC for an aggregate purchase price of $21,450 and
115,500 shares to Mr. Lundeen for an aggregate purchase price
of $11,550.
- On July 15, 1998, we sold 214,500 shares to Powershift
Ventures, LLC for an aggregate purchase price of $21,450 and
115,500 shares to Mr. Lundeen for an aggregate purchase price
of $11,550.
- On January 12, 1999, we sold 350,000 shares to Beekman
Ventures, Inc., a 5% stockholder, for an aggregate purchase
price of $175,000, 50,000 shares to Mr. Hinners, now our Chief
Financial Officer, for an aggregate purchase price of $25,000
and 40,000 shares to Mr. Lundeen for an aggregate purchase
price of $20,000. Mr. McDonald, our Chief Executive Officer
and a director, is the president and sole stockholder of
Beekman Ventures. However, Mr. McDonald did
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not become an officer and director until April 1999. Mr.
Hinners did not become our Chief Financial Officer until April
1999.
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. From the inception of the lease through March 1999, we paid an
aggregate of $19,786 in rent. Since April 1999, we have paid rent of $2,200 a
month, which we believe is consistent with prevailing market rates. The
currently monthly renal 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.
Vignette accounted for 91% of our revenue in 1998 and 96% of our revenue during
1999.
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.
Private Placement
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.
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.
DESCRIPTION OF PERFICIENT CAPITAL STOCK
We are authorized to issue 20,000,000 shares of common stock, par value
$0.001 per share, and 5,000,000 shares of preferred stock, par value $0.001 per
share. As of the date of this proxy statement, there are outstanding 4,065,047
shares of common stock owned by approximately ___ holders of record. In July
1999, we completed an initial public offering in which we sold
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1,000,000 shares of our common stock for an aggregate offering price of $8
million. In February 2000, we completed an $8.1 million private placement of our
common stock for $14 per share in which a total of 400,000 shares were newly
issued by us. John T. McDonald and Bryan R. Menell, each an officer and a
director of Perficient, and David S. Lundeen, a director of Perficient, sold
180,000 shares of Perficient common stock (out of the 580,000 shares) in the
private placement. As part of the Merger, we will issue up to 2,200,000 shares
of Perficient common stock to the stockholders of Compete and assume options to
purchase an additional 394,000 shares of common stock (assuming a purchase price
for Perficient Common Stock under the Merger Agreement of $21.50 per share).
COMMON STOCK
The holders of Perficient common stock are entitled to one vote for
each share held of record in the election of directors and in all other matters
to be voted on by the stockholders. There is no cumulative voting with respect
to the election of directors. As a result, the holders of more than 50 percent
of the shares voting for the election of directors can elect all of the
directors. Holders of common stock are entitled:
- to receive any dividends as may be declared by the board of
directors out of funds legally available for such purpose; and
- in the event of our liquidation, dissolution, or winding up,
to share ratably in all assets remaining after payment of
liabilities and after provision has been made for each class
of stock, if any, having preference over the common stock.
All of the outstanding shares of common stock are validly issued, fully
paid and nonassessable. Holders of Perficient common stock have no preemptive
right to subscribe for or purchase additional shares of any class of Perficient
capital stock.
PREFERRED STOCK
Our Board of Directors has the authority, within the limitations stated
in the certificate of incorporation, to provide by resolution for the issuance
of shares of preferred stock, in one or more classes or series, and to fix the
rights, preferences, privileges and restrictions thereof, including dividend
rights, conversion rights, voting rights, terms of redemption, liquidation
preferences and the number of shares constituting any series or the designation
of such series. The issuance of preferred stock could have the effect of
decreasing the market price of Perficient common stock and could adversely
affect the voting and other rights of the holders of Perficient common stock.
WARRANTS
In July 1999, we issued warrants to purchase up to 100,000 shares of
Perficient common stock at an exercise price of $12.00 per share in connection
with our underwriting agreement with Gilford Securities Incorporated
("Gilford"). The exercise price and
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number of shares of common stock that may be issued under the warrants is
subject to adjustment upon the occurrence of stock splits, stock dividends,
reclassifications, reorganizations, consolidations or mergers.
In July 1999, we issued warrants to purchase up to 3.750 shares of
Perficient common stock at an exercise price of $8.00 per share in connection
with our credit facility provided by Silicon Valley Bank.
In February 2000, we issued 3 year warrants to purchase up to 25,000
shares of Common Stock for $21.00 per share to Gilford pursuant to a placement
agent agreement as partial consideration of their services in connection with
our private placement of Common Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for Perficient common stock is
Continental Stock Transfer and Trust Company, 2 Broadway, New York, New York
10004.
REPORTS TO STOCKHOLDERS
As part of our initial public offering, we registered our common stock
under the provisions of Section 12(g) of the Securities Exchange Act of 1934 and
we will use our best efforts to maintain registration. Such registration
requires us to comply with periodic reporting, proxy solicitation and certain
other requirements of the Securities Exchange Act of 1934.
SHARES ELIGIBLE FOR FUTURE SALE
Pursuant to our initial public offering and assuming no exercise of
outstanding options and warrants, we have 4,065,047 shares of common stock
outstanding. However, only the 1,000,000 shares offered pursuant to the initial
public offering are freely tradable without restriction or further registration
under the Securities Act, except for any shares purchased by an "affiliate,"
which will be subject to the resale limitations of Rule 144 promulgated under
the Securities Act.
All of the remaining 3,065,047 shares of common stock currently
outstanding are "restricted securities" or owned by "affiliates," as those terms
are defined in Rule 144, and may not be sold publicly unless they are registered
under the Securities Act or are sold pursuant to Rule 144 or another exemption
from registration. The 3,065,047 restricted securities are not eligible for sale
without registration under Rule 144. As of February 29, 2000, there were
outstanding options to purchase 849,834 shares of Perficient common stock. We
intend to file a registration statement on Form S-8 under the Securities Act to
register the shares of Perficient common stock subject to outstanding stock
options and shares that may be issued under our Employee Plan, which will permit
the resale of these shares in the public market without restriction after the
lock-up period expires.
In connection with the Private Placement, we agreed to file a
registration statement by no later than April 30, 2000. We will also include in
such registration statement, 32,343 shares of Common Stock owned by the prior
shareholder of LoreData. This shareholder has agreed that in the event of a
private or public offering of Perficient common stock, he will be subject to the
same
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restrictions on transferability or lock-up of shares as the underwriter of any
such offering or any officer of Perficient shall require of our Executive
Officers.
LOCK-UP AGREEMENT
Holders of 2,500,000 outstanding shares of Perficient common stock and
certain option holders have agreed that until July 29, 2000 that, without the
prior written consent of Gilford, they shall not sell or otherwise dispose of
any shares of common stock in any public market transaction including pursuant
to Rule 144. In addition, the holder of 161,714 shares of common stock has
agreed with us that until August 3, 2000, he shall not sell or otherwise dispose
of any shares of common stock in any public market transaction including
pursuant to Rule 144.
RULE 144
Generally, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
Perficient or persons whose shares are aggregated with an affiliate, who has
owned restricted shares of common stock beneficially for at least one year, is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of:
- 1% of our then outstanding shares of common stock; or
- the average weekly trading volume of shares of our common
stock during the four calendar weeks preceding such sale.
A person who is not an affiliate, has not been an affiliate within
three months prior to sale, and has beneficially owned the restricted shares for
at least two years, is entitled to sell such shares under Rule 144(k) without
regard to any of the limitations described above.
MARKET FOR PERFICIENT COMMON STOCK
Shares of Perficient common stock are listed on the Nasdaq SmallCap
market under the symbol "PRFT" and on the Boston Stock Exchange under the symbol
"PRF".
CHARTER AND BYLAWS PROVISIONS AND DELAWARE ANTI-TAKEOVER STATUTE
We are subject to Section 203 of the Delaware General Corporation Law
regulating corporate takeovers. This section prevents Delaware corporations from
engaging under certain circumstances, in a "business combination," which
includes a merger or sale of more than 10% of the corporation's assets, with any
"interested stockholder," or a stockholder who owns 15% or more of the
corporation's outstanding voting stock, as well as affiliates and associates of
any such persons, for three years following the date such stockholder became an
"interested stockholder," unless:
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- the transaction in which such stockholder became an
"interested stockholder" is approved by the board of directors
prior to the date the "interested stockholder" attained such
status;
- upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced,
excluding those shares owned by persons who are directors and
also officers; or
- on or after the date the business combination is approved by
the board of directors and authorized at an annual or Special
Meeting of stockholders by the affirmative vote of at least
two-thirds of the outstanding voting stock that is not owned
by the interested stockholder.
Our certificate of incorporation eliminates the right of stockholders
to act by written consent without a meeting, and our bylaws eliminate the right
of stockholders to call Special Meetings of stockholders. Our certificate of
incorporation and bylaws do not provide for cumulative voting in the election of
directors. The authorization of undesignated preferred stock makes it possible
for the Board of Directors to issue preferred stock with voting or other rights
or preferences that could impede the success of any attempt to effect a change
in our control. These and other provisions may have the effect of deferring
hostile takeovers or delaying changes in the control or management of Perficient
even if doing so would be beneficial to our stockholders.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements at December 31, 1998 and 1999, and for the years then ended, as set
forth in their report. We have included our financial statements in the proxy
statement in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
PROPOSAL 2. APPROVAL OF AMENDMENT TO 1999 STOCK
OPTION/STOCK ISSUANCE PLAN
At the Special Meeting, our stockholders will be asked to vote upon a
proposal to approve an amendment to the 1999 Stock Option/Stock Issuance Plan
(the "Employee Plan') to increase by 1,150,000 the number of shares of
Perficient common stock for which options may be granted thereunder from 700,000
shares to 1,850,000 shares. The Employee Plan, as proposed to be amended, is
attached as Appendix B to this Proxy Statement.
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REASONS FOR THE PROPOSAL
Under the Employee Plan as currently in effect, options for up to
700,000 shares of Perficient common stock may be granted. Currently, options for
849,834 shares of Perficient common stock have been granted under the plan. In
connection with the Merger, options for an additional 393,415 shares of
Perficient common stock are proposed to be granted to existing option holders of
Compete (assuming a stock price of $21.50 per share of Common Stock). Under the
terms of the Merger Agreement, the Employee Plan must be amended to allow for
the grant of stock options to Compete option holders. In addition to the
obligation of the Merger Agreement, our Board of Directors has determined that
it is advisable to continue to provide stock-based incentive compensation in
order to attract, retain and motivate talented employees and to align the
interests of the Perficient employees with those of stockholders. For these
reasons, our Board of Directors believes that stock-based awards under the plan
is an effective means of providing compensation to employees. Therefore, in
order to effectuate the future grant of options by our Board of Directors to
Compete option holders and to other current and future Perficient employees, it
is necessary to increase the number of shares of Perficient common stock
available for grant under the Employee Plan.
DESCRIPTION OF THE EMPLOYEE PLAN
Our Employee Plan was adopted by our Board of Directors and approved by
our stockholders on May 3, 1999. The plan became effective upon its adoption by
the Board of Directors.
We have reserved 700,000 shares of Perficient common stock for issuance
under the Employee Plan and the options granted prior to adoption of the
Employee Plan. However, in no event may any one participant in the Employee Plan
receive option grants or direct stock issuances for more than 75,000 shares in
the aggregate per calendar year.
The Employee Plan has three separate programs: (i) the discretionary
option grant program under which eligible individuals in our employ or service,
including officers, non-employee board members and consultants, may be granted
options to purchase shares of Perficient common stock, (ii) the stock issuance
program under which such individuals may be issued shares of common stock
directly, through the purchase of such shares or as a bonus tied to the
performance of services, and (iii) the automatic option grant program under
which option grants will automatically be made at periodic intervals to eligible
non-employee Board members.
The discretionary option grant and stock issuance programs are
administered by the compensation committee of our Board of Directors. This
committee determines which eligible individuals are to receive option grants or
stock issuances, the time or times when such option grants or stock issuances
are to be made, the number of shares subject to each such grant or issuance, the
exercise or purchase price for each such grant or issuance, the status of any
granted option as either an incentive stock option or a non-statutory stock
option under the federal tax laws, the vesting schedule to be in effect for the
option grant or stock issuance and the maximum term for which any granted option
is to remain outstanding. Neither the compensation committee nor
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the Board exercises any administrative discretion with respect to option grants
made under the automatic option grant program for the non-employee Board
members.
The exercise price for the options may be paid in cash or in shares of
Perficient common stock valued at fair market value on the exercise date. The
option may also be exercised through a same-day sale program without any cash
outlay by the optionee. In addition, the compensation committee may allow a
participant to pay the option exercise price or direct issue price, and any
associated withholding taxes incurred in connection with the acquisition of
shares, with a full-recourse, interest-bearing promissory note.
In the event that we are acquired, whether by merger or asset sale or
Board-approved sale by the stockholders of more than 50% of our voting stock,
each outstanding option under the discretionary option grant program which is
not to be assumed by the successor corporation or otherwise continued will
automatically accelerate in full, and all unvested shares under the
discretionary option grant and stock issuance programs will immediately vest,
except to the extent our repurchase rights with respect to those shares are to
be assigned to the successor corporation or otherwise continued in effect. The
compensation committee may grant options under the discretionary option grant
program which will accelerate in the acquisition even if the options are assumed
or which will accelerate if the optionee's service is subsequently terminated.
The compensation committee may grant options and issue shares which accelerate
in connection with a hostile change in control effected through a successful
tender offer for more than 50% of our outstanding voting stock or by proxy
contest for the election of Board members or the options and shares may
accelerate upon a subsequent termination of the individual's service.
Stock appreciation rights may be issued under the discretionary option
grant program which will provide the holders with the election to surrender
their outstanding options for an appreciation distribution from us equal to the
fair market value of the vested shares subject to the surrendered option less
the aggregate exercise price payable for such shares. Such appreciation
distribution may be made in cash or in shares of Perficient common stock.
The compensation committee has the authority to cancel outstanding
options under the discretionary option grant in return for the grant of new
options for the same or different number of option shares with an exercise price
per share based upon the fair market value of Perficient common stock on the new
grant date.
Under the automatic option grant program, each individual who first
joins our Board of Directors as a non-employee board member will automatically
be granted an option for 20,000 shares of Perficient common stock at the time of
his or her commencement of Board service. In addition, on the date of each
annual stockholders meeting, each individual who is to continue to serve as a
non-employee Board member and was not a member of our Board prior to this
offering will receive an option grant to purchase 5,000 shares of Perficient
common stock, provided he or she has served on the Board at least six months.
Each of these options will be fully-vested upon grant.
Limited stock appreciation rights will automatically be included as
part of each grant made under the automatic option grant program and may be
granted to one or more officers as part of
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their option grants under the discretionary option grant program. Options with
such a limited stock appreciation right may be surrendered to us upon the
successful completion of a hostile tender offer for more than 50% of
Perficient's outstanding voting stock. In return for the surrendered option, the
optionee will be entitled to a cash distribution from us in an amount per
surrendered option share equal to the highest price per share of common stock
paid in connection with the tender offer less the exercise price payable for
such share.
Our Board of Directors may amend or modify the Employee Plan at any
time, subject to any required stockholder approval. The Employee Plan will
terminate no later than May 2, 2009.
OTHER STOCK OPTION GRANTS
Prior to the adoption of the Employee Plan, options to purchase shares
of Perficient common stock were granted to employees and a recruiting
consultant. None of these options have been exercised, and these non-plan
options are currently outstanding to purchase 338,334 shares of Perficient
common stock at exercise prices ranging from $0.05 to $4.00 per share. Under the
Employee Plan, there are currently outstanding options to purchase 849,834
shares of Perficient common stock at exercise prices ranging from $7.50 to
$26.00 per share.
In January 2000, John T. McDonald, our Chief Executive Officer, was
granted options to purchase 50,000 shares of our common stock at $14.00 per
share. John A. Hinners, our Chief Financial Officer, was granted an option to
purchase 60,000 shares of Perficient common stock on January 1, 1999 at an
exercise price of $0.50 per share in connection with consulting services
performed for us during 1998. This option may be exercised in installments: for
20,000 shares on January 1, 2000 and for an additional 5,000 shares at the end
of each three-month period following January 1, 2000.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT TO THE STOCK
OPTION PLAN TO INCREASE THE NUMBER OF SHARES OF PERFICIENT COMMON STOCK
UNDERLYING THE PLAN TO 1,850,000.
EXPENSES OF SOLICITATION
The cost of the solicitation of proxies will be borne by us. In
addition to the use of the mails, proxies may be solicited by regular employees
of ours, either personally or by telephone or telegraph. We do not expect to pay
any compensation for the solicitation of proxies, but may reimburse brokers and
other persons holding shares in their names or in the names of nominees for
expenses in sending proxy material to beneficial owners and obtaining proxies of
such owners.
OTHER MATTERS
Our Board of Directors does not intend to bring any matters before the
Special Meeting other than as stated in this Proxy Statement, and is not aware
that any other matters will be presented for action at the Special Meeting. If
any other matters come before the Special Meeting, the persons named in the
enclosed proxy card will vote the proxy with respect thereto in accordance with
their best judgment, pursuant to the discretionary authority granted by the
proxy.
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WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE
COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD PROMPTLY.
By Order of the Board of Directors
Steven G. Papermaster
Chairman of the Board
Dated: ___________, 2000
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
PERFICIENT, INC.
PERFICIENT COMPETE, INC.,
COMPETE INC.,
AND
THE SHAREHOLDERS OF COMPETE INC.
DATED AS OF FEBRUARY 16, 2000
<PAGE> 87
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I......................................................................................... A-1
THE MERGER........................................................................................ A-1
1.01 THE MERGER............................................................................... A-1
1.02 PLAN OF MERGER........................................................................... A-2
1.03 EFFECTIVE TIME........................................................................... A-2
1.04 EFFECT OF THE MERGER..................................................................... A-2
1.05 CONVERSION OF COMPANY COMMON STOCK....................................................... A-2
1.06 ESCROWED CONSIDERATION................................................................... A-4
1.07 CERTIFICATE OF INCORPORATION............................................................. A-4
1.08 BYLAWS................................................................................... A-4
1.09 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION; DIRECTORS OF PARENT................. A-4
1.10 ADDITIONAL ACTIONS....................................................................... A-5
1.11 ACCOUNTING AND TAX TREATMENT............................................................. A-5
ARTICLE II........................................................................................ A-5
PAYMENT OF MERGER CONSIDERATION................................................................... A-5
2.01 EXCHANGE OF SHARES....................................................................... A-5
2.02 FORFEITURE OF MERGER CONSIDERATION....................................................... A-6
2.03 ADJUSTMENT OF MERGER CONSIDERATION....................................................... A-9
ARTICLE III....................................................................................... A-11
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS................................ A-11
3.01 CORPORATE ORGANIZATION AND QUALIFICATION................................................. A-11
3.02 CAPITALIZATION........................................................................... A-12
3.03 AUTHORITY; NO VIOLATION.................................................................. A-13
3.04 CONSENTS AND APPROVALS................................................................... A-14
3.05 FINANCIAL STATEMENTS..................................................................... A-14
3.06 ABSENCE OF CERTAIN CHANGES OR EVENTS..................................................... A-15
3.07 LEGAL PROCEEDINGS........................................................................ A-15
3.08 TAXES AND TAX RETURNS.................................................................... A-15
3.09 EMPLOYEE BENEFIT PLANS................................................................... A-17
3.10 COMPLIANCE WITH APPLICABLE LAW; CERTAIN AGREEMENTS; LICENSING............................ A-19
3.11 CERTAIN CONTRACTS........................................................................ A-20
3.12 AGREEMENTS WITH REGULATORY AGENCIES...................................................... A-21
3.13 ENVIRONMENTAL MATTERS.................................................................... A-21
3.14 PROPERTIES............................................................................... A-21
3.15 INSURANCE................................................................................ A-22
3.16 LABOR MATTERS............................................................................ A-23
3.17 INTELLECTUAL PROPERTY.................................................................... A-23
3.18 BROKER'S FEES............................................................................ A-24
</TABLE>
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<TABLE>
<S> <C>
3.19 BANK ACCOUNTS............................................................................ A-24
3.20 YEAR 2000................................................................................ A-24
3.21 DISCLOSURE............................................................................... A-24
ARTICLE IV........................................................................................ A-24
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB.................................................. A-24
4.01 CORPORATE ORGANIZATION AND QUALIFICATION................................................. A-24
4.02 CAPITALIZATION........................................................................... A-25
4.03 AUTHORITY; NO VIOLATIONS................................................................. A-26
4.04 CONSENTS AND APPROVALS................................................................... A-26
4.05 BROKER'S FEES............................................................................ A-27
4.06 SEC REPORTS.............................................................................. A-27
4.07 VOTING REQUIREMENTS...................................................................... A-27
4.08 NO PRIOR ACTIVITIES...................................................................... A-27
4.09 LABOR MATTERS............................................................................ A-27
ARTICLE V......................................................................................... A-28
COVENANTS RELATING TO CONDUCT OF BUSINESS......................................................... A-28
5.01 COVENANTS OF THE COMPANY................................................................. A-28
5.02 NO SOLICITATION; NON-DISCLOSURE.......................................................... A-30
5.03 EMPLOYEE RETENTION....................................................................... A-31
5.04 COVENANTS OF PARENT AND SUB.............................................................. A-31
5.05 ALL NECESSARY ACTION..................................................................... A-33
5.06 NOTIFICATION............................................................................. A-33
ARTICLE VI........................................................................................ A-33
ADDITIONAL AGREEMENTS............................................................................. A-33
6.01 REGULATORY MATTERS....................................................................... A-33
6.02 SECURITIES LAWS MATTERS.................................................................. A-34
6.03 SHAREHOLDER APPROVAL..................................................................... A-34
6.04 ACCESS TO INFORMATION.................................................................... A-35
6.05 LEGAL CONDITIONS TO MERGER............................................................... A-35
6.06 ADDITIONAL AGREEMENTS.................................................................... A-36
6.07 DISCLOSURE SUPPLEMENTS................................................................... A-36
6.08 NO INCONSISTENT ACTIONS.................................................................. A-36
6.09 TAX MATTERS.............................................................................. A-36
6.10 NONCOMPETITION AGREEMENTS; EMPLOYMENT AGREEMENTS......................................... A-36
6.11 COMPANY SHAREHOLDER REPRESENTATION LETTERS............................................... A-37
6.12 STOCK OPTIONS; EMPLOYEE BENEFITS......................................................... A-37
6.13 SUBCHAPTER S DISTRIBUTION................................................................ A-40
6.14 PUBLICITY................................................................................ A-40
6.15 LOCK-UP.................................................................................. A-40
6.16 COMPLETION OF AUDIT...................................................................... A-41
6.17 LETTER AGREEMENT......................................................................... A-41
</TABLE>
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<TABLE>
<S> <C>
6.18 PARENT'S SHAREHOLDER CONSENT............................................................. A-41
6.19 RELEASES................................................................................. A-41
6.20 INDEMNIFICATION.......................................................................... A-41
ARTICLE VII....................................................................................... A-43
CONDITIONS PRECEDENT.............................................................................. A-43
7.01 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER............................... A-43
7.02 CONDITIONS TO OBLIGATIONS OF PARENT AND SUB.............................................. A-44
7.03 CONDITIONS TO OBLIGATIONS OF THE COMPANY................................................. A-45
ARTICLE VIII...................................................................................... A-47
TERMINATION AND AMENDMENT......................................................................... A-47
8.01 TERMINATION.............................................................................. A-47
8.02 EFFECT OF TERMINATION.................................................................... A-47
8.03 EXPENSES................................................................................. A-48
8.04 AMENDMENT................................................................................ A-48
8.05 EXTENSION; WAIVER........................................................................ A-48
ARTICLE IX........................................................................................ A-48
INDEMNIFICATION................................................................................... A-48
9.01 AGREEMENT TO INDEMNIFY................................................................... A-48
9.02 SURVIVAL OF INDEMNITY.................................................................... A-49
9.03 ADDITIONAL PROVISIONS.................................................................... A-49
9.04 THIRD PARTY CLAIM PROCEDURES............................................................. A-51
ARTICLE X......................................................................................... A-53
SHAREHOLDERS' REPRESENTATIVE...................................................................... A-53
10.02 APPOINTMENT OF SHAREHOLDERS' REPRESENTATIVE.............................................. A-53
10.02 AUTHORITY................................................................................ A-53
10.03 RELIANCE................................................................................. A-54
10.04 INDEMNIFICATION OF PARENT, SUB AND THEIR AFFILIATES...................................... A-54
10.05 INDEMNIFICATION OF SHAREHOLDERS' REPRESENTATIVE.......................................... A-54
ARTICLE XI........................................................................................ A-55
GENERAL PROVISIONS................................................................................ A-55
11.01 NOTICES.................................................................................. A-55
10.02 INTERPRETATION........................................................................... A-56
11.03 COUNTERPARTS............................................................................. A-56
11.04 ENTIRE AGREEMENT......................................................................... A-56
11.05 GOVERNING LAW............................................................................ A-57
11.06 ENFORCEMENT OF AGREEMENT................................................................. A-57
11.07 SEVERABILITY............................................................................. A-57
11.08 ASSIGNMENT............................................................................... A-57
</TABLE>
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EXHIBIT A - PROMISSORY NOTES
EXHIBIT B - ESCROW AGREEMENT
EXHIBIT C-1 - NONCOMPETITION AGREEMENTS
EXHIBIT C-2 - EMPLOYMENT AGREEMENTS
EXHIBIT C-3 - EMPLOYMENT LETTERS
EXHIBIT D - LIST OF EMPLOYEES
EXHIBIT E - REGISTRATION RIGHTS AGREEMENT
EXHIBIT F - REPRESENTATION LETTERS
EXHIBIT G-1 - LETTER AGREEMENT
EXHIBIT G-2 - PARENT'S SHAREHOLDER CONSENT
EXHIBIT H - FIRPTA AFFIDAVIT
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement") dated as of February 16,
2000, by and among Perficient, Inc., a Delaware corporation ("Parent"),
Perficient Compete, Inc., a Delaware corporation ("Sub"), Compete Inc., an
Illinois corporation (the "Company"), and the holders of shares of the Company
Common Stock (as defined herein), set forth on the signature page hereto (each,
a "Common Stock Holder" and collectively, the "Common Stock Holders") and the
holders of stock options exercisable into Company Common Stock that are subject
to accelerated vesting as set forth on the signature page hereto (each, an
"Accelerated Option Holder" and collectively, the "Accelerated Option Holders";
the Accelerated Option Holders and Common Stock Holders are sometimes referred
to collectively as the "Shareholders," and individually as a "Shareholder").
WHEREAS, the respective Boards of Directors of Parent, Sub and the
Company have determined that it is advisable and in the best interests of their
respective companies and their shareholders to consummate the business
combination transaction provided for herein in which the Company will, subject
to the terms and conditions set forth herein, merge with and into Sub (the
"Merger"); and
WHEREAS, Parent, Sub, the Company and the Shareholders desire to make
certain representations, warranties and covenants in connection with the Merger.
WHEREAS, the Board of Directors of Parent has determined to submit and
recommend the Merger and the issuance of Parent Common Stock (as defined herein)
(the "Share Issuance") to its shareholders for their approval to the extent such
approval is required by law or the rules of The Nasdaq SmallCap Market
("Nasdaq") or the Boston Stock Exchange (the "Boston Exchange");
WHEREAS, the parties hereto intend for the Merger to qualify, for
federal income tax purposes, as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein, and intending to be
legally bound hereby, the parties agree as follows:
ARTICLE I
THE MERGER
1.01 THE MERGER. Subject to the terms and conditions of this Agreement,
in accordance with the Delaware General Corporation Law ("DGCL") and the
Illinois Business Corporation Act ("IBCA"), at the Effective Time (as
hereinafter defined), the Company shall merge with and into Sub. Sub shall
become the surviving corporation (hereinafter sometimes called the "Surviving
Corporation") in the Merger, and shall
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continue its corporate existence under the laws of the State of Delaware. Parent
shall cause the Surviving Corporation to become a wholly-owned subsidiary of
Parent. The name of the Surviving Corporation shall be "Perficient Compete,
Inc.", a Delaware corporation. Upon consummation of the Merger, the separate
corporate existence of the Company shall terminate.
1.02 PLAN OF MERGER. This Agreement shall constitute an agreement of
merger for purposes of the DGCL and the IBCA.
1.03 EFFECTIVE TIME. As promptly as practicable, but in no event later
than the third business day, after all of the conditions set forth in Article
VII shall have been satisfied or, if permissible, waived by the party entitled
to the benefit of the same, the Company and Sub shall duly execute and file
certificates/articles of merger (collectively, the "Certificates of Merger")
with the Secretary of State of the State of Delaware (the "Delaware Secretary")
in accordance with the DGCL and with the Secretary of State of the State of
Illinois (the "Illinois Secretary") in accordance with the IBCA. The Merger
shall become effective on the date (the "Effective Date" or the "Closing Date")
and at the later of such time (the "Effective Time") as the Certificates of
Merger are filed with the Delaware Secretary and the Illinois Secretary or at
such later date and time as is specified in such Certificates of Merger. Subject
to the terms and conditions of this Agreement, the closing of the Merger (the
"Closing") shall be held at the offices of Gibbons, Del Deo, Dolan, Griffinger &
Vecchione, P.C., One Riverfront Plaza, Newark, New Jersey 07102.
1.04 EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided herein and as set forth in Section 259 of the DGCL
and Section 5/11.50 of the IBCA. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, (i) all the property,
rights, privileges, powers and franchises of the Company shall vest in the
Surviving Corporation, (ii) all debts, liabilities, obligations, restrictions,
disabilities and duties of Sub and the Company shall become the debts,
liabilities, obligations, restrictions, disabilities and duties of the Surviving
Corporation and (iii) the Surviving Corporation shall become a wholly-owned
subsidiary of Parent.
1.05 CONVERSION OF COMPANY COMMON STOCK.
(a) At the Effective Time, each issued and outstanding share
of common stock, no par value per share, of the Company (the "Company Common
Stock"), immediately prior to the Effective Time (other than shares of Company
Common Stock held in the Company's treasury) shall, by virtue of this Agreement
and without any action on the part of the holder thereof, be converted into the
right to receive and be exchangeable for (i) $3,500,000 (the "Cash Price")
divided by the sum of the number of shares of Company Common Stock outstanding
plus the number of shares of Company Common Stock issuable, immediately prior to
the Effective Time, upon exercise of the Company Accelerated Options (as defined
in Section 6.12(c) herein) (the "Cash Per Share Price"); (ii) non-interest
bearing Promissory Notes in the form attached
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hereto as Exhibit A (each, a "Note" and collectively, the "Notes") in the
aggregate principal amount of $2,527,500 (the "Note Price") divided by the sum
of the number of shares of Company Common Stock outstanding plus the number of
shares of Company Common Stock issuable immediately prior to the Effective Time,
upon exercise of the Company Accelerated Options (the "Note Per Share Price");
and (iii) 2,200,000 shares (the "Stock Price") of common stock, par value $0.001
per share, of Parent (the "Parent Common Stock") divided by the sum of the
number of shares of Company Common Stock outstanding plus the number of shares
of Company Common Stock issuable immediately prior to the Effective Time, upon
exercise of the Company Accelerated Options (such consideration to be referred
to as the "Stock Per Share Price" and, together with the Cash Per Share Price
and the Note Per Share Price, the "Per Share Price"); a portion of which shall
be subject to forfeiture or adjustment as provided in Section 2.02 and Section
2.03 and Article IX hereof.
(b) [Intentionally Omitted.]
(c) Each share of Company Common Stock converted into the
Parent Common Stock pursuant to this Article I shall no longer be outstanding
and shall automatically be canceled and retired and shall cease to exist, and
each certificate (each a "Certificate," and collectively, the "Certificates")
previously representing any such shares of Company Common Stock shall thereafter
represent the right to receive (i) cash equal to the Cash Per Share Price
multiplied by the number of shares of Company Common Stock represented by such
certificate; (ii) a Note in the amount of the Note Per Share Price multiplied by
the number of shares of Company Common Stock represented by such certificate;
and (iii) shares of Parent Common Stock equal to the Stock Per Share Price
multiplied by the number of shares of Company Common Stock represented by such
Certificate (in the aggregate, the "Merger Consideration"), a portion of which
shall be subject to forfeiture or adjustment as provided in Section 2.02 and
Section 2.03 and subject to Article IX hereof.
(d) If, between the date of this Agreement and the Effective
Time as to the Per Share Price, the outstanding shares of Parent Common Stock
shall be changed into a different number of shares by reason of any
reclassification, recapitalization or exchange of shares or if a stock split,
combination, stock dividend, stock rights or dividend thereon shall be declared
with a record date within said period, the Stock Per Share Price shall be
correspondingly adjusted, as applicable. No fractional shares of Parent Common
Stock will be issued, provided, however, that the Company shall provide cash in
an amount equal to the value of such fractional share of Parent Common Stock. As
used in this Agreement, the "value" of a share of Parent Common Stock shall
equal, unless otherwise indicated, the average closing price for the Parent's
outstanding common stock on the Nasdaq (or, if not traded on the Nasdaq, such
exchange that the stock is traded on) for the twenty (20) consecutive trading
days ending on the trading day immediately before the date of determination.
1.06 ESCROWED CONSIDERATION. One half of the shares of Parent Common
Stock issued to the Common Stock Holders (the "Escrowed Consideration") shall be
held in escrow for a period of one (1) year from the Closing Date or such
shorter period as set
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forth in this Agreement, subject to Section 2.02 and Section 2.03 and subject to
Article IX, pursuant to the terms and subject to the conditions set forth in the
Escrow Agreement among the parties hereto and Continental Stock Transfer & Trust
Company, as Escrow Agent, in the form attached as Exhibit B hereto (the "Escrow
Agreement") with such modifications as may be reasonably acceptable to the
Company and Parent, as requested by the Escrow Agent.
1.07 CERTIFICATE OF INCORPORATION. Unless otherwise agreed to by the
parties prior to the Effective Time, at and after the Effective Time, the
Certificate of Incorporation of Sub shall be the Certificate of Incorporation of
the Surviving Corporation, until thereafter amended as provided by law and such
Certificate of Incorporation.
1.08 BYLAWS. Unless otherwise agreed to by the parties prior to the
Effective Time, at and after the Effective Time, the Bylaws of Sub shall be the
Bylaws of the Surviving Corporation, until thereafter amended as provided by
law, the Certificate of Incorporation of the Surviving Corporation and such
Bylaws.
1.09 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION; DIRECTORS OF
PARENT. As of the Effective Time, the board of directors of the Surviving
Corporation shall consist of four (4) members who shall be designated by Parent
in writing prior to the Effective Time and who shall initially include Sam
Fatigato. Each of the directors so designated shall hold office in accordance
with the Certificate of Incorporation and Bylaws of the Surviving Corporation
until his or her respective successors are duly elected or appointed and
qualified. The board of directors of the Surviving Corporation shall elect the
officers of the Surviving Corporation. As of the Effective Time, the Board of
Directors of Parent shall consist of six (6) members, who shall be John T.
McDonald, Steven G. Papermaster, David S. Lundeen, Dr. W. Frank King, Philip J.
Rosenbaum and a designee of Sam Fatigato, who shall initially be Sam Fatigato.
The Company shall continue to recommend Sam Fatigato (or his designee) for
election to the Board of Directors of the Parent for as long as the Shareholders
and their affiliates own more than 10% of the Shares of Parent Common Stock
issued in connection with the Merger. In the event that such number of shares of
Parent Common Stock are not voted in favor of the election of Sam Fatigato (or
his designee) to the board of directors of Parent, Sam Fatigato or his designee
shall have the right to attend and observe all meetings of such Board of
Directors (which shall include the right to reasonably ask questions, comment
and participate at such meetings in accordance with the rules of order
reasonably established by the Board of Directors of the Parent.). Each of the
directors so designated shall hold office in accordance with the Certificate of
Incorporation and Bylaws of Parent until his or her respective successors are
duly elected or appointed and qualified. The Parent shall notify Sam Fatigato
(or his designee) of each meeting of the Board of Directors of Parent at the
same time and in the same manner notice is given to other board members and the
Parent shall send to such individual all notices and other correspondence and
communications sent by the Parent to members of the Board and notices of all
action taken by the Board of Directors. Mr. Fatigato (or his designee) shall
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be reimbursed for all out-of-pocket expenses incurred in connection with his
attendance of meetings of the Board of Directors (whether as a director or an
observer).
1.10 ADDITIONAL ACTIONS. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any further assignments
or assurances in law or any other acts are necessary or desirable (a) to vest,
perfect or confirm, of record or otherwise, in the Surviving Corporation, title
to and possession of any property or right of the Company acquired or to be
acquired by reason of, or as a result of, the Merger, or (b) otherwise to carry
out the purposes of this Agreement, the Company and its proper officers and
directors shall be deemed to have granted to the Surviving Corporation an
irrevocable power of attorney to execute and deliver all such proper deeds,
assignments and assurances in law and to do all acts necessary or proper to
vest, perfect or confirm title to and possession of such property or rights in
the Surviving Corporation and otherwise to carry out the purposes of this
Agreement; and the proper officers and directors of the Surviving Corporation
are fully authorized in the name of the Company or otherwise to take any and all
such action.
1.11 ACCOUNTING AND TAX TREATMENT. The parties to this Agreement intend
that the Merger shall be treated as a reorganization under Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
ARTICLE II
PAYMENT OF MERGER CONSIDERATION
2.01 EXCHANGE OF SHARES.
(a) At the Effective Time, upon surrender of all the
Certificates representing all issued and outstanding shares of Company Common
Stock to Parent (or affidavits and bonds relating thereto), Parent shall deliver
to each Common Stock Holder such Common Stock Holder's pro rata portion of the
Cash Price, a Note and Common Stock Holder's pro rata portion of shares of
Parent Common Stock that are not placed in escrow under Section 1.06 hereunder,
each calculated in the manner set forth in Section 1.05 hereof. Subject to the
terms of the Escrow Agreement, the Common Stock Holders shall also receive such
person's portion of the Escrowed Consideration, which shall be deposited in
escrow in accordance and subject to the conditions contained in Section 1.06,
Section 2.02 and Section 2.03, Article IX hereof and the Escrow Agreement.
(b) After the Effective Time, there shall be no transfers on
the stock transfer books of the Company of the shares of Company Common Stock
which were issued and outstanding immediately prior to the Effective Time.
(c) In the event any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
Parent, the posting by such person of a bond in such amount as Parent may direct
as indemnity against any claim that
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may be made against it with respect to such Certificate, Parent will deliver in
exchange for such lost, stolen or destroyed Certificate, a replacement stock
Certificate.
2.02 FORFEITURE OF MERGER CONSIDERATION.
(a) Subject to Section 2.03(g) of this Agreement, in the event
that the employment of any Shareholder is terminated (i) by the Company for any
reason other than (A) a Without Cause Termination (as defined below) or (B) due
to the death or Disability of such Shareholder or (ii) by such Shareholder for
any reason other than his death or Disability prior to the first anniversary of
the Closing Date (as defined below), then the Shareholder shall forfeit to
Parent one-half of such Shareholder's shares of Parent Common Stock received
hereunder (the "Shareholder Termination Amount"), subject to Section 2.02(e)
hereof. For purposes of this Agreement, the following terms shall apply:
(i) "Without Cause Termination" means a termination of any
Shareholder's employment by the Company other than due to (a) a Termination for
Cause (as defined below), (b) Disability (as defined below), or (c) the
Shareholder's death.
(ii) "Termination for Cause" means, to the maximum extent
permitted by applicable law, a termination of any Shareholder's employment by
Parent attributed to (a) the repeated willful failure of the Shareholder
substantially to perform his duties hereunder (other than any such failure due
to physical or mental illness) that has not been cured reasonably promptly after
a written demand for substantial performance is delivered to the Shareholder by
Parent's Board of Directors, which demand identifies the manner in which
Parent's Board of Directors believes that the Shareholder has not substantially
performed his duties hereunder; (b) conviction of, or entering a plea of nolo
contendere to, a crime that constitutes a felony; (c) the Shareholder's engaging
in conduct that is intentional or grossly negligent that results in material
injury to Parent or any subsidiary; or (d) the material breach by the
Shareholder of any written covenant or agreement with Parent under this
Agreement or the Noncompetition Agreement between Parent and such Shareholder,
in the form attached hereto as Exhibit C-1 (each, a "Noncompetition Agreement"
and collectively, the "Noncompetition Agreements"), or if applicable, the
Employment Agreement between Parent and such Shareholder.
(iii) "Disability" shall mean a physical or mental disability
or infirmity that prevents the material performance by a Shareholder of his
duties hereunder lasting for a continuous period of six months or longer and
that is confirmed by the reasoned and good faith judgment of Parent's Board of
Directors based on such competent medical evidence as shall be presented to it
by the Shareholder or by any physician or group of physicians or other competent
medical experts employed by the Shareholder or Parent to advise Parent's Board
of Directors.
(iv) Notwithstanding the foregoing, nothing contained in this
Agreement shall create a right in any Shareholder to continued employment with
Parent.
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Each Shareholder shall be an at-will employee of Parent (other than those
Shareholders entering into employment agreements hereunder).
(b) Immediately prior to the Closing, the Company shall provide
the Parent with a list (the "Employee List", and the number of persons on the
Employee List, the "Initial Employee Number") of the Company's billing
employees, independent contractors and consultants of the Company as of that
date. For purposes of illustration, Exhibit D sets forth what the Employee List
would be had the Closing Date occurred on the date hereof.
(c) A " New Employee" shall be a person hired by any of the
Shareholders, Parent, the Surviving Corporation or their affiliates into
existing practices of the Company, International Business Machines Corp.
("IBM"), BEA WebExpress, Inc., Integral Systems, Inc. or new practices mutually
agreed to by Parent and the Company whose name does not appear on the Employee
List during the period from the Closing Date through the first anniversary of
the Closing Date who (i) remain in the employ of the Parent or the Surviving
Corporation on the first anniversary of the Closing Date and (ii) has been
employed for at least three (3) continuous months. Each person who would have
been a New Employee but for his or her failure to meet the requirement in clause
(ii) immediately above shall be a "Prospective New Employee". The number equal
to (i) the Initial Employee Number plus (ii) one-half of the number of New
Employees, minus (iii) the number of persons on the Employee List who leave the
employ of Parent or the Surviving Corporation prior to the first anniversary of
the Closing for a reason other than due to a termination by Parent or the
Surviving Corporation with the primary intent of causing an adjustment to the
Purchase Price under subsection 2.02(d) shall be known as the "Employee
Calculation Number," and the sum of the Employee Calculation Number plus
one-half of the number of Prospective New Employees shall be known as the
"Adjusted Employee Calculation Number".
(d) In the event that on the first anniversary of the Closing
Date the Employee Calculation Number is equal to or greater than forty-six (46),
no adjustment to the Purchase Price shall be made pursuant to this subsection
2.02(d) or subsection 2.02(e). In the event that on the first anniversary of the
Closing Date the Employee Calculation Number is less than forty-six (46), the
Shareholders shall forfeit (in the aggregate and in the manner set forth in the
last section of this clause (d) and Section 6.12(c) but subject to 2.02(f)(i)
hereof), such number of shares of Parent Common Stock (the "Forfeiture Amount")
equal to the product of (i) twenty-two thousand (22,000) multiplied by (ii) the
number equal to fifty (50) minus the Adjusted Employee Calculation Number. All
forfeitures under this Section 2.02(d) and 2.02(e) shall occur, on a pro rata
basis with respect to the Common Stock Holders, through transfer of the Parent
Common Stock held in escrow on behalf of the Common Stock Holders pursuant to
the terms of the Escrow Agreement, and with respect to Accelerated Option
Holders, through a forfeiture of such number of shares of Parent Common Stock
for which the Company Accelerated Option may be exercised pursuant to the terms
of Section 6.12(c) hereof. The number 22,000 used above shall be subject to
equitable adjustment in the
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event of stock splits, stock dividends or other such recapitalizations of the
Parent Common Stock.
(e) Should there be a forfeiture under Section 2.02(d), and
should there be Prospective New Employees at the time of such forfeiture, such
number of shares of Parent Common Stock (the "Prospective New Employee Shares")
equal to eleven thousand (11,000) multiplied by the Escrow Ratio (as defined
herein) shall remain subject to the Escrow for each Prospective New Employee and
eleven thousand (11,000) shares of Parent Common Stock for each Prospective New
Employee shall remain subject to forfeiture by the Shareholders. As used herein
the "Escrow Ratio" shall be a fraction, the numerator of which is the number of
shares of Parent Common Stock then subject to the escrow on the Closing Date,
and the denominator of which is the sum of the number of shares of Parent Common
Stock then subject to the escrow on the Closing Date plus the number of shares
of Parent Common Stock for which the Company Accelerated Options are then
exercisable into on the Closing Date. On the date that is three months after the
last date that a Prospective New Employee was hired, the Shareholders shall
forfeit (in the aggregate and in the manner set forth in the last section of
this clause (e) and Section 6.12(c) but subject to 2.02(f)(i) hereof), such
number of shares of Parent Common Stock (the "Prospective Employee Forfeiture
Amount") equal to the product of (i) eleven- thousand (11,000) multiplied by
(ii) the number of Prospective New Employees that failed to remain employed by
the Parent or the Surviving Corporation for three (3) continuous months
including the Closing Date. All forfeitures under this Section 2.02(e) shall
occur, on a pro rata basis with respect to the Common Stock Holders, through
transfer of the Parent Common Stock held in escrow on behalf of the Common Stock
Holders pursuant to the terms of the Escrow Agreement, and with respect to
Accelerated Option Holders, through a forfeiture of such number of shares of
Parent Common Stock for which the Company Accelerated Option may be exercised
pursuant to the terms of Section 6.12(c) hereof and the Forfeiture Amount shall
be increased by the Prospective Employee Forfeiture Amount. The number 11,000
used above shall be subject to equitable adjustment in the event of stock
splits, stock dividends or other such recapitalizations of the Parent Common
Stock.
(f)
(i) Notwithstanding subsections (a) through (e) hereof,
in no event shall the sum of (A) the Shareholder Termination Amount plus (B) the
Forfeiture Amount plus (C) the Shortfall Amount determined in accordance with
Section 2.03 hereunder exceed 1,100,000 shares of Parent Common Stock, and
provided further that in no event shall a Shareholder forfeit a number of shares
of Parent Common Stock in excess of the number of shares issuable to such
Shareholder hereunder (either directly or indirectly as options). Any
adjustments or forfeitures under this Agreement shall be made pro rata by the
Shareholders, except for the Shareholder Termination Amount, which shall be
forfeited solely by the terminating employee.
(ii) Subject to Section 2.02(a), (d) and (e) and Section
2.03(b), on the first anniversary of the Closing Date, the Common Stock Holders
shall receive in
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the aggregate and pursuant to the terms of the Escrow Agreement, the Escrowed
Consideration that is being held in escrow and is not subject to a Dispute (as
such term is defined in the Escrow Agreement) less the total number of
Prospective New Employee Shares for all Prospective New Employees remaining at
such time. Three months after the last Prospective New Employee began his
employment, a number of shares of Parent Common Stock equal to the Prospective
New Employee Shares that has not been forfeited shall be released to the Common
Stock Holders.
(iii) Any adjustment pursuant to this Section 2.02 shall
be treated as an adjustment to the Merger Consideration, specifically to the
Stock Per Share Price.
(g) Notwithstanding any implication to the contrary contained
herein, there shall be no adjustment to the Purchase Price, no Parent Common
Stock shall be forfeited pursuant to this Section 2.02 and the Shareholders
shall be entitled to receive immediately all Parent Common Stock then held in
the Escrow upon the occurrence of any of the following events:
(i) In the event that the Parent or the Surviving
Corporation terminates the employment of Sam Fatigato by reason of a Without
Cause Termination; or
(ii) Upon the occurrence of an Event of Default by the
Parent (as defined in the Note) under any Note.
2.03 ADJUSTMENT OF MERGER CONSIDERATION.
(a) As soon as practicable but in no event later than forty five
(45) days following the Closing Date, the Shareholders shall cause the
preparation of a balance sheet of the Company, as at the close of business on
the date immediately prior to Closing Date (the "Closing Date Balance Sheet"),
consistent with the past practice of the Company and in accordance with the same
principles and methods followed in preparing the Financial Statements referred
to in Section 3.05 hereof, and in accordance with Schedule 2.03 hereof. Schedule
2.03 shall provide that no accrual shall be set forth on the Closing Date
Balance Sheet as a result of (i) income tax liability to the Company or the
Surviving Corporation as a result of the change by the Company from a cash basis
taxpayer to an accrual basis taxpayer calculated in the manner set forth on
Schedule 1.05(e)(ii) hereto ; (ii) for any income taxes payable by the
Shareholders for the period between the date hereof and the Closing Date ("Taxes
Between Signing and Closing") and that there shall be no accrual for fees
payable with respect to the transactions contemplated by this Agreement borne by
the Company on behalf of the Shareholders pursuant to this Agreement as further
described in Schedule 2.03 ("Transaction Fees"). The Company shall also provide
to Parent at the time it presents the Closing Date Balance Sheet its calculation
of Taxes Between Signing and Closing and Transaction Fees. The cost of
preparation of the Closing Date Balance Sheet shall be borne by the Surviving
Corporation. The Company and Parent shall share with each other such detailed
calculations and supporting documents as the other shall reasonably require in
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connection with its review of any calculations made thereunder. Parent shall
have the right, in its sole discretion, to cause a review or audit of the
Closing Date Balance Sheet, at Parent's expense, by its accountants, provided
that such review or audit shall be completed within 30 days following the
availability of the Closing Date Balance Sheet. Parent may submit to the
Shareholders' Representative (as defined hereinafter) on behalf of the
Shareholders, not later than 30 days from the receipt of the Closing Date
Balance Sheet from the Shareholders' Representative on behalf of the
Shareholders, a list of any components of the Closing Date Balance Sheet, the
statement of Taxes Between Signing and Closing (the "Tax Statement") appearing
thereon with which Parent disagrees, if any (a "Dispute Notice") within thirty
(30) days of its receipt of the Closing Date Balance Sheet. If Parent does not
issue a Dispute Notice prior to such date, the Closing Date Balance Sheet, the
Tax Statement and/or Transaction Fees, as supplied to Parent, shall be deemed to
have been accepted and agreed to by Parent, and shall be final and binding on
the parties to this Agreement. The parties shall thereafter have 15 days to
discuss and reach resolution on any items of dispute. Any items of dispute
regarding the Closing Date Balance Sheet and/or the Tax Statement which are not
so resolved shall be submitted to the Chicago, Illinois office of KPMG (the
"Arbitrating Accountant") or if KPMG is unwilling to serve as Arbitrating
Accountant, to a nationally recognized so called "big-five" firm of public
accountants mutually acceptable to the Shareholders' Representative and Parent,
who shall have no conflict of interest with respect to either party and who
shall serve as an arbitrator hereunder, the expenses of which shall be shared
one-half by the Shareholders and one-half by Parent. If the Surviving
Corporation or Parent and the Shareholders' Representative are unable to agree
on an Arbitrating Accountant pursuant to the foregoing, each of the (i)
Surviving Corporation or Parent and (ii) the Shareholders' Representative shall,
within forty-five (45) days after delivery of the Dispute Notice select a
disinterested arbitrator with relevant experience of its choice, and the two
disinterested arbitrators so selected shall select, within ten (10) days of the
selection of such arbitrators, an Arbitrating Accountant. In connection with the
resolution of any dispute, the arbitrator or arbitrators shall have access to
all documents, records, work papers, facilities and personnel necessary to
perform its function as arbitrator. The arbitrator or arbitrators so selected
shall render a written decision as promptly as practicable, but in no event
later than twenty (20) days after submission of the matter to the Arbitrating
Accountant. The decision of the arbitrator shall be final and binding upon the
parties, and judgment may be entered on such decision in a court of competent
jurisdiction. To the extent not otherwise provided herein, the commercial
arbitration rules of the American Arbitration Association as in effect at the
time of any arbitration shall govern such arbitration in all respects. The
determination of such firm with respect to any and all disputes shall be
conclusive and binding upon all parties.
(b) If, at such time as the Closing Date Balance Sheet is deemed
final and binding, the Closing Date Balance Sheet reflects a Net Working Capital
(as defined below) less than $800,000, if the closing shall occur on or after
June 1, 2000 and $750,000 if the closing shall occur prior to June 1, 2000, then
the Stock Price payable hereunder shall be reduced on a dollar-for-dollar basis
by the amount of such shortfall (the "Shortfall Amount"). For purposes of this
Agreement, "Net Working Capital" shall mean the sum of the Cash plus Accounts
Receivable less Current Liabilities as reflected on the Closing Date Balance
Sheet, calculated consistent with past practice, the Financial
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Statements referred to in Section 3.05 hereof and Schedule 2.03 hereof. At such
time that the parties have agreed upon the Closing Date Balance Sheet and if an
adjustment is required under this Section, then such number of the Escrowed
Shares shall be returned to the Parent as equal the Shortfall Amount divided by
the Average Closing Price subject to the terms of the Escrow Agreement.
Notwithstanding the prior sentence, the Shareholders may at its option through a
notice by the Shareholders' Representative to Parent within ten (10) days of the
final determination of the Shortfall Amount, satisfy any Shortfall Amount
through the payment of cash in lieu of Parent Common Stock.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS
The Company and the Shareholders, jointly and severally, hereby
represent and warrant to Parent and Sub as follows except for the exceptions
noted in the schedule delivered by the Company and the Shareholders to Sub and
Parent concurrently herewith and identified by the parties as the "Disclosure
Schedule". When used herein, the term to the "knowledge of the Company and the
Shareholders" shall mean the awareness of facts or other information by the
Shareholders of the Company. Any disclosure set forth on any particular schedule
shall be deemed disclosed in reference to all applicable schedules where such
disclosure is reasonably apparent to the extent that the disclosure in the
Schedule discloses the exception to the representation or warranty to which the
disclosure may apply (whether or not it refers to the actual representation or
warranty).
3.01 CORPORATE ORGANIZATION AND QUALIFICATION.
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Illinois. The Company has
the corporate power and authority to own or lease all of its properties and
assets and to carry on its business as it is now being conducted, and is duly
licensed or qualified to do business in each jurisdiction in which the nature of
the business conducted by it or the character or location of the properties and
assets owned or leased by it makes such licensing or qualification necessary.
The Certificate or Articles of Incorporation and Bylaws of the Company, copies
of which have previously been delivered to Parent, are true, accurate and
complete copies of such documents as in effect as of the date of this Agreement.
(b) Except as set forth on Schedule 3.01, the Company has no
direct or indirect Subsidiaries. Except as set forth on Schedule 3.01, the
Company does not own, control or hold with the power to vote, directly or
indirectly of record, beneficially or otherwise, any capital stock or any equity
or ownership interest in any corporation, partnership, association, joint
venture or other entity, except for less than five percent (5%) of any equity
security registered under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). As used in this Agreement, the word "Subsidiary" means any
corporation, partnership, limited liability company, or other organization,
whether incorporated or unincorporated, which is or was consolidated with such
party or with which such party is or was consolidated for financial reporting
purposes.
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(c) The minute books of each of the Company and its Subsidiaries
contain true, accurate and complete records of all meetings and other corporate
actions held or taken by its shareholders and board of directors (including
committees thereof).
3.02 CAPITALIZATION.
(a) The authorized capital stock of the Company consists of
3,360,000 shares of Company Common Stock. As of the date of this Agreement,
there are 2,634,678 shares of Company Common Stock issued and outstanding all of
which are owned by the Shareholders in the amounts as set forth in Schedule 3.02
annexed hereto. Except as set forth on Schedule 3.02, all of the issued and
outstanding shares of Company Common Stock have been duly authorized and validly
issued and are fully paid, nonassessable and free of preemptive rights with no
personal liability attaching to the ownership thereof. The authorized and issued
and outstanding capital stock of each Subsidiary of the Company is set forth on
Schedule 3.02. All of the issued and outstanding shares of capital stock of each
Subsidiary of the Company are owned by the Company, have been duly authorized
and validly issued and are fully paid, non-assessable and free of preemptive
rights with no personal liability attaching to the ownership thereof. Except as
set forth in Schedule 3.02 hereto, the Company does not have and is not bound by
any outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character calling for the purchase or issuance of any shares
of Company Common Stock or any other equity security of the Company or any of
its Subsidiaries or any securities representing the right to purchase or
otherwise receive any shares of Company Common Stock or any other equity
security of the Company or any of its Subsidiaries other than as provided for in
this Agreement. There are no bonds, debentures, notes, shares of preferred stock
or other indebtedness of the Company having the right to vote (or convertible
into, or exchangeable for securities having the right to vote) on any matters on
which the Shareholders of the Company may vote.
(b) Except as disclosed on Schedule 3.02(b) hereto, there are no
agreements or understandings, with respect to the voting of any shares of
Company Common Stock or any Subsidiary of the Company or which restrict the
transfer of such shares, to which the Company or any of its Subsidiaries is a
party and there are no such agreements or understandings to which the Company or
any of its Subsidiaries is a party with respect to the voting of any such shares
or which restrict the transfer of such shares, other than applicable federal and
state securities laws.
(c) All dividends on Company Common Stock which have been
declared prior to the date of this Agreement have been paid in full.
3.03 AUTHORITY; NO VIOLATION.
(a) The Company has full corporate power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation by the
Company of
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the transactions contemplated by this Agreement have been duly and validly
authorized by all requisite corporate action on the part of the Company, have
been approved by the vote or consent of the Shareholders of the Company required
by the Company's Certificate or Articles of Incorporation and Bylaws and, except
for the filing of the Certificates of Merger, no other corporate proceedings on
the part of the Company are necessary to approve this Agreement and to
consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by the Company and each of the Shareholders
and (assuming the due authorization, execution and delivery by Parent and Sub)
constitutes a valid and binding obligation of the Company and each of the
Shareholders, enforceable against each of the Company and each Shareholder in
accordance with its terms, subject to the effect of any applicable bankruptcy,
reorganization, insolvency (including, without limitation, all laws relating to
fraudulent transfers), moratorium or similar laws affecting creditors' rights
and remedies generally and subject, as to enforceability, to the effect of
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
(b) Except as set forth in Schedule 3.03 hereto, neither the
execution and delivery of this Agreement by the Company, nor the consummation by
the Company of the transactions contemplated hereby, nor compliance by the
Company with any of the terms or provisions, hereof, will (i) violate, conflict
with or result in a breach of any provision of the Articles of Incorporation or
Bylaws of the Company, (ii) assuming that the consents and approvals referred to
in the Disclosure Schedule hereof are duly obtained, (x) violate any statute,
code, ordinance, rule, regulation, judgment, order, writ, decree, license or
injunction applicable to the Company or any of its Subsidiaries, or any of their
respective properties or assets, or (y) violate, conflict with, result in a
breach of any provisions of or the loss of any benefit under, constitute a
default (or any event, which, with notice or lapse of time, or both would
constitute a default) under, result in the termination of or a right of
termination or cancellation under, accelerate the performance required by, or
result in the creation of any lien, pledge, security interest, charge or other
encumbrance upon any of the properties or assets of the Company or any of its
Subsidiaries under any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, deed of trust, license, lease, material agreement or other
material instrument or obligation to which the Company or any of its
Subsidiaries is a party, or by which the Company or any of its Subsidiaries or
any of their respective properties or assets may be bound or affected.
3.04 CONSENTS AND APPROVALS. Except for (a) the filing of the
Certificates of Merger with the Delaware Secretary and the Illinois Secretary,
respectively, pursuant to the DGCL and the IBCA, respectively, to effect the
Merger, (b) such filings as may be necessary as a result of any facts or
circumstances relating solely to Parent or Sub, and (c) such filings,
authorizations, consents or approvals as may be set forth in the Disclosure
Schedule hereto, no consents or approvals of, or filings or registrations with,
any court, administrative agency, regulatory agency or commission or other
governmental authority or instrumentality (each a "Governmental Entity") or with
any third party are necessary in connection with the execution and delivery by
the Company
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of this Agreement and the consummation by the Company of the Merger and the
other transactions contemplated hereby.
3.05 FINANCIAL STATEMENTS.
(a) Attached to Schedule 3.05(a) are copies of the unaudited
balance sheets of the Company as of December 31, 1998, and the related
statements of income for the fiscal year 1998, inclusive. Also attached to
Schedule 3.05(a) are copies of the unaudited consolidated balance sheets of the
Company as of December 31, 1999, and the related unaudited consolidated
statements of income for the fiscal year ended December 31, 1999. All such
financial statements delivered under this Section 3.05(a) to Parent shall be
collectively referred to herein as the "Financial Statements." The unaudited
interim financial statements of the Company and its Subsidiaries have been
prepared as of their respective dates in all material respects in accordance
with applicable accounting practices and fairly present in all material respects
the consolidated financial position of the Company and its Subsidiaries as of
the dates thereof and the consolidated income and retained earnings and sources
and applications of funds for the periods then ended. The financial books and
records of the Company are true and accurate and are capable of being audited in
accordance with generally accepted accounting principles ("GAAP") for no less
than the last two fiscal years.
(b) Except (i) as set forth in the Disclosure Schedule hereto,
(ii) for liabilities incurred since December 31, 1999 in the ordinary course of
business consistent with past practice, or (iii) liabilities contemplated
herein, the Company does not have any liabilities or obligations of any nature
whatsoever (whether absolute, accrued, contingent or otherwise) which are not
adequately reserved or reflected on the balance sheet of the Company for the
quarter ended December 31, 1999 and which would not have a material adverse
effect on the Company, its business or financial condition taken as a whole (any
material adverse effect on the Company, its business or financial condition
taken as a whole being hereinafter defined as a "Material Adverse Effect").
(c) Schedule 3.05(c)(i) contains the Company's accounts
receivable report as of January 23, 2000, which report is true and accurate in
all material respects and has been prepared in accordance with the Company's
normal practice. The accounts receivable reflected in the January 23, 2000
report contained in Schedule 3.05(c)(i) and all the accounts receivable arising
after such date are valid and genuine and arose from bona fide transactions in
the ordinary course of the Company's business and have been recorded in
accordance with the Company's historical revenue recognition policy. Except as
set forth on Schedule 3.05(c)(ii), no account receivable has been assigned or
pledged to any other person and no defense or set off to any such account
receivable has to the knowledge of the Company, been asserted by the account
obligor. The allowance for bad debt for the Company's accounts receivable set
forth on the December 31, 1999 unaudited consolidated balance sheet is adequate
and in accordance with the historical accounting practices of the Company.
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(d) Since December 31, 1999 neither the Company nor its
Subsidiaries has declared or paid any dividends, or made any other distribution
on or in respect of, or directly or indirectly purchased, retired, redeemed or
otherwise acquired any shares of the capital stock of the Company or issued or
sold any such shares of capital stock.
3.06 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in the
Disclosure Schedule hereto, since December 31, 1999, there has not been any
Material Adverse Effect on the Company (including without limitation any loss of
employees or customers) and, to the Shareholders' and the Company's knowledge,
no fact or condition specific to the Company exists which is reasonably likely
to cause such a Material Adverse Effect on the Company in the future.
3.07 LEGAL PROCEEDINGS. Except as set forth in Schedule 3.07 hereto,
the Company is not a party to any, and there are no pending or, to the
Shareholders' and the Company's knowledge, threatened, legal, administrative,
arbitrable or other proceedings, claims, actions or governmental or regulatory
investigations of any nature against or affecting the Company or any of its
Subsidiaries or any property or asset of the Company or any of its Subsidiaries,
before any court, arbitrator, administrative agency or Governmental Entity,
domestic or foreign. Neither the Company nor any of its Subsidiaries nor any
property or asset of the Company is subject to any order, writ, judgment,
injunction, decree, determination or award which restricts its ability to
conduct business in any area in which it presently does business.
3.08 TAXES AND TAX RETURNS.
(a) For purposes of this Agreement, the terms "Tax" and
"Taxes" shall mean any and all taxes, charges, fees, levies or other
assessments, including, without limitation, all net income, gross income, gross
receipts, premium, sales, use, ad valorem, value added, transfer, franchise,
profits, license, withholding, payroll, employment, excise, estimated,
severance, stamp, occupation, property or other taxes, fees, assessments or
charges of any kind whatsoever, together with any interest and any penalties
(including penalties for failure to file in accordance with applicable
information reporting requirements), and additions to tax by any authority,
whether federal, state, local, domestic or foreign. The term "Tax Return" shall
mean any report, return, form, declaration or other document or information
required to be supplied to any authority in connection with Taxes.
(b) The Company and its Subsidiaries (collectively, the
"Taxpayer") have filed all Tax Returns that were required to be filed. All such
Tax Returns were when filed, and continue to be, correct and complete in all
material respects. All Taxes owed by the Taxpayer (whether or not shown on any
Tax Return) have been timely paid. Except as set forth on Schedule 3.08(b)
annexed hereto, the Taxpayer currently is not the beneficiary of any extension
of time within which to file any Tax Return. No claim has ever been made by an
authority in a jurisdiction where the Taxpayer does not file Tax Returns that it
is or may be subject to taxation by that jurisdiction. There are no liens with
respect to Taxes on any of the assets or property of the Taxpayer.
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(c) The Taxpayer has withheld or collected and paid all Taxes
required to have been withheld or collected and paid in connection with amounts
paid or owing to any employee, independent contractor, creditor, shareholder,
any other third party, or otherwise.
(d) There is no dispute or claim concerning any Tax Liability
of the Taxpayer either (A) claimed or raised by any authority in writing or (B)
as to which the Taxpayer or the directors and officers (and employees
responsible for Tax matters) of the Taxpayer has knowledge. There are no
proceedings with respect to Taxes pending, except as set forth on Schedule
3.08(d) annexed hereto.
(e) Schedule 3.08(e) annexed hereto sets forth an accurate,
correct and complete list of all federal, state, local, and foreign Tax Returns
filed with respect to the Taxpayer for taxable periods ended on or after
December 31, 1996, indicates those Tax Returns that have been audited and
indicates those Tax Returns that currently are the subject of audit. The Company
has delivered to Parent correct and complete copies of all federal income Tax
Returns, examination reports, and statements of deficiencies assessed against or
agreed to by or on behalf of the Taxpayer since December 31, 1996. No other
audit or investigation with respect to Taxes is pending or has been threatened.
(f) The Taxpayer has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(g) The Taxpayer has not agreed to make, nor is it required to
make, any adjustments under Section 481(a) of the Code by reason of a change in
accounting method or otherwise.
(h) The Taxpayer is not a party to any contract, arrangement
or plan that has resulted or would result, separately or in the aggregate, in
the payment of any "excess parachute payments" within the meaning of Section
280G of the Code, or the payment of any consideration which would not be
deductible by reason of Section 162(m) of the Code.
(i) The Taxpayer has not been a United States real property
holding corporation within the meaning of Code Section 897(c)(2) during the
applicable period specified in Code Section 897(c)(1)(A)(ii).
(j) The Taxpayer is not a party to any agreement, whether
written or unwritten, providing for the payment of Tax liabilities, payment for
Tax losses, entitlements to refunds or similar Tax matters.
(k) No ruling with respect to Taxes relating to the Taxpayer
has been requested by or on behalf of the Taxpayer.
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(l) The Taxpayer (A) has never been a member of an affiliated
group (within the meaning of Section 1504 of the Code, or any similar group as
defined for state, local or foreign tax purposes) filing a consolidated federal
(or combined or unitary state, local or foreign) income Tax Return or (B) does
not have any liability for the taxes of any Person (other than the Taxpayers)
under Reg. Section 1.1502-6 (or any similar provision of state, local or foreign
Law), as a transferee or successor, by contract, or otherwise.
(m) The unpaid Taxes of the Taxpayer (A) did not, as of the
most recent fiscal quarter end, exceed the reserves for Tax liability (rather
than any reserve for deferred Taxes established to reflect timing differences
between book and Tax income) on its books at such time and (B) do not exceed
that reserve as adjusted for the passage of time through the Effective Date in
accordance with the past custom and practice of the Taxpayer in filing its Tax
Returns.
(n) Schedule 3.08(n) sets forth the following information with
respect to the Company as of the most recent practicable date (as well as on an
estimated pro forma basis as of the Effective Date giving effect to the
consummation of the transactions contemplated hereby): the amount of any net
operating loss, net capital loss, unused investment or other credit, unused
foreign tax, or excess charitable contribution allocable to the Company.
3.09 EMPLOYEE BENEFIT PLANS.
(a) Schedule 3.09 hereto sets forth a true and complete list
of all Plans maintained or contributed to by the Company or any of its
Subsidiaries during the five (5) years preceding this Agreement. The term
"Plans" for purposes of this Article III means all employee benefit plans,
arrangements or agreements that are maintained or contributed to, or that were
maintained or contributed to at any time during the five (5) years preceding the
date of this Agreement, by the Company or any of its Subsidiaries, or by any
trade or business, whether or not incorporated (an "ERISA Affiliate"), all of
which together with the Company would be deemed a "single employer" within the
meaning of Section 4001 of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA").
(b) The Company has heretofore delivered to Parent true and
complete copies of each of the Plans and all related documents, including but
not limited to (i) all required Forms 5500 and all related schedules for such
Plans (if applicable) for each of the last two (2) years, (ii) the actuarial
report for such Plan (if applicable) for each of the last two (2) years, and
(iii) the most recent determination letter from the IRS (if applicable) for such
plan.
(c) (i) Except as set forth in Schedule 3.09 hereto, each of
the Plans has been operated and administered in all material respects in
accordance with applicable laws, including but not limited to ERISA and the
Code, (ii) each of the Plans intended to be "qualified" within meaning of
Section 401(a) of the Code has been maintained so as to
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qualify from the effective date of such Plan to the Effective Time, (iii) with
respect to each Plan which is subject to Title IV of ERISA, the present value of
"benefit liabilities" (within the meaning of Section 4001(a)(16) of ERISA) under
such Plan, based upon the actuarial assumptions currently used by the Plan for
IRS funding purposes did not, as of its latest valuation date, exceed the then
current value of the assets of such Plan allocable to such accrued benefits, and
there has been no "accumulated funding deficiency" (whether or not waived), (iv)
no Plan provides benefits, including without limitation death, medical or other
benefits (whether or not insured), with respect to current or former employees
of the Company, any of its Subsidiaries or any ERISA Affiliate beyond their
retirement or other termination of service, other than (A) coverage mandated by
applicable law, (B) life insurance death benefits payable in the event of the
death of a covered employee, (C) disability benefits payable to disabled former
employees, (D) death benefits or retirement benefits under any "employee pension
plan," as that term is defined in Section 3(2) of ERISA, (E) deferred
compensation benefits accrued as liabilities on the books of the Company, any of
its Subsidiaries or any ERISA Affiliate or (F) benefits the full cost of which
is borne by the current or former employee (or his beneficiary), (v) with
respect to each Plan subject to Title IV of ERISA no liability under Title IV of
ERISA has been incurred by the Company, any of its Subsidiaries or any ERISA
Affiliate that has not been satisfied in full, no condition exists that presents
a material risk to the Company, any of its Subsidiaries or any ERISA Affiliate
of incurring a material liability to or on account of such Plan, and there has
been no "reportable event" (within the meaning of Section 1013 of ERISA and the
regulations thereunder), (vi) none of the Company, any of its Subsidiaries or
any ERISA Affiliate has ever maintained or contributed to a "multiemployer
pension plan," as such term is defined in Section 3(37) of ERISA, (vii) all
contributions or other amounts payable by the Company as of the Effective Time
with respect to each Plan in respect of current or prior plan years have been
paid or accrued in accordance with GAAP and Section 412 of the Code, (viii) none
of the Company, any of its Subsidiaries or any ERISA Affiliate has engaged in a
transaction in connection with which the Company, any of its Subsidiaries or any
ERISA Affiliate has any material liability for either a civil penalty assessed
pursuant to Section 409 or 502(i) of ERISA or a tax imposed pursuant to Section
4975 or 4976 of the Code, (ix) consummation of the transactions contemplated
hereby will not cause any amounts payable under any of the Plans to fail to be
deductible for federal income tax purposes under Sections 280G or 162(m) of the
Code, and (x) there are no pending, threatened or anticipated claims (other than
routine claims for benefits) by, on behalf of or against any of the Plans or any
trusts related thereto.
(d) With respect to any Plan that is a welfare plan (within
the meaning of Section 3(l) of ERISA) (i) no such Plan is funded through a
"welfare benefit fund," as such term is defined in Section 419(a) of the Code,
and (ii) each such Plan complies in all material respects with the applicable
requirements of Section 4980B(f) of the Code, Part 6 of Subtitle B of Title I of
ERISA and any applicable state continuation coverage requirements ("COBRA").
(e) Except as prohibited by law (including Section 411(d)(6)
of the Code), each Plan may be amended, terminated, modified or otherwise
revised by the
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Company, any of its Subsidiaries or its ERISA Affiliates as of the Effective
Time to eliminate, without material effect, any and all future benefit accruals
under any Plan (except claims incurred under any welfare plan).
(f) Except as set forth on Schedule 3.09, neither the Company
nor any of its Subsidiaries has entered into, adopted or amended in any respect
any collective bargaining agreement or adopted or amended any bonus, profit
sharing, compensation, stock option, pension, retirement, deferred compensation,
insurance or other similar plan, agreement, trust, fund or arrangement for the
benefit of employees (whether or not legally binding).
(g) Other than as specifically set forth herein, the Company
has satisfied all requirements under the Compete Incorporated Employee's Stock
Option Plan and has not taken any action or failed to take any action that has
resulted in or will result in a breach or default under such Plan, or that would
result in the acceleration of vesting of any options under such Plan.
3.10 COMPLIANCE WITH APPLICABLE LAW; CERTAIN AGREEMENTS; LICENSING.
Except as set forth in Schedule 3.10(i) hereto, each of the Company and its
Subsidiaries holds all material licenses, franchises, permits and authorizations
necessary for the lawful conduct of its business under and pursuant to all, and
has complied in all material respects with and, to the Shareholders' and the
Company's knowledge, is not in conflict with, or in default or violation of any
(a) statute, code, ordinance, law, rule, regulation, order, writ, judgment,
injunction or decree, published policies and guidelines of any Governmental
Entity, applicable to the Company or any Subsidiary or by which any property or
asset of the Company or Subsidiary is bound or affected or (b) any note, bond,
mortgage, indenture, deed of trust, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which the Company is a party or
by which the Company or any Subsidiary or any property or asset of the Company
or Subsidiary is bound or affected; and neither of the Company, any Subsidiary
or any Shareholder knows of, or has received notice of, any violations of any
the above. Schedule 3.10 (ii) hereto contains a list of all federal and state
licenses, franchises, permits and authorizations necessary for the lawful
conduct of the Company's or any of its Subsidiaries' respective businesses.
3.11 CERTAIN CONTRACTS.
(a) Except as set forth in Schedule 3.11(a) hereto, neither
the Company nor any of its Subsidiaries is a party to or bound by any contract,
arrangement, commitment or understanding (whether written or oral): (i) with
respect to the employment of any director, officer or employee, or with respect
to the employment of any consultant which cannot be terminated without payment,
(ii) which, upon the consummation of the transactions contemplated by this
Agreement, will result in any payment (whether of severance pay or otherwise)
becoming due from the Company or any of its Subsidiaries to any officer or
employee thereof which amounts are specifically quantified in Schedule 3.11(a),
(iii) which is a material contract (as defined in Item
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601(b)(10) of Regulation S-K promulgated by the Securities and Exchange
Commission) ("SEC") to be performed after the date of this Agreement that has
not otherwise been disclosed in writing to Parent, (iv) which is a consulting or
other agreement (including agreements entered into in the ordinary course and
data processing, software programming and licensing contracts) not terminable on
ninety (90) days or less notice, (v) which restricts the conduct of any line of
business by the Company or any of its Subsidiaries, which restriction is
specifically referred to in such Schedule 3.11(a), (vi) with or to a labor union
or guild (including any collective bargaining agreement), or (vii) any stock
option plan, stock appreciation rights plan, restricted stock plan or stock
purchase plan any of the benefits of which will be increased, or the vesting of
the benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the transactions contemplated
by this Agreement, any of which are specifically quantified on Schedule
3.11(a)(vii). Other than as specifically set forth herein, no benefits under any
of such plans will be increased, or the vesting of the benefits of which, will
be accelerated by the occurrence of any of the transactions contemplated by this
Agreement. The Company has previously delivered to Parent true and complete
copies of all employment, consulting and deferred compensation agreements which
are in writing and to which the Company is a party. Each contract, arrangement,
commitment or understanding of the type described in this section is referred to
herein as a "Company Contract".
(b) Except as set forth in Schedule 3.11(b) hereto, (i) each
Company Contract is legal, valid and binding upon the Company or any of its
Subsidiaries, as the case may be, assuming due authorization of the other party
or parties thereto, and in full force and effect, subject to the effect of any
applicable bankruptcy, reorganization, insolvency (including, without
limitation, all laws relating to fraudulent transfers), moratorium or similar
laws affecting creditors' rights and remedies generally and subject, as to
enforceability, to the effect of general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law),
(ii) the Company has performed all material obligations required to be performed
by it to date under each such Company Contract, and (iii) to the Shareholders'
and the Company's knowledge, no event or condition exists which constitutes or,
after notice or lapse of time or both, would constitute, a material default on
the part of the Company or Subsidiary, as the case may be, under any such
Company Contract.
(c) Neither the Company nor its Subsidiaries has made any
express warranty to any person or entity with respect to any services or
products it provides or delivers or has made or agreed to make any
indemnification payment with respect to any warranty claim, except for (i) the
warranties and/or agreement(s) to indemnify of which true and correct copies
have been delivered to Parent, and (ii) any warranties under other state or
federal laws generally.
3.12 AGREEMENTS WITH REGULATORY AGENCIES. Neither the Company nor any
of its Subsidiaries is subject to any cease-and-desist or other order issued in
writing by, or is a party to any written agreement, consent agreement or
memorandum of understanding,
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commitment letter, suspension order, or similar undertaking (each, a "Regulatory
Agreement") with any regulatory agency or any other Governmental Entity that
restricts the conduct of its business in any material respect, nor has the
Company been notified in writing or, to the knowledge of the Company, otherwise
by any regulatory agency or any other Governmental Entity that it is considering
issuing or requesting any Regulatory Agreement.
3.13 ENVIRONMENTAL MATTERS.
(a) The Company and its Subsidiaries are, and have been, in
material compliance with all applicable environmental laws and with all rules,
regulations, standards and requirements of the United States Environmental
Protection Agency (the "EPA") and of state and local agencies with jurisdiction
over pollution or protection of the environment.
(b) There is no suit, claim, action or proceeding pending or,
to the Shareholders' and the Company's knowledge, threatened, before any
Governmental Entity or other forum in which the Company or any of its
Subsidiaries has been or, with respect to threatened proceedings, may be named
as a defendant, responsible party or potentially responsible party in any way
relating to any environmental law, rule, regulation, standard or requirement.
3.14 PROPERTIES.
(a) Schedule 3.14 hereto contains a true, complete and correct
list of all real properties owned by the Company or any of its Subsidiaries.
Except as set forth in Schedule 3.14 hereto, the Company or its Subsidiaries has
good and marketable title to all real property and other property owned by it
and included in the balance sheet of the Company at September 30, 1999, and owns
such property subject to no encumbrances, liens, security interests, pledges or
title imperfections.
(b) Neither the Company nor any of its Subsidiaries has
received any notice of a violation of any applicable zoning or environmental
regulation, ordinance or other law, order, regulation or requirement relating to
its operations or its properties and there is no such violation. Except as set
forth in Schedule 3.14 hereto, to the Shareholders' and the Company's knowledge,
all buildings and structures owned and used by the Company or any of its
Subsidiaries conform with all applicable ordinances, codes or regulations.
Except as set forth in Schedule 3.14 hereto, all buildings and structures leased
and used by the Company or any of its Subsidiaries conform in all material
respects with all applicable ordinances, codes or regulations, except where such
nonconformity would not have a Material Adverse Effect.
(c) The Disclosure Schedule contains a true, complete and
correct list of all leases pursuant to which the Company or any of its
Subsidiaries leases any real or personal property, either as lessee or as lessor
which leases call for an annual payment in excess of $10,000 and cannot be
terminated without penalty with 90 days or less notice
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(the "Company Leases"). Assuming due authorization of the other party or parties
thereto, each of the Company Leases is valid and binding on the Company or
Subsidiary, and, to the best of the Company's knowledge, valid and binding on
and enforceable against all other respective parties to such leases, in
accordance with their respective terms, subject to the effect of any applicable
bankruptcy, reorganization, insolvency (including, without limitation, all laws
relating to fraudulent transfers), moratorium or similar laws affecting
creditors' rights and remedies generally and subject, as to enforceability, to
the effect of general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law). There are not
under such Company Leases any existing breaches, defaults or events of default
by the Company or any of its Subsidiaries, nor has the Company or any of its
Subsidiaries received notice of, or made a claim with respect to, any breach or
default by any other party to such Company Leases. Each of the Company and its
Subsidiaries enjoys quiet and peaceful possession of all such leased properties
occupied by it as lessee.
3.15 INSURANCE. The Company has made available to Parent true and
complete copies of all material policies of insurance of the Company or any of
its Subsidiaries currently in effect a list of which is attached as Schedule
3.15. All of the policies relating to insurance maintained by the Company with
the respect to its material properties and the conduct of its business in any
material respect (or any comparable policies entered into as a replacement
thereof) are in full force and effect and the Company has not received any
notice of cancellation with respect thereto. All life insurance policies on the
lives of any of the current and former officers of the Company which are
maintained by the Company or any of its Subsidiaries or which are otherwise
included as assets on the books of the Company are, or will at the Effective
Time be, owned by the Company or any of its Subsidiaries, free and clear of any
claims thereon by the officers or members of their families, except with respect
to the death benefits thereunder, as to which the Company agrees that there will
not be an amendment prior to the Effective Time without the consent of Parent.
The Company does not have any material liability for unpaid premium or premium
adjustments not properly reflected on the Company's December 31, 1999 balance
sheet. All claims under any policy or bond have been duly and timely filed.
3.16 LABOR MATTERS. Neither the Company nor any of its Subsidiaries is
a party to any collective bargaining or other labor union or guild contract nor
has the Company or any of its Subsidiaries, to the Shareholders' and the
Company's knowledge, been approached by any collective bargaining or other labor
union or guild seeking to enter into a contract with the Company or any of its
Subsidiaries. There is no pending or, to the Shareholders' and the Company's
knowledge, threatened, labor dispute, strike or work stoppage against the
Company or any of its Subsidiaries which may interfere with the business
activities of the Company or any of its Subsidiaries. None of the Company or any
of its Subsidiaries or their respective representatives or employees has
committed any unfair labor practices in connection with the operation of the
business of the Company or any of its Subsidiaries, and there is no pending or,
to the Shareholders' and the Company's knowledge, threatened charge or complaint
against the Company or any of its Subsidiaries by the National Labor Relations
Board or any comparable state agency. Except as set forth on Schedule 3.16
hereto, to the Shareholders' and the
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Company's knowledge, neither the Company nor its Subsidiaries has hired any
illegal aliens as employees. To the Company's and the Shareholders' knowledge,
neither the Company nor its Subsidiaries has discriminated on the basis of race,
age, sex or otherwise in its employment conditions or practices with respect to
its employees. There are no race, age, sex or other discrimination complaints
pending, or, to the Shareholders' and the Company's knowledge, threatened
against the Company or any of its Subsidiaries by any employee, former or
current, before any domestic (federal, state or local) or foreign board,
department, commission or agency nor, to the knowledge of the Company, does any
basis therefor exist. To the knowledge of the Company and the Shareholders, as
of the date hereof, none of the employees of the Company has a present intention
to terminate its employment with the Company.
3.17 INTELLECTUAL PROPERTY. The Company and its Subsidiaries own or
possess a license and other right to use without payment of any material amount
all material patents, copyrights, trade secrets, trade names, service marks,
trademarks, domain names, know-how, software and other intellectual property
material to the operation of its business as presently conducted (collectively,
the "Intellectual Property Rights"). Schedule 3.17 sets forth a list of all
patents, pending patent applications, registered copyrights, reported trademarks
and service marks and applications for the registration of trademarks and
service marks which are owned by the Company as well as all material
intellectual property license agreements. Neither the Company nor any of its
Subsidiaries has received any notice of conflict with the Intellectual Property
Rights from any third party. The Company and its Subsidiaries are not in
material default under any contract, agreement, arrangement or commitment
relating to any of the Intellectual Property Rights. To the Shareholders' and
the Company's knowledge, the Intellectual Property Rights do not infringe upon
the rights of any third parties and are valid and enforceable.
3.18 BROKER'S FEES. Neither the Company nor any of its officers or
directors, has employed any broker or finder or incurred any liability for any
broker's fees, commissions or finder's fees in connection with any of the
transactions contemplated by this Agreement, except as set forth in Schedule
3.18.
3.19 BANK ACCOUNTS. The Company has provided or made available to
Parent complete and current summaries of information regarding all accounts,
lock boxes and safe deposits maintained by the Company at banks, trust
companies, securities firms or other brokers or other financial institutions.
3.20 YEAR 2000. Other than as indicated in Schedule 3.20, the Company
has received no claim for any liability, obligation or commitment to any third
party relating to Year 2000 compatibility for any services performed or goods
sold, and made no warranty or agreement to indemnify any third party for work
performed if such party incurs any damages as a result of the Company's
services.
3.21 DISCLOSURE. No representation or warranty contained in this
Agreement or any schedule to this Agreement contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements herein or therein, in light of the circumstances in which they are
made, not misleading.
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3.22 LIMITATION ON WARRANTIES. Except as expressly set forth in this
Agreement, the Company and the Shareholders make no express or implied warranty
of any kind whatsoever with respect to the assets of the Company including any
representation as to physical condition or value of any of the assets of the
Company or the future profitability or future earnings performance of the
Company. ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE ARE EXPRESSLY EXCLUDED.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub hereby, jointly and severally, represent and warrant to
the Company as follows:
4.01 CORPORATE ORGANIZATION AND QUALIFICATION. Each of Parent and Sub
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. Each of Parent and Sub has the corporate power
and authority to own or lease all of its properties and assets and to carry on
its business as it is now being conducted, and is duly licensed or qualified to
do business in each jurisdiction in which the nature of the business conducted
by it or the character or location of the properties and assets owned or leased
by it makes such licensing or qualification necessary. The Certificate of
Incorporation and Bylaws of each of Parent and Sub, copies of which have
previously been delivered to the Company, are true and complete copies of such
documents as in effect as of the date of this Agreement. Parent has no direct or
indirect Subsidiaries other than Sub and Perficient LoreData, Inc., a Delaware
corporation. Neither Parent nor any of its Subsidiaries owns, controls or holds
the power to vote, directly or indirectly of record, beneficially or otherwise,
any capital stock or any equity or ownership interest in any corporation,
partnership, association, joint venture or other entity, except for less than
five percent (5%) of any equity security registered under the Exchange Act.
4.02 CAPITALIZATION.
(a) The authorized capital stock of Parent consists of
20,000,000 shares of Parent Common Stock and 5,000,000 shares of preferred
stock, par value $0.001 per share ("Parent Preferred Stock"). As of the date
hereof, 4,065,047 shares of Parent Common Stock and no shares of Parent
Preferred Stock are issued and outstanding. All of the issued and outstanding
shares of Parent Common Stock have been duly authorized and validly issued and
are fully paid, nonassessable and free of preemptive rights with no personal
liability attaching to the ownership thereof. Except as set forth in Schedule
4.02(a)(i) hereto, Parent does not have and is not bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character calling for the purchase or issuance of any shares of Parent Common
Stock or any other equity security of Parent or any of its Subsidiaries or any
securities representing
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the right to purchase or otherwise receive any shares of Parent Common Stock or
any other equity security of Parent or any of its Subsidiaries other than as
provided for in this Agreement. There are no bonds, debentures, notes, shares of
preferred stock or other indebtedness of Parent having the right to vote (or
convertible into, or exchangeable for securities having the right to vote) on
any matters on which the Shareholders of Parent may vote. Except as disclosed on
Schedule 4.02(a)(ii) hereto, to Parent's knowledge there are no agreements or
understandings, with respect to the voting of any shares of Parent Common Stock
or any Subsidiary of Parent or which restrict the transfer of such shares, to
which Parent or any of its Subsidiaries is a party and there are no such
agreements or understandings to which Parent or any of its Subsidiaries is a
party with respect to the voting of any such shares or which restrict the
transfer of such shares, other than applicable federal and state securities
laws. As used in this Agreement, Parent's "knowledge" shall mean the knowledge
of Parent's executive officers and directors, as disclosed in its Prospectus
dated July 29, 1999.
(b) The authorized capital stock of Sub consists of 10,000
shares of common stock, par value $0.01 per share ("Sub Common Stock"). As of
the date hereof, 1,000 shares of Sub Common Stock are outstanding. All of the
issued and outstanding shares of capital stock of Sub are owned by Parent, have
been duly authorized and validly issued and are fully paid, non-assessable and
free of preemptive rights with no personal liability attaching to the ownership
thereof.
4.03 AUTHORITY; NO VIOLATIONS.
(a) Each of Parent and Sub have full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Parent and Sub and the consummation by Parent and Sub of the transactions
contemplated hereby have been duly and validly authorized by all requisite
corporate action on the part of each of Parent. Except for the filing of the
Certificates of Merger and the approval of the shareholders of Parent, no other
corporate proceedings on the part of Parent or Sub are necessary to approve this
Agreement and to consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by Parent and Sub and (assuming
the due authorization, execution and delivery by the Company) constitutes a
valid and binding obligation of Parent and Sub, enforceable against Parent and
Sub in accordance with its terms, subject to the effect of any applicable
bankruptcy, reorganization, insolvency (including, without limitation, all laws
relating to fraudulent transfers), moratorium or similar laws affecting
creditors' rights and remedies generally and subject, as to enforceability, to
the effect of general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(b) Neither the execution and delivery of this Agreement by
each of Parent and Sub, nor the consummation by either Parent or Sub, as the
case may be, of the transactions contemplated hereby, nor compliance by either
Parent or Sub with any of the terms or provisions hereof, will (i) violate,
conflict with or result in a breach of any provision of the Certificate of
Incorporation or Bylaws of Parent, or Sub, as the case may be, or (ii)(x)
violate any statute, code, ordinance, rule, regulations, judgment, order, writ,
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decree or injunction applicable to Parent or Sub or any of their respective
properties or assets, or (y) violate, conflict with, result in a breach of any
provisions of or the loss of any benefit under, constitute a default (or any
event which, with notice or lapse of time, or both, would constitute a default)
under, result in the termination of or a right of termination or cancellation
under, accelerate the performance required by, or result in the creation of any
lien, pledge, security interest, charge or other encumbrance upon any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, deed of
trust, license, lease, material agreement or other instrument or obligation to
which Parent or Sub is a party, or by which they or any of their respective
properties or assets may be bound or affected.
4.04 CONSENTS AND APPROVALS. Except for (a) the filing of the
Certificates of Merger with the Delaware Secretary and the Illinois Secretary,
respectively, pursuant to the DGCL and the IBCA, respectively, to effect the
Merger, (b) such filings as may be necessary as a result of any facts or
circumstances related solely to the Company, (c) the consents and approvals
listed on Schedule 4.04 hereto, and(d) the consent of the shareholders of Parent
to the Merger and the filing of a Proxy Statement in connection therewith , no
consents or approvals of or filings or registrations with any Governmental
Entity or with any third party are necessary in connection with the execution
and delivery by Parent and Sub of this Agreement and the consummation by Parent
and Sub of the Merger and the other transactions contemplated hereby.
4.05 BROKER'S FEES. Neither Parent nor Sub, nor any of their respective
officers or directors, has employed any broker or finder or incurred any
liability for any broker's fee, commission or finder's fee in connection with
any of the transactions contemplated by this Agreement, except as set forth in
Schedule 4.05 hereto.
4.06 SEC REPORTS. Parent has previously delivered to the Company an
accurate and complete copy of each final registration statement, prospectus,
report, schedule and definitive proxy statement of Parent filed since May 1,
1999 with the SEC pursuant to the Exchange Act or the Securities Act
(collectively, the "Parent SEC Reports"). Parent has timely filed (either by the
required filing date or pursuant to Rule 12b-25 promulgated under the Exchange
Act) all Parent SEC Reports and other documents required to be filed by it under
the Securities Act and the Exchange Act and, as of their respective dates and
all Parent SEC Reports complied with all of the rules and regulations of the SEC
with respect thereto. As of their respective dates, the Parent SEC Reports did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
Parent's consolidated financial statements (including any notes to such
financial statements) included within Parent SEC Reports (i) has been prepared
in all material respects in accordance with the published rules and regulations
of GAAP and the SEC applied on a consistent basis throughout the periods
involved, and (ii) fairly present in all material respects, the consolidated
financial position of Parent or as of the respective dates thereof and the
consolidated results of operations and cash flows for the periods indicated.
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4.07 VOTING REQUIREMENTS. The affirmative vote of the holders of a
majority of the shares of Parent Common Stock present and entitled to vote at
the Shareholders Meeting is the only vote of the holders of any class or series
of Parent's capital stock necessary to approve the Merger and the other
transactions contemplated hereby.
4.08 NO PRIOR ACTIVITIES. Sub has not incurred, directly or indirectly,
any liabilities or obligations, except those incurred in connection with its
incorporation or with the negotiation of this Agreement and consummation of the
transactions contemplated hereby. Sub has not engaged, directly or indirectly,
in any business or activity of any type or kind, or entered into any agreement
or arrangement with any person or entity, or become subject to or bound by any
obligation or undertaking, that is not contemplated by or in connection with
this Agreement and the transactions contemplated hereby.
4.09 LABOR MATTERS. Neither Parent nor any of its Subsidiaries is a
party to any collective bargaining or other labor union or guild contract nor,
to Parent's knowledge, has Parent or any of its Subsidiaries been approached by
any collective bargaining or other labor union or guild seeking to enter into a
contract with Parent or any of its Subsidiaries. There is no pending, or to
Parent's knowledge, threatened labor dispute, strike or work stoppage against
Parent or any of its Subsidiaries which may interfere with the business
activities of Parent or any of its Subsidiaries. None of Parent or any of its
Subsidiaries or their respective representatives or employees has committed any
unfair labor practices in connection with the operation of the business of
Parent or any of its Subsidiaries, and there is no pending or, to Parent's
knowledge, threatened charge or complaint against Parent or any of its
Subsidiaries by the National Labor Relations Board or any comparable state
agency.
4.10 NO MATERIAL ADVERSE CHANGE. Since September 30, 1999, and through
the date of this Agreement, there has been no fact or condition specific to the
Parent, other than as disclosed in the Parent SEC Reports, that has had a
material adverse effect on the Parent, its business or financial condition,
taken as a whole.
4.11 LIMITATION ON WARRANTIES. Except as expressly set forth in this
Article IV, Parent and Sub make no express or implied warranty of any kind
whatsoever with respect to the assets or securities of Parent, Sub or Surviving
Corporation, including any representation as to physical condition or value of
any of the assets or the securities of the Parent, Sub or the Surviving
Corporation or the future profitability or future earnings performance of the
Parent, Sub or the Surviving Corporation. ALL IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE EXPRESSLY EXCLUDED.
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ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.01 COVENANTS OF THE COMPANY. During the period from the date of this
Agreement and continuing until the Effective Time, except as expressly
contemplated or permitted by this Agreement or with the prior written consent of
Parent, the Company shall (and shall cause its Subsidiaries to) carry on its
business in the ordinary course consistent with past practice. The Company shall
(and shall cause its Subsidiaries to) use all reasonable efforts to (x) preserve
its business organization, (y) keep available the present services of its
employees and (z) preserve for itself and Parent the goodwill of the customers
of the Company and its Subsidiaries and others with whom business relationships
exist, including, but not limited to all material contracts. Without limiting
the generality of the foregoing, and except as otherwise contemplated by this
Agreement or consented to in writing by Parent, the Company shall not (and shall
cause its Subsidiaries not to):
(a) declare or pay any dividends on, or make other
distributions in respect of, any of its capital stock, except for a distribution
to the Common Stock Holders of the Company to cover the Common Stock Holders'
income tax liability attributable to the ownership of the Company Common Stock
in an amount not to exceed $100,000 for the fiscal year ended December 31, 1999
and such additional amounts as are necessary for the period from January 1, 2000
to the Closing Date subject to the delivery to the Parent prior to the Closing
of a Tax Calculation as defined in Section 7.02(n), less amounts previously
distributed on account thereof);
(b) (i) split, combine or reclassify any shares of its capital
stock; or issue or authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock except
upon the exercise or fulfillment of rights or options issued or existing
pursuant to employee benefit plans, programs or arrangements, all to the extent
outstanding and in existence on the date of this Agreement, or (ii) repurchase,
redeem or otherwise acquire, any shares of the capital stock of the Company, or
any securities convertible into or exercisable for any shares of the capital
stock of the Company;
(c) issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its capital stock or any securities
convertible into or exercisable for, or any rights, warrants or options to
acquire, any such shares, or enter into any agreement with respect to any of the
foregoing;
(d) amend its Articles of Incorporation or Bylaws;
(e) make any capital expenditures in excess of $25,000;
(f) enter into any new line of business;
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(g) (i) acquire or agree to acquire, by merging or
consolidating with, or by purchasing a substantial equity interest in or a
substantial portion of the assets of or by any other manner, any business or any
corporation, partnership, association or other business organization or division
thereof or (ii) otherwise acquire any assets, other than in the ordinary course
of business, which would be material to the Company and its Subsidiaries, taken
as a whole;
(h) take any action that is intended or would result in any of
its representations and warranties set forth in this Agreement being or becoming
materially untrue, or in any of the conditions to the Merger set forth in
Article VII not being satisfied, or in breach of any provision of this Agreement
except, in every case, as may be required by applicable law;
(i) change its methods of accounting in effect at December 31,
1998, except as required by changes in GAAP or regulatory accounting principles
as concurred to by the Company's independent auditors;
(j) (i) enter into, adopt, amend, renew or terminate any Plan
or any agreement, arrangement, plan or policy between the Company or any of its
Subsidiaries and one or more of its current or former directors, officers or
employees or (ii) increase in any manner compensation or fringe benefits of any
director, officer or employee or pay any benefit not required by any plan or
agreement as in effect as of the date hereof (including, without limitation, the
granting of stock options, stock appreciation rights, restricted stock,
restricted stock units or performance units or shares); or (iii) enter into,
modify or renew any employment, severance or other agreement with any director,
officer or employee of the Company or any of its Subsidiaries or establish,
adopt, enter into, or amend any collective bargaining, bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension, retirement,
deferred compensation, employment, termination, severance or other plan,
agreement, trust, fund, policy or arrangement providing for any benefit to any
director, officer or employee (whether or not legally binding) other than in
connection with the employment of any employees in the Company's ordinary course
of business;
(k) incur any indebtedness for borrowed money, assume,
guarantee, endorse or otherwise as an accommodation become responsible for the
obligations of any other individual, corporation or other entity except in the
ordinary course of business consistent with past practice of the Company;
(l) sell, lease, encumber, assign or otherwise dispose of, or
agree to sell, lease, encumber, assign or otherwise dispose of, any of its
material assets, properties or other rights or agreements;
(m) make any Tax election or settle or compromise any material
federal, state, local or foreign Tax liability;
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(n) pay, discharge or satisfy any claim, liability or
obligation, other than the payment, discharge or satisfaction in the ordinary
course of business and consistent with past practice or as incurred in
connection with the Merger and the transactions expressly contemplated hereby,
of liabilities reflected or reserved against in the balance sheet at December
31, 1999, or subsequently incurred in the ordinary course of business and
consistent with past practice;
(o) enter into or renew, amend or terminate, or give notice of
a proposed renewal, amendment or termination, or make any commitment with
respect to, regardless of whether consistent with past practices, any lease,
contract, agreement or commitment having a term of one year or more from the
time of execution or outside of the ordinary course of business consistent with
past practices other than computer leases in the amount not to exceed $20,000
individually or $100,000 in the aggregate;
(p) waive any material right, whether in equity or at
law; or
(q) agree to do any of the foregoing.
5.02 NO SOLICITATION; NON-DISCLOSURE.
(a) None of the Company, any of its Subsidiaries, the
Shareholders or any of their respective directors, officers, employees,
representatives, agents and advisors or other persons controlled by the Company
shall solicit or hold discussions or negotiations with, or assist or provide any
information to, any person, entity or group (other than Parent, Sub and their
affiliates and representatives) concerning (i) any merger, consolidation,
business combination, share exchange, or other similar transaction involving the
Company; (ii) any sale, lease, exchange, mortgage, pledge, license transfer or
other disposition of any shares of Company Common Stock or significant assets of
the Company; or (iii) except as permitted in Section 5.01, the issuance of any
new shares of capital stock of the Company or any options, warrants or other
rights to acquire shares of capital stock of the Company. The Company will
promptly communicate to Parent, Sub and their affiliates and representatives the
terms of any proposal, discussion, negotiation or inquiry relating to a merger
or disposition of a significant portion of its capital stock or assets or
similar transaction involving the Company and the identity of the party making
such proposal or inquiry, which it may receive with respect to any such
transaction.
(b) No party (or its representatives, agents, counsel,
accountants or investment bankers) hereto shall disclose to any third party,
other than either party's representatives, agents, counsel, accountants or
investment bankers any confidential or proprietary information about the
business, assets or operations of the other parties to this Agreement or the
transactions contemplated hereby, except as may be required by applicable law.
The parties hereto agree that the remedy at law for any breach of the
requirements of this subsection will be inadequate and that any breach would
cause such immediate and permanent damage as would be impossible to ascertain,
and, therefore, the parties hereto agree and consent that in the event of any
breach of this subsection, in addition to any and all other legal and equitable
remedies available for such breach,
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including a recovery of damages, the non-breaching parties shall be entitled to
obtain preliminary or permanent injunctive relief without the necessity of
proving actual damage by reason of such breach and, to the extent permissible
under applicable law, a temporary restraining order may be granted immediately
on commencement of such action.
5.03 EMPLOYEE RETENTION. The Company and the Shareholders agree to
immediately notify Parent if they have any knowledge of the intention of an
employee of the Company to terminate his employment with the Company. In
addition, the Company and the Shareholders agree that from the date of this
Agreement and continuing to the Effective Time, they shall not take any action
or fail to take any action that will result in the termination of an employee of
the Company without first consulting with Parent and providing Parent with an
opportunity to provide advice with respect to any such action or inaction.
5.04 COVENANTS OF PARENT AND SUB. During the period from the date of
this Agreement and continuing until the Effective Time, Parent shall notify the
Shareholders' Representative prior to its taking of any of the following
actions:
(a) declare or pay any dividends on, or make other
distributions in respect of, any of its capital stock;
(b) (i) split, combine or reclassify any shares of its capital
stock; or issue or authorize or propose the issuance of any other securities in
respect of, in lieu of, or in substitution for shares of its capital stock
except upon the exercise or fulfillment of rights or options issued or existing
pursuant to employee benefit plans, programs or arrangements, all to the extent
outstanding and in existence on the date of this Agreement, or (ii) repurchase,
redeem or otherwise acquire, any shares of the capital stock of Parent or its
Subsidiaries, or any securities convertible into or exercisable for any shares
of the capital stock of Parent or its Subsidiaries;
(c) issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its capital stock or any securities
convertible into or exercisable for, or any rights, warrants or options to
acquire, any such shares, or enter into any agreement with respect to any of the
foregoing except permitted pursuant to its employee benefit plans;
(d) amend its Certificate or Articles of Incorporation or
Bylaws;
(e) enter into any new line of business;
(f) (i) acquire or agree to acquire, by merging or
consolidating with, or by purchasing a substantial equity interest in or a
substantial portion of the assets of or by any other manner, any business or any
corporation, partnership, association or other business organization or division
thereof or (ii) otherwise acquire any assets, other than in the ordinary course
of business, which would, in either case, be material to Parent and its
Subsidiaries, taken as a whole;
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(g) without limiting the Company's and the Shareholders'
rights under Article VIII hereof, take any action that is intended or would
result in any of its representations and warranties set forth in this Agreement
being or becoming untrue, or in any of the conditions to the Merger set forth in
Article VII not being satisfied, or in breach of any provision of this Agreement
except, in every case, as may be required by applicable law;
(h) change its methods of accounting in effect at December 31,
1998, except as required by changes in GAAP or regulatory accounting principles
as concurred to by Parent and its Subsidiaries's independent auditors;
(i) incur any indebtedness for borrowed money, assume,
guarantee, endorse or otherwise as an accommodation become responsible for the
obligations of any other individual, corporation or other entity except in the
ordinary course of business consistent with past practice of Parent and its
Subsidiaries and except for indebtedness in an amount less than $100,000;
(j) sell, lease, encumber, assign or otherwise dispose of, or
agree to sell, lease, encumber, assign or otherwise dispose of, any of its
material assets or properties;
(k) make any Tax election or settle or compromise any material
federal, state, local or foreign Tax liability; or
(l) pay, discharge or satisfy any claim, liability or
obligation, other than the payment, discharge or satisfaction in the ordinary
course of business and consistent with past practice or as incurred in
connection with the Merger and the transactions expressly contemplated hereby,
of liabilities reflected or reserved against in the balance sheet at September
30, 1999, or subsequently incurred in the ordinary course of business and
consistent with past practice and other than the obligations in connection with
the acquisition of LoreData, Inc.
5.05 ALL NECESSARY ACTION. Each of the parties hereto shall use its
best efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper or advisable to consummate the transaction
contemplated hereby as soon as practicable. No party shall intentionally perform
any act which, if performed, or omit to perform any act which, if omitted to be
performed, would prevent or excuse the performance of this Agreement by any
party hereto or which would result in any representation or warranty herein
contained of such party being untrue in any material respect as if originally
made on and as of the Closing Date.
5.06 NOTIFICATION. Each party shall promptly give the other party
written notice of the existence or occurrence of any condition which would make
any representation or warranty herein contained of either party untrue or which
might reasonable to expected to prevent the consummation of the transactions
contemplated hereby.
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ARTICLE VI
ADDITIONAL AGREEMENTS
6.01 REGULATORY MATTERS. The parties hereto shall cooperate with each
other and use all reasonable efforts promptly to prepare and file all necessary
documentation, to effect all applications, notices, petitions and filings, and
to obtain as promptly as practicable all permits, consents, approvals and
authorizations of all third parties and Governmental Entities which are
necessary or advisable to consummate the transactions contemplated by this
Agreement (including without limitation the Merger). The Company and Parent
shall have the right to review in advance, and to the extent practicable each
will consult with the other on, in each case subject to applicable laws relating
to the exchange of information, all the information relating to the Company,
Parent or Sub, as the case may be, which appear in any filing made with or
written materials submitted to, any third party or any Governmental Entity in
connection with the transactions contemplated by this Agreement. In exercising
the foregoing right, each of the parties hereto shall act reasonably and as
promptly as practicable. The parties hereto agree that they will consult with
each other with respect to the obtaining of all permits, consents, approvals and
authorizations of all third parties and Governmental Entities necessary or
advisable to consummate the transactions contemplated by this Agreement and each
party will keep the other apprised of the status of matters relating to
completion of the transactions contemplated herein. Parent (or Sub as the case
may be) and the Company shall promptly furnish each other with copies of written
communications received by Parent, Sub or the Company, as the case may be, from
or delivered by any of the foregoing to, any Governmental Entity in respect of
the transactions contemplated hereby.
6.02 SECURITIES LAWS MATTERS.
(a) During the two-year period following the Closing Date,
Parent shall use its reasonable best efforts to make current public information
available in accordance with Rule 144(c) under the Securities Act.
(b) On the Closing Date, Parent shall execute and deliver to
the Shareholders of the Company a Registration Rights Agreement in the form
attached hereto as Exhibit E (the "Registration Rights Agreement").
6.03 SHAREHOLDER APPROVAL.
(a) Parent will (i) call a meeting of its shareholders (the
"Meeting") for the purpose of voting upon adoption and authorization of the
Merger and approve the issuance of the Parent Common Stock and, if necessary, to
approve an amendment to the Parent Stock Option Plan to increase the number of
shares of Parent Common Stock reserved for issuance upon exercise of stock
options granted thereunder to the Shareholders of the Company (collectively, the
"Matters"), (ii) hold the Meeting as soon as practicable following the date of
this Agreement, (iii) recommend to its shareholders the approval of each of the
Matters through its Board of Directors, and (iv) use its best
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efforts to obtain the necessary adoption and authorization of this Agreement by
the shareholders of Parent.
(b) Parent will (i) as soon as practicable following the date
of this Agreement, prepare in correct and appropriate form and file with the SEC
a preliminary Proxy Statement and (ii) use its reasonable best efforts to
respond to any comments of the SEC or its staff and to cause the Proxy Statement
to be cleared by the SEC. The Company and the Shareholders shall supply to
Parent on a timely basis in connection with the preparation of the Proxy
Statement all financial and other information necessary to be included therein
with respect to the Company and the Shareholders. Parent will notify the Company
of the receipt of any comments from the SEC or its staff and of any request by
the SEC or its staff for amendments or supplements to the Proxy Statement or for
additional information and will supply the Company with copies of all
correspondence between Parent or any of its representatives, on the one hand,
and the SEC or its staff, on the other hand, with respect to the Proxy
Statement. Parent shall give the Company and its counsel the opportunity to
review the Proxy Statement prior to being filed with the SEC and shall give the
Company and its counsel the opportunity to review all amendments and supplements
to the Proxy Statement and all responses to requests for additional information
and replies to comments prior to their being filed with, or sent to, the SEC.
Each of Parent and the Company agrees to use its reasonable best efforts, after
consultation with the other parties hereto, to respond promptly to all such
comments of and requests by the SEC. As promptly as practicable after the Proxy
Statement has been cleared by the SEC, Parent shall mail the Proxy Statement to
the stockholders of Parent.
(c) Each party agrees to notify the other of, and to correct,
any information contained in the Proxy Statement furnished by such party to the
other for inclusion therein, which information shall be, at the time of
furnishing, or become, prior to the Meeting, false or misleading in any material
respect. If at any time prior to the Meeting or any adjournment thereof there
shall occur any event that should be set forth in an amendment to Proxy
Statement, Parent will prepare and mail to its stockholders such an amendment or
supplement.
(d) During the period from the date of this Agreement to the
date of Closing, Parent will file all reports, schedules and definitive proxy
statements (including the Proxy Statement) (the "Parent Filings") required to be
filed by Parent with the SEC and will provide copies thereof to the Company
promptly upon the filing thereof.
(e) Each Shareholder acknowledges and agrees that by signing
this Agreement, he has voted all of his shares of Company Common Stock in favor
of the approval of this Agreement, the Merger and all aspects of the
transactions contemplated hereby, that such approval is irrevocable and cannot
be rescinded and that each such Shareholder irrevocably agrees that he shall
vote or cause to be voted (in person or by proxy) all of his shares of Company
Common Stock at each meeting in which such matters are considered and subject to
a vote in favor of any such other matters that come before the Meeting
concerning the Agreement, the Merger and the transactions contemplated thereby.
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6.04 ACCESS TO INFORMATION. The Company shall afford to Parent, and
shall cause its independent accountants to afford to Parent and Parent's
accountants, counsel and other representatives, reasonable access during normal
business hours during the period prior to the Closing to all of the Company's
assets, properties, books, Company Contracts and records. The Company shall
permit Parent and its representatives to make abstracts from and copies of such
books and records. During such period, the Company shall use its reasonable best
efforts to furnish promptly to Parent all other information concerning the
business, properties and personnel of the Company as Parent may reasonably
request. Following the Closing, Parent and the Surviving Corporation shall
provide access to the Surviving Corporation books and records for reasonable
business purposes including, without limitation, the preparation of the
Company's final Tax returns and the Shareholders' Tax returns.
6.05 LEGAL CONDITIONS TO MERGER. Each of Parent, Sub and the Company
shall use all reasonable efforts (a) to take, or cause to be taken, all actions
necessary, proper or advisable to comply promptly with all legal requirements
which may be imposed on such party with respect to the Merger and, subject to
the conditions set forth in Article VII hereof, to consummate the transactions
contemplated by this Agreement and (b) to obtain (and to cooperate with the
other party to obtain) any consent, authorization, order or approval of or any
exemption by, any Governmental Entity and any other third party which is
required to be obtained by Parent, Sub or the Company in connection with the
Merger and the other transactions contemplated by this Agreement.
6.06 ADDITIONAL AGREEMENTS. If at any time after the Effective Time any
further action is necessary or desirable to carry out the purpose of this
Agreement or to vest the Surviving Corporation with full title to all
properties, assets, rights, approvals, immunities and franchises of any of the
parties to the Merger, the proper officers and directors of each party to this
Agreement shall take all such necessary action as may be reasonably requested by
the Company or Parent (without additional cost to them).
6.07 DISCLOSURE SUPPLEMENTS. Prior to the Effective Time, each party
will supplement or amend the Schedules hereto delivered in connection with the
execution of this Agreement to reflect any matter which, if existing, occurring
or known at the date of this Agreement, would have been required to be set forth
or described in such Schedules or which is necessary to correct any information
in such Schedules which has been rendered inaccurate thereby. No supplement or
amendment to such Schedules shall have any effect for the purposes of
determining satisfaction of the conditions set forth in Sections 7.02(a) hereof
or the compliance by the Company with the covenants set forth in Section 5.01
hereof (unless Parent consents in writing to such satisfaction of conditions or
compliance or elects to waive such matter by closing the transactions
contemplated hereby) or for the purposes of determining satisfaction of the
conditions set forth in Sections 7.03(a) hereof (unless the Company consents to
such satisfaction of conditions or elects to waive such matter by closing the
transactions contemplated hereby).
6.08 NO INCONSISTENT ACTIONS. Prior to the Effective Time, except as
otherwise permitted by this Agreement, no party will enter into any transaction
or make any
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agreement or commitment and will use reasonable efforts not to permit any event
to occur, which could reasonably be anticipated to result in (x) a denial of the
regulatory approvals referred to in Section 7.01(a) or (y) the imposition of any
condition or requirement that would materially adversely affect the economic or
business benefits to the Surviving Corporation of the transactions contemplated
by this Agreement.
6.09 TAX MATTERS. The parties shall not, before or after the Effective
Time, purposefully take any action or fail to take any action that would
prevent, or would be reasonably likely to prevent, the Merger from qualifying as
a reorganization and having each of the parties hereto from being parties to
such reorganization within the meaning of Section 368 of the Code.
6.10 NONCOMPETITION AGREEMENTS; EMPLOYMENT AGREEMENTS. On the Closing
Date, Parent shall enter into a Noncompetition Agreement with each Shareholder
in the form attached as Exhibit C-1 and Parent shall enter into an Employment
Agreement with each of Sam Fatigato and Matthew Clark in the form attached as
Exhibit C-2 hereto.
6.11 COMPANY SHAREHOLDER REPRESENTATION LETTERS. On the Closing Date,
each Shareholder shall execute and deliver to Parent the Representation Letters
in the form attached hereto as Exhibit F (the "Representation Letters").
6.12 STOCK OPTIONS; EMPLOYEE BENEFITS. (a) At the Effective Time, the
Parent shall assume the Compete, Inc. Employees' Stock Option Plan (the "Company
Stock Option Plan") and, subject to the adjustments provided below with respect
to the Company Accelerated Options, the Parent shall assume all outstanding
options granted pursuant to the Company Stock Option Plan and each such assumed
option shall become and represent an option (an "Adjusted Option") (i) to
purchase the number of shares of Parent Common Stock determined by multiplying
(A) the number of shares of Parent Common Stock to be issued upon conversion of
one share of Company Common Stock pursuant to Section 1.05(a) of this Agreement
(assuming the use of the Cash Per Share Price and the Note Per Share Price to
purchase Parent Common Stock (valued at the Effective Time calculated in the
manner described in Section 1.05(d)) by (B) the number of shares of Company
Common Stock subject to such assumed option immediately prior to the Effective
Time and (ii) at an exercise price per share of Parent Company Stock determined
by dividing (X) the aggregate exercise price for the shares of Company Common
Stock subject to such assumed option immediately prior to the Effective Time by
(Y) the number of shares of Parent Common Stock subject to such Adjusted Option
at the Effective Time and rounding the resulting quotient down to the nearest
whole cent; provided, however, that the adjustments with respect to any such
assumed option that is an "incentive stock option" (as defined in Section 422 of
the Code) shall be effected in a manner consistent with the requirements of
Section 424(a) of the Code. Each Adjusted Option shall continue to be governed
by the Company Stock Option Plan and shall continue to be evidenced by the stock
option agreement evidencing the grant of the predecessor assumed option and the
Company Stock Option Plan and each such
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agreement shall be deemed amended to reflect the assumption of that plan by the
Parent, the substitution of Parent Common Stock for Company Common Stock, and
the revised exercise price determined pursuant to this Section 6.12.
Notwithstanding anything herein to the contrary, the Parent shall not be
obligated hereunder to assume the Company Stock Option Plan to the extent that
there are options outstanding to purchase more than 448,349 shares of Company
Common Stock immediately prior to the Closing Date subject to increase by
agreement between Parent and the Company in addition to the Company Accelerated
Options.
(b) At the Effective Time, the Parent shall, subject to the
adjustments provided below with respect to the Company Accelerated Options,
assume the non-qualified stock option granted to Courtney Spooner of Company
Common Stock pursuant to that certain Agreement dated March 9, 1998, by and
between the Company and Courtney Spooner (the "Spooner Option") and subject to
Section 6.12(c) the Spooner Option shall become and represent an option to
purchase a number of shares of Parent Common Stock at a per share exercise price
determined in the same manner as determined with respect to an Adjusted Option
pursuant to Section 6.12(a).
(c) Each of the incentive stock options granted on December
15, 1999, pursuant to the Company Stock Option Plan, to Andrew Sweet, John
Jenkins, and to Matthew Clark of Company Common Stock and the Spooner Option
each of which is further described in Schedule 3.2 of the Disclosure Schedule
(each a "Company Accelerated Option") shall be assumed by Parent and adjusted
pursuant to Sections 6.12(a) and (b) but only with respect to a number of shares
of Company Common Stock determined by multiplying (i) the number of shares of
Company Common Stock subject to that option immediately prior to the Effective
Time (the "Pre-Adjusted Acceleration Option Number") by (ii) a fraction, the
numerator of which is equal to the Stock Per Share Price (converted to a dollar
amount based on the value of a share of Parent Common Stock at the Effective
Time) and the denominator of which is equal to the sum of the Cash Per Share
Price, the Note Per Share Price, and the Stock Per Share Price (converted to a
dollar amount based on the value of a share of Parent Common Stock at the
Effective Time) and rounding the resulting product up the nearest whole share.
Each Company Accelerated Option shall, to the extent assumed by Parent, be fully
exercisable on and after the Effective Time; provided, however, that, if at the
time of such exercise the escrow described in Section 1.06 hereof is still in
place, such portion of the Parent Common Stock issued upon such exercise shall
be deposited into escrow and be subject to the escrow terms as if that Company
Accelerated Option had been exercised to the same extent prior to the Effective
Time and, provided further, that should any of the events set forth in Section
2.02 (a), (d) or (e) or 2.03 or Article IX hereof occur, the holder of the
Company Accelerated Option agrees to an immediate and automatic reduction in the
number of shares that may be purchased upon exercise of the option equal to the
amount that they would have had if all holders of the Company Accelerated
Options exercised such Options and become a Common Stock Holder immediately
prior to such event. For purposes of the conversion adjustments under Sections
6.12(a) and (b), the number of shares of Company Common Stock subject to each
Company Accelerated Option immediately prior to the Effective Time shall be
deemed to be the
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number of shares of Company Common Stock for which that option is assumed by
Parent, as determined by this Section 6.12(c). Notwithstanding anything herein
to the contrary, the number of shares of Parent Common Stock issuable to the
Shareholders and issuable upon exercise of the Company Accelerated Options shall
not exceed an aggregate of 2,200,000 which number shall be subject to equitable
adjustment in the event of stock splits, stock dividends or other
recapitalization to the Parent Common Stock.
(d) The portion of each Company Accelerated Option that is not
assumed by the Parent pursuant to Section 6.12(c) shall lapse and cease to be
outstanding as of the Effective Time.
(e) Each holder of a Company Accelerated Option shall be paid
by the Parent such Holder's pro rata share of the Cash Price at the same time
and in the same manner as a Shareholder (i) an amount in cash determined by
multiplying the (A) Cash Per Share Price by (B) the Pre-Adjusted Accelerated
Option Number and then reducing the resulting product by the aggregate exercise
price for the shares of Company Common Stock attributable to a portion of the
Company Accelerated Option that is not assumed by the Parent pursuant to Section
6.12(c); and (ii) such Holders' pro rata share of the Note Price, by issuing a
Note in the principal amount determined by multiplying the (X) Note Per Share
Price by (Y) the Pre-Adjusted Accelerated Option Number.
(f) Subject to the approval of the shareholders of Parent if
such approval is required, Parent shall (i) reserve for issuance the number of
shares of Parent Common Stock that will become subject to the Company Stock
Option Plan (as assumed) and (ii) issue or cause to be issued the appropriate
number of shares of Parent Common Stock pursuant to the Company Stock Option
Plan (as assumed) or maturation of rights existing thereunder on the Effective
Time or thereafter granted or awarded. As soon as practicable after the
Effective Time, Parent shall prepare and file with the Commission a registration
statement on Form S-8 (or other appropriate form) registering a number of shares
of Parent Common Stock necessary to fulfill Parent's obligations with respect to
issuance of such shares under this Section 6.12. Such registration statement
shall be kept effective and the current status of the prospectus required
thereby shall be maintained for at least as long as any Adjusted Option or the
Spooner Option remain outstanding.
(g) Between the time of the execution of this Agreement and
the Closing Date, the Parent may, at its option, solicit all holders of options
to agree to the conversion and merger of the Company Stock Option Plan into its
Stock Option Plan. As soon as practicable after the Effective Time, Parent shall
deliver to the holders of Company Adjusted Options and the Spooner Option
appropriate notices setting forth such holders' rights pursuant to the Company
Stock Option Plan (as assumed).
(h) Until the first anniversary of the Closing Date, Parent
shall take no action with respect to the Parent Stock Option Plan that would (i)
accelerate or otherwise effect the exercisability or vesting of the Adjusted
Options without the written consent of the Shareholders' Representative, which
may be withheld for any reason or no reason and
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only to the extent permitted under the Company Stock Option Plan (as assumed),
or (ii) adversely affect the rights of the Holders of the Adjusted Options.
(i) Schedule 6.12(i) sets forth a complete list of the
retirement, health, welfare and other employee benefits that are currently
provided to Parent's employees. Until the first anniversary of the Closing Date,
Parent shall use its best efforts to provide the Company's employees with
retirement, health, welfare and other employee benefits that are substantially
equivalent to those described in Schedule 6.12(i), or, at the option of Parent,
continue the Company's current benefit plans; provided, however, that except as
otherwise provided in this Agreement, nothing in this Section 6.12 shall confer
upon Parent any obligation to continue the employment of any of the Company's
employees.
6.13 SUBCHAPTER S DISTRIBUTION. Prior to the Closing, the Company shall
make a distribution to the Common Stock Holders in the aggregate amount not to
exceed $100,000 to cover the income tax liability to the Common Stock Holders
attributable to the operations of the business of the Company (but not relating
to any salary of the Common Stock Holder) for the fiscal year ended December 31,
1999 and the period from January 1, 2000 to the Closing Date (subject to the
delivery to the Parent prior to the Closing of a Tax Calculation as defined in
Section 7.02(n)) less amounts previously distributed on account thereof).
6.14 PUBLICITY. The parties acknowledge that Parent, as a publicly held
company, is subject to certain disclosure requirements under federal securities
laws. Accordingly, the Company and the Shareholders agree that, except as
otherwise required by law, they (a) will make no public comment concerning or
announcement regarding the Merger; and (b) will notify Parent of any external
rumor of the Merger received by the Company. Notwithstanding the foregoing,
Parent reserves the right to disclosure the Merger, including financial
information regarding the Company and the status of negotiations, at any time it
decides that such disclosure is appropriate under the securities laws or the
rules of any stock exchange, provided, however, that Parent shall provide the
Company and its counsel a reasonable time to review and comment upon such
disclosure.
Except as otherwise required by law or the rules of The Nasdaq SmallCap
Market System or the Boston Stock Exchange, Inc. and notwithstanding anything in
this Agreement to the contrary, so long as this Agreement is in effect, none of
Parent, Sub, the Shareholders or the Company shall, or shall permit any of their
Subsidiaries, if applicable, to issue or cause the publication of any press
release or other public announcement with respect to, or otherwise make any
public statement concerning, the transactions contemplated by this Agreement
without the consent of the other party.
6.15 LOCK-UP. Each Shareholder covenants and agrees that in the event
of a private or public offering of Parent Common Stock following the Closing,
such Shareholder shall be subject to the same restrictions on transferability or
lock-up of shares of Parent Common Stock as the underwriter of any such offering
or any executive officer of Parent shall require of the executive officers of
Parent. In addition, each Shareholder agrees that for a period beginning on the
Closing Date and ending one (1) year therefrom, he will not, directly or
indirectly, (a) sell, offer to sell, contract to sell,
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grant any option to sell, any shares of Parent Common Stock received hereunder
or securities convertible into or exchangeable for shares of Parent Common
Stock; (b) propose, or publicly disclose an intent to propose, any of the
foregoing; or (c) assist or advise any other persons or entities in connection
with the foregoing. Notwithstanding the above, this prohibition shall not apply
to (i) sales by the estate of any Shareholder upon the death of a Shareholder
but only to the extent of estate tax liability related to the transfer of the
shares upon the death of the Shareholder, and (ii) sales upon the exercise of
piggy-back registration rights, if and only if, current shareholders of Parent
other than John Gillespie, who are officers of directors of Parent, participate
in any such public offering, subject to the restrictions included in the
Registration Rights Agreement.
6.16 COMPLETION OF AUDIT. The Shareholders covenant and agree to use
reasonable efforts to cause the independent auditors of the Company to complete
their audit of the business, financial condition and results of operations of
the Company for fiscal years ending December 31, 1998 and December 31, 1999 as
soon as possible, but in no event later than March 31, 2000.
6.17 LETTER AGREEMENT. Each Shareholder covenants and agrees to execute
the Letter Agreement in the form attached as Exhibit G-1 hereto (the "Letter
Agreement").
6.18 PARENT'S SHAREHOLDER CONSENT. Parent acknowledges that it has
delivered to the Company an executed copy of the irrevocable agreement of
certain of Parent's shareholders to (i) approve the Merger, the issuance of
Parent Common Stock and the other transactions set forth in this agreement as
set forth on Exhibit G-2 hereto ("Parent's Shareholder Consent"). Parent
represents and warrants that each person signing Parent's Shareholder Consent
has full power and authority, if an entity, and full power and capacity, if an
individual, to execute and deliver Parent's Shareholder Consent and that such
Parent's Shareholder Consent has been duly and validly executed and delivered
constitutes a valid and binding obligation of the parties executing Parent's
Shareholder Consent.
6.19 RELEASES. Prior to the Closing, the Shareholders shall have
received releases from (i) those lessors and lenders set forth on Schedule 6.19
hereto and (ii) from the Company.
6.20 INDEMNIFICATION.
(a) From and after the Effective Time, the Surviving
Corporation shall provide exculpation and indemnification for each person who is
now or who becomes prior to the Effective Time, an officer, employee or director
of the Company (the "Company Indemnified Parties") which is the same as the
exculpation and indemnification provided to the Company Indemnified Parties by
the Company immediately prior to the Effective Time in their respective articles
of incorporation and bylaws or other organizational documents, as in effect on
the date hereof; provided, that such exculpation and indemnification covers
actions not to exceed six (6) years prior to
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the Effective Time, including all transactions contemplated by this Agreement
and such obligation shall only continue for a period of six (6) years from the
Effective Time.
(b) In addition, for a period of six (6) years from the
Effective Time, to the rights provided in Section 6.20(a) above, in the event of
any threatened or actual claim, action, suit, proceeding or investigation,
whether civil, criminal or administrative, including without limitation, any
action by or on behalf of any or all Shareholders of Parent, or any Subsidiary
of Parent, or by or in the right of the Company, Parent or the Surviving
Corporation, or any Subsidiary of any of them, or any claim, action, suit,
proceeding or investigation (collectively, "Section 6.20 Claims") in which any
Company Indemnified Party is, or is threatened to be, made a party based in
whole or in part on, or arising in whole or in part out of, or pertaining to (i)
the fact that he is or was an officer, employee or director of the Company or
any action or omission or alleged action or omission by such Person in his
capacity as an officer, employee or director, or (ii) this Agreement or the
transactions contemplated by this Agreement, whether in any case asserted or
arising before or after the Effective Time, Parent and the Surviving Corporation
(the "Company Indemnifying Parties") shall from and after the Effective Time
jointly and severally indemnify and hold harmless the Company Indemnified
Parties from and against any losses, claims, liabilities, expenses (including
reasonable attorneys' fees and expenses), judgments, fines or amounts paid in
settlement arising out of or relating to any such Section 6.20 Claims. Parent,
the Surviving Corporation and the Company Indemnified Parties hereby agree to
use their reasonable best efforts to cooperate in the defense of such Section
6.20 Claims. In connection with any such Section 6.20 Claim, the Company
Indemnified Parties shall have the right to select and retain one counsel, at
the cost of the Company Indemnifying Parties, subject to the consent of the
Company Indemnifying Parties (which consent shall not be unreasonably withheld
or delayed). In addition, after the Effective Time, in the event of any such
threatened or actual Section 6.20 Claim, the Company Indemnifying Parties shall
promptly pay and advance reasonable expenses and costs incurred by each
Indemnified Person as they become due and payable in advance of the final
disposition of the Section 6.20 Claim to the fullest extent and in the manner
permitted by law. Notwithstanding the foregoing, the Company Indemnifying
Parties shall not be obligated to advance any expenses or costs prior to receipt
of an undertaking by or on behalf of the Company Indemnified Party, such
undertaking to be accepted without regard to the creditworthiness of the Company
Indemnified Party, to repay any expenses advanced if it shall ultimately be
determined that the Company Indemnified Party is not entitled to be indemnified
against such expense. Notwithstanding anything to the contrary set forth in this
Agreement, the Company Indemnifying Parties (i) shall not be liable for any
settlement effected without their prior written consent (which consent shall not
be unreasonably withheld or delayed), and (ii) shall not have any obligation
hereunder to any Company Indemnified Party to the extent that a court of
competent jurisdiction shall determine in a final and non-appealable order that
such indemnification is prohibited by applicable law. In the event of a final
and non-appealable determination by a court that any payment of expenses is
prohibited by applicable law, the Company Indemnified Party shall promptly
refund to the Company Indemnifying Parties the amount of all such expenses
theretofore advanced pursuant hereto. Any Company Indemnified Party wishing to
claim indemnification under this Section 6.20, upon learning of any such
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Section 6.20 Claim, shall promptly notify the Company Indemnifying Parties of
such Section 6.20 Claim and the relevant facts and circumstances with respect
thereto; provided however, that the failure to provide such notice shall not
affect the obligations of the Company Indemnifying Parties except to the extent
such failure to notify materially prejudices the Company Indemnifying Parties'
ability to defend such Section 6.20 Claim; and provided, further, however, that
no Company Indemnified Party shall be obligated to provide any notification
pursuant to this Section 6.20 prior to the Effective Time.
(c) At or prior to the Effective Time, Buyer shall provide
evidence of directors' and officers' liability insurance policy coverage naming
the Company, the Surviving Corporations and the Company's Subsidiary's directors
and officers as parties with at least $3,000,000 of coverage for a period of six
(6) years which will provide the directors and officers with coverage on
substantially similar terms as currently provided by Parent to its directors and
officers. At or prior to the Effective Time, Seller shall have the right to
reasonably review and approve any such policy, which approval shall not be
unreasonably withheld.
(d) This Section 6.20 is intended for the irrevocable benefit
of, and to grant third-party rights to, the Company Indemnified Parties and
their successors, assigns and heirs and shall be binding on all successors and
assigns of Parent and Buyer, including the Surviving Corporation. Each of the
Company Indemnified Parties shall be entitled to enforce the covenants contained
in this Section 6.20 and Parent and the Surviving Corporation acknowledge and
agree that each Company Indemnified Party would suffer irreparable harm and that
no adequate remedy at law exists for a breach of such covenants and such Company
Indemnified Party shall be entitled to injunctive relief and specific
performance in the event of any breach of any provision in this Section 6.20.
(e) In the event that the Surviving Corporation or any of its
respective successors or assigns (i) consolidates with or merges into any other
Person and shall not be the continuing or surviving corporation or entity of
such consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any Person, then, and in each such case, the successors
and assigns of such entity shall assume the obligations set forth in this
Section 6.20, which obligations are expressly intended to be for the irrevocable
benefit of, and shall be enforceable by, each director and officer covered
hereby.
ARTICLE VII
CONDITIONS PRECEDENT
7.01 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction at or prior to the Closing of the following conditions:
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(a) REGULATORY APPROVALS. All necessary approvals,
authorizations and consents of all Governmental Entities required to consummate
the transactions contemplated hereby shall have been obtained and shall remain
in full force and effect and all statutory waiting periods in respect thereof
shall have expired or been terminated (all such approvals and the expiration of
all such waiting periods being referred to herein as the "Requisite Regulatory
Approvals").
(b) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No order,
injunction or decree issued by any court or agency of competent jurisdiction or
other legal restraint or prohibition (an "Injunction") preventing the
consummation of the Merger or any of the other transactions contemplated by this
Agreement shall be in effect and no proceeding initiated by any Governmental
Entity seeking an injunction shall be pending. No statute, rule, regulation,
order, injunction or decree shall have been enacted, entered, promulgated or
enforced by any Governmental Entity which prohibits, restricts or makes illegal
consummation of the Merger, or any of the other transactions contemplated by
this Agreement.
7.02 CONDITIONS TO OBLIGATIONS OF PARENT AND SUB. The obligation of
Parent and Sub to effect the Merger is also subject to the satisfaction or
waiver by Parent or Sub, at or prior to the Effective Time, of the following
conditions:
(a) SHAREHOLDER APPROVAL. This Agreement and the transactions
contemplated hereby shall have been approved and adopted by the shareholders of
Parent.
(b) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company and the Shareholders set forth in this Agreement shall
be true and correct in all material respects as of the date of this Agreement
and (except to the extent such representations and warranties speak as of an
earlier date) as of the Closing Date as though made on and as of the Closing
Date. Parent shall receive at Closing a certificate signed on behalf of the
Company by an authorized officer to the foregoing effect.
(c) PERFORMANCE OF OBLIGATIONS OF THE COMPANY AND THE
SHAREHOLDERS. The Company and the Shareholders shall have performed all
obligations required to be performed by it under this Agreement at or prior to
the Closing Date, and Parent shall receive at Closing a certificate signed on
behalf of the Company by an authorized officer to such effect.
(d) CONSENTS UNDER AGREEMENTS. The consent, approval, waiver
or amendment of each person (other than the Governmental Entities referred to in
Section 7.01(a)) set forth on Schedule 3.03 and Schedule 3.04 hereto shall have
been obtained and shall be reasonably satisfactory to Parent.
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(e) LIST OF EMPLOYEES. The Company shall have delivered to
Parent a list of employees who will become employees of Parent or the surviving
corporation immediately following the Closing.
(f) STOCK OPTION LIST. The Company shall have delivered to
Parent a list containing the holders of Company Non-Accelerated Options together
with the number of such options.
(g) FIRPTA. The Company shall have delivered to Parent and Sub
an affidavit, dated as of the Effective Date, pursuant to Sections 897 and 1445
of the Code in substantially the form set forth in Exhibit H hereto.
(h) DISSENTERS' RIGHTS. The Common Stock Holders of the
Company shall not have any right to exercise dissenters', appraisal or similar
rights under the IBCA by virtue of the Merger.
(i) OPINION OF COUNSEL FOR COMPANY AND THE SHAREHOLDERS. The
Parent and Sub shall have received an Opinion of Counsel of the Company and the
Shareholders in form and substance reasonably acceptable to the parties.
(j) AUTHORIZATION TO CONDUCT BUSINESS. The Company shall have
been licensed, qualified or authorized to conduct business in all jurisdictions
in which the nature of the business conducted by it or the character or location
of the properties and assets owned or leased by it makes such licensing or
qualification necessary and shall have satisfied and paid all expenses, taxes,
assessments, fines, penalties and other payments to such jurisdictions in
connection therewith.
(k) TERMINATION OF STOCKHOLDERS' AGREEMENT. The Company and
the Common Stock Holders shall have entered into a Termination Agreement
pursuant to which they shall affirmatively terminate the Shareholders' Agreement
dated July 5, 1995 and all amendments thereto.
(l) TERMINATION OR AMENDMENT OF WILSON AGREEMENT. The Company
and Sam Wilson ("Wilson") shall have terminated or amended the Employment Letter
Agreement dated as of September 10, 1999 to provide that Wilson shall receive
70% of any revenue in excess of $225,000 that is earned by the Company and
attributable to Wilson's efforts during the fiscal year ending December 31,
2000.
(m) ESCROW AGREEMENT. The Company, Parent, Sub, Shareholders
and the Escrow Agent shall each have executed and delivered the Escrow Agreement
in the form substantially as attached as Exhibit B subject to such revisions as
may be requested by the Escrow Agent and that are reasonably acceptable to the
parties.
(n) TAX CALCULATION. The Company shall have submitted to
Parent a calculation of income tax payable by the Common Stock Holders
attributable to their
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ownership of Company Common Stock in form and substance reasonably satisfactory
to Parent ("Tax Calculation").
7.03 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations of the
Company to effect the Merger is also subject to the satisfaction, or waiver by
the Company, at or prior to the Closing of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Parent and Sub set forth in this Agreement shall be true and
correct in all material respects as of the date of this Agreement and (except
with respect to the representation in Section 4.10 which shall be true as of the
date of the Agreement and except to the extent such representations and
warranties speak as of an earlier date) as of the Closing Date as though made on
and as of the Closing Date. The Company shall receive at Closing a certificate
signed on behalf of Parent and Sub by an authorized officer of each company to
the foregoing effect.
(b) PERFORMANCE OF OBLIGATIONS OF PARENT AND SUB. Parent and
Sub shall have each performed all obligations required to be performed by them
under this Agreement at or prior to the Closing Date, and the Company shall
receive at Closing a certificate signed on behalf of Parent and Sub by an
authorized officer of each company to such effect.
(c) PROMISSORY NOTES. Parent shall have executed and delivered
to each Shareholder a Note.
(d) OPINION OF COUNSEL FOR THE PARENT AND SUB. The Company
shall have received an opinion of counsel of Parent and Sub in form and
substance reasonably acceptable to the parties.
(e) PAYMENT OF NON-ESCROWED PORTION OF MERGER CONSIDERATION.
Parent shall have paid each Shareholder such Shareholder's pro rata portion of
the non-escrowed Merger Consideration.
(f) MENELL RESIGNATION. Parent shall have caused Bryan R.
Menell to resign from his position as a member of the Board of Directors of
Parent.
(g) SHAREHOLDER APPROVAL. This Agreement and the transactions
contemplated hereby shall have been approved and adopted by the shareholders of
the Company.
(h) BOARD OF DIRECTORS OF SUB AND PARENT. Either Sam Fatigato
or a nominee of the Shareholders shall be elected to the board of directors of
Sub and Parent.
(i) EMPLOYMENT AGREEMENTS. Parent shall have entered into
Employment Agreements with each of Sam Fatigato and Matthew Clark in the form
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attached as Exhibit C-2 hereto and shall have issued employment letters with the
persons and providing the salaries and titles set forth on Exhibit C-3 hereto.
(j) TAX FREE REORGANIZATION. The Company shall be reasonably
satisfied that the Merger will qualify as a reorganization within the meaning of
Section 368(a) of the Code and each of the parties to this Agreement shall be a
party to such reorganization and therefore, for federal income tax purposes, the
Shareholders shall recognize no income, gain or loss upon the Merger except to
the extent of any cash consideration actually received or deemed received.
(k) ESCROW AGREEMENT. The Company, Parent, Sub, Shareholders
and the Escrow Agent shall each have executed and delivered the Escrow Agreement
in the form substantially as attached as Exhibit B subject to such revisions as
may be requested by the Escrow Agent and that are reasonably acceptable to the
parties.
(l) TAX CALCULATION. The Company shall have submitted to
Parent the Tax Calculation in form and substance reasonably satisfactory to
Parent.
ARTICLE VIII
TERMINATION AND AMENDMENT
8.01 TERMINATION. This Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time:
(a) by mutual consent of Parent and the Company in a written
instrument, if the Board of Directors of each so determines by a vote of a
majority of the members of its entire Board;
(b) by either Parent or the Company (provided, however, that
the right to terminate this Agreement under this clause shall not be available
to any party whose failure to fulfill any of its obligations under this
Agreement has been the cause of or resulted in the failure of the Closing to
occur) if there shall have been a material breach of any of the representations,
warranties, covenants or agreements set forth in this Agreement on the part of
the other party; or
(c) by either Parent or the Company if the Closing shall not
have occurred by July 1, 2000, which date may be increased by an additional 30
days at the request of Parent, if the Closing is delayed solely because any
Requisite Regulatory Approval or approval by the shareholders of Parent has not
been obtained due to issues relating to information in the Proxy Statement
supplied by or regarding the Company (including its financial statements) and
Parent is diligently undertaking such efforts required to obtain the same.
8.02 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either Parent or the Company as provided in Section 8.01, each of
this Agreement and
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that letter agreement between Parent and the Company dated January 12, 2000
shall forthwith become void and have no effect except Section 5.02 shall survive
any termination of this Agreement, and there shall be no further obligation on
the part of Parent, Sub, the Company, or their respective officers or directors
or the Shareholders except for the obligations under such provisions.
Notwithstanding anything to the contrary contained in this Agreement, no party
shall be relieved or released from any liabilities or damages arising out of its
intentional breach of any provision of this Agreement. Notwithstanding the
foregoing sentence, should this Agreement be terminated by the Company pursuant
to Section 8.01(c) hereof solely because a meeting of shareholders was held and
the matters were not approved at the Meeting (and not by virtue of any other
default under this Agreement or failure by the Company to satisfy any other
representation, warranty, condition or covenant hereunder), the Parent shall pay
the Company, within two (2) business days of such termination, the amount equal
to the Company's Transaction Costs (subject to reasonable documentation).
8.03 EXPENSES. If the transactions contemplated by this Agreement do
not close, each party shall bear its own costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby,
regardless of whether or not the Merger is consummated.
8.04 AMENDMENT. Subject to compliance with applicable law, this
Agreement may be amended by the parties hereto, by action taken or authorized by
their respective Boards of Directors. Notwithstanding the foregoing,
non-material amendments to this Agreement may be made without the authorization
of the respective Boards of Directors of the parties hereto. This Agreement may
not be amended except by an instrument in writing signed on behalf of each of
the parties hereto.
8.05 EXTENSION; WAIVER. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Board of
Directors, may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party, but such
extension or waiver shall nor operate as a waiver of, or estoppel with respect
to, any subsequent or other failure.
ARTICLE IX
INDEMNIFICATION
9.01 AGREEMENT TO INDEMNIFY. Following the Closing and subject to the
limitations set forth herein,
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(a) the Company and each Shareholder, jointly and severally,
shall indemnify and agree to defend and hold harmless Parent and the Surviving
Corporation (and their respective affiliates, officers, directors, employees,
representatives and agents) ("Purchaser Indemnities" and, singularly, a
"Purchaser Indemnitee") against and in respect of any and all Damages, by reason
of or otherwise arising out of a breach by the Company of a representation,
warranty or covenant contained in this Agreement. "Damages" shall include,
reasonable attorneys' fees and disbursements, reasonable accountants' fees and
disbursements, costs of litigation and other expenses incurred by them (or their
respective affiliates, officers, directors or employees) in the defense of any
claim asserted against them (or their respective affiliates, officers, directors
or employees) and any amounts paid in settlement or compromise of any claim
asserted against them to the extent that the claim asserted is or would have
been subject to the indemnification provisions hereof, subject to the
limitations on indemnification set forth in Sections 9.02 and 9.03. "Damages"
shall not include any amount for which reimbursement is received by Parent, the
Surviving Corporation or the Company, as the case may be, pursuant to insurance
policies or third-party payments by virtue of indemnification or subrogation
received by such party which the Parent, the Company and the Surviving
Corporation shall use their best efforts to pursue.
(b) Parent shall indemnify and agrees to defend and hold
harmless the Shareholders (and their respective affiliates, representatives and
agents) against and in respect of any and all Damages by reason of or otherwise
arising out of a breach by Parent or Sub of a representation, warranty or
covenant contained in this Agreement.
9.02 SURVIVAL OF INDEMNITY. The indemnification obligations of each
indemnifying party pursuant to Section 9.01 shall survive the Closing for a
period of twelve (12) months, except for Damages arising out of a breach of any
of the representations or warranties in either Section 3.08 or Section 3.13,
which shall survive for three (3) years. Upon expiration of such periods, no
indemnifying party shall have any liability for Damages under such
indemnification obligations unless it has received written notice from an
indemnified party claiming indemnification prior to the expiration of the
applicable period as required.
9.03 ADDITIONAL PROVISIONS.
(a) LIMITATIONS ON INDEMNIFIED AMOUNTS OF THE COMPANY AND THE
SHAREHOLDERS. Except as otherwise provided herein, the Company and the
Shareholders shall not have any obligation to indemnify any parties under this
Article IX until the Company's and the Shareholders' aggregate indemnity
obligations shall exceed $250,000.00, whereupon such parties shall be entitled
to receive Damages from the first dollar; provided, however, that in no event
shall the Company's and the Shareholders' aggregate indemnity obligations exceed
the value of the Merger Consideration less the difference, if any, between the
value of the Parent Common Stock at Closing and the value of the Parent Common
Stock at the time a Claim is made. The liability of the Company and the
Shareholders collectively for indemnification under this Article IX by
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reason of or arising out of any breach by the Company or any Shareholder of any
covenant or of any representation or warranty shall not be modified, waived or
diminished by any examination or investigation conducted by Parent of the books,
records or operations of the Company.
(B) LIMITATIONS ON INDEMNIFIED AMOUNTS OF PARENT. Parent shall
have no obligation to indemnify the Company under this Article IX until the
indemnified parties' aggregate indemnity obligations shall exceed $250,000.00,
whereupon such parties shall be entitled to receive Damages from the first
dollar; provided, however, that in no event shall Parent's aggregate indemnity
obligations exceed the value of the Merger Consideration less the difference, if
any, between the value of the Parent Common Stock issued hereunder at Closing
and the value of the Parent Common Stock at the time a Claim is made. The
liability of Parent for indemnification under this Article IX by reason of or
arising out of any breach by Parent or Sub of any covenant or of any
representation or warranty shall not be modified, waived or diminished by any
examination or investigation conducted by the Company of the books, records or
operations of Parent and Sub. The Company and the Shareholders shall have no
obligations to indemnify the Purchaser Indemnities with respect to punitive
damages or to the extent that the matter in question was taken into account in
full in the computation of the Merger Consideration pursuant to Section 2.02 or
2.03.
(c) NO LIMITATION IN EVENT OF FRAUD. Notwithstanding any other
provision hereof, nothing in this Article IX (including the provisions of
paragraphs (a) and (b) of this Section 9.03) or otherwise shall limit, in any
manner, any remedy at law or equity, to which any party may be entitled as a
result of fraud by any indemnifying party or its employees, officers or
directors or a violation of the federal securities laws.
(d) EXCLUSIVITY OF REMEDY; SURVIVAL OF COVENANTS. Following
the Closing, except in respect of claims based upon fraud or violation of the
federal securities laws, the indemnification accorded by this Section shall be
the sole and exclusive remedy of the parties indemnified under this Article IX
in respect of any misrepresentation or inaccuracy in, or breach of, any
representation or warranty or any breach or failure in performance of any
covenant or agreement made in this Agreement or in any document or certificate
delivered pursuant hereto. Notwithstanding the foregoing, in the event of any
breach or failure in performance after the Closing of any covenant or agreement,
a non-breaching party shall also be entitled to seek specific performance,
injunctive or other equitable relief. The covenants of any party shall terminate
according to the terms of such covenant and the expiration of the applicable
statutes of limitations.
(e) SUBROGATION. Upon making any payment to an indemnified
party for any indemnification claim pursuant to this Article IX, an indemnifying
party shall be subrogated, to the extent of such payment, to any rights that the
indemnified party may have against any other persons with respect to the subject
matter underlying such indemnification claim and the indemnified party shall
take such actions as the indemnifying party may reasonably require to perfect
such subrogation or to pursue such rights against such other persons as the
indemnified party may have.
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(f) PARENT'S RIGHT OF SET-OFF. Upon written notice to the
Company or the Shareholders specifying in detail its good faith justification
therefor, for a period of one (1) year from the Closing Date, Parent may set off
the amount of any Damages for which the Company or the Shareholders are liable
under Section 9.01 against the Escrowed Consideration. Neither the exercise of
nor the failure to exercise such right of set-off shall constitute an election
of remedies nor limit Parent or Sub in any manner in the enforcement of any
other remedies that may be available to it. Notwithstanding the prior sentence,
the Shareholders may at its option through a notice by the Shareholders'
Representative to Parent within ten (10) days of the final determination of any
Damages, satisfy the payment of any Damages through the payment of cash in lieu
of Parent Common Stock.
9.04 THIRD PARTY CLAIM PROCEDURES.
(a) DEFINITIONS. The term "Indemnified Party" shall mean a
party (or its successor) who is entitled to indemnification from a party hereto
pursuant to this Article IX; The term "Indemnifying Party" shall mean a party
(or its successor) hereto who is required to provide indemnification under this
Article IX to another party; and the term "Third Party Claim" shall mean any
claim, action, suit, proceeding, investigation or like matter which is asserted
or threatened by a party other than the parties hereto, their successors and
permitted assigns, against any Indemnified Party or to which any Indemnified
Party is subject.
(b) PROCEDURE. Within thirty (30) days following the receipt
of notice of a Third Party Claim, and in any event within the period necessary
to respond to such pleading, if applicable, the party receiving the notice of
the Third Party Claim shall (i) notify the other party of its existence setting
forth with reasonable specificity the facts and circumstances of which such
party has received notice, and (ii) if the party giving such notice is an
Indemnified Party, specifying the basis hereunder upon which the Indemnified
Party's claim for indemnification is asserted. The failure to deliver the notice
described in the preceding sentence within the time frame required shall not
relieve any party hereto of any liability under this Agreement unless such party
is materially damaged by the failure to deliver such notice to such party within
such time period. The Indemnified Party may, upon reasonable notice, tender the
exclusive defense of a Third Party Claim (subject to the provisions of this
Section 9.04(b) to the Indemnifying Party. If (i) the defense of a Third Party
Claim is so tendered and within thirty (30) days thereafter such tender is
accepted without qualification (or reservation of rights) by the Indemnifying
Party; or (ii) within thirty (30) days after the date on which written notice of
a Third Party Claim has been given pursuant to this Section 9.04(b), the
Indemnifying Party shall acknowledge in writing to the Indemnified Party and
without qualification (or reservation of rights) its indemnification obligations
as provided in this Article IX; then, except as hereinafter provided, the
Indemnified Party shall not, and the Indemnifying Party shall, have the right to
contest, defend, litigate or settle such Third Party Claim. The Indemnified
Party shall have the right to be represented by counsel at its own expense in
any such contest, defense, litigation or settlement conducted by the
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Indemnifying Party provided that the Indemnified Party shall be entitled to
reimbursement therefor if the Indemnifying Party shall lose its right to
contest, defend, litigate and settle the Third Party Claim as herein provided.
The Indemnifying Party shall lose its right to defend and settle the Third Party
Claim if it shall fail to diligently contest the Third Party Claim. So long as
the Indemnifying Party has not lost its right and/or obligation to contest,
defend, litigate and settle as herein provided, the Indemnifying Party shall
have the exclusive right to contest, defend and litigate the Third Party Claim
and shall have the right, upon receiving the prior written approval of the
Indemnified Party (which shall not be unreasonably withheld unless such
settlement does not fulfill the conditions set forth in the following sentence
and which shall be deemed automatically given if a response has not been
received within the ten (10) day period following a request for such consent),
to settle any such matter, either before or after the initiation of litigation,
at such time and upon such terms as it deems fair and reasonable.
Notwithstanding anything to the contrary herein contained, in connection with
any settlement negotiated by an Indemnifying Party, no Indemnified Party or
Indemnifying Party (as the case may be) that is not controlling the defense and
or settlement of the Third Party Claim (the "Non-Control Party") shall be
required by an Indemnifying Party or Indemnified Party controlling the
litigation to (and no such party shall) (x) enter into any settlement that does
not include as an unconditional term thereof the delivery by the claimant or
plaintiff to the Non-Control Party of a release from all liability in respect of
such claim or litigation, (y) enter into any settlement that attributes by its
terms liability to the Non-Control Party or which may otherwise have an adverse
effect on the Indemnified Party's business, or (z) consent to the entry of any
judgment that does not include as a term thereof a full dismissal of the
litigation or proceeding with prejudice. All expenses (including attorneys'
fees) incurred by the Indemnifying Party in connection with the foregoing shall
be paid by the Indemnifying Party. No failure by an Indemnifying Party to
acknowledge in writing its indemnification obligations under this Article IX
shall relieve it of such obligations to the extent they exist. If an Indemnified
Party is entitled to indemnification against a Third Party Claim, and the
Indemnifying Party fails to accept a tender of, or assume, the defense of a
Third Party Claim pursuant to this Section IX, or if, in accordance with the
foregoing, the Indemnifying Party does not have the right or shall lose its
right to contest, defend, litigate and settle such a Third Party Claim, the
Indemnified Party shall have the right, without prejudice to its right of
indemnification hereunder, in its discretion exercised in good faith and upon
the advice of counsel, to contest, defend and litigate such Third Party Claim,
and may, upon receiving prior written approval of the Indemnifying Party (which
shall not be unreasonably withheld unless such settlement may have an adverse
effect on the Business and which shall be deemed automatically given if a
response has not been received within the ten (10) day period following a
request for such consent), settle such Third Party Claim, either before or after
the initiation of litigation, at such time and upon such terms as the
Indemnified Party deems fair and reasonable, provided that at least ten (10)
days prior to any such settlement, written notice of its intention to settle is
given to the Indemnifying Party. If, pursuant to this Section 9.04(b), the
Indemnified Party so contests, defends, litigates or settles a Third Party
Claim, for which it is entitled to indemnification hereunder as provided herein,
the Indemnified Party shall be reimbursed by the Indemnifying Party for the
reasonable attorneys' fees and other expenses of defending,
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contesting, litigating and/or settling the Third Party Claim which are incurred
from time to time, forthwith following the presentation to the Indemnifying
Party of itemized bills for said attorneys' fees and other expenses. The
Indemnified Party or the Indemnifying Party, as the case may be, shall furnish
such information in reasonable detail as it may have with respect to a Third
Party Claim (including copies of any summons, complaint or other pleading which
may have been served on such party and any written claim, demand, invoice,
billing or other document evidencing or asserting the same) to the other party
if such other party is assuming defense of such claim, and make available all
records and other similar materials which are reasonably required in the defense
of such Third Party Claim and shall otherwise cooperate with and assist the
defending party in the defense of such Third Party Claim.
ARTICLE X
SHAREHOLDERS' REPRESENTATIVE
10.01 APPOINTMENT OF SHAREHOLDERS' REPRESENTATIVE.10.02 Appointment of
Shareholders' Representative.10.02 Appointment of Shareholders' Representative..
The initial Shareholders' Representative shall be Sam Fatigato (the
"Shareholders' Representative"). The Shareholders' Representative shall be the
attorney-in-fact and agent of Shareholders. The foregoing power is irrevocable
and coupled with an interest, and shall not be affected by the death,
incapacity, illness, dissolution or other inability to act of any of the
Shareholders.
10.02 AUTHORITY. Each Shareholder hereby grants the Shareholders'
Representative full power and authority:
(a) to execute and deliver, on behalf of such Shareholder, and
to accept delivery of, on behalf of such Shareholder, such documents as may be
deemed by the Shareholders' Representative, in his sole discretion, to be
appropriate to consummate this Agreement;
(b) to certify, on behalf of such Shareholder, as to the
accuracy of the representations and warranties of such Shareholder under, or
pursuant to the terms of, this Agreement;
(c) to, (i) dispute or refrain from disputing, on behalf of
such Shareholder, any claim made by Parent or the Surviving Corporation under
this Agreement; (ii) negotiate and compromise, on behalf of such Shareholder or
holder of Accelerated Company Options, any dispute that may arise under, and to
exercise or refrain from exercising any remedies available under this Agreement,
and (iii) execute, on behalf of such Shareholder or holder of Accelerated
Company Options, any settlement agreement, release or other document with
respect to such dispute or remedy;
(d) to give or agree to, on behalf of such Shareholder or
holder of Accelerated Company Options, any and all consents, waivers, amendments
or modifications, deemed by the Shareholders' Representative, in his sole
discretion, to be
A-52-
<PAGE> 143
necessary or appropriate, under this Agreement, and, in each case, to execute
and deliver any documents that may be necessary or appropriate in connection
therewith;
(e) to enforce, on behalf of such Shareholder, any claim
against Parent, Sub or the Surviving Corporation arising under this Agreement;
(f) to engage attorneys, accountants and agents at the expense
of Shareholders and holders of Accelerated Company Options; and
(g) to give such instructions and to take such action or
refrain from taking such action, on behalf of such Shareholders and holders of
Accelerated Company Options, as the Shareholders' Representative deems, in their
sole discretion, necessary or appropriate to carry out the provisions of this
Agreement.
10.03 RELIANCE. Each Shareholder hereby agrees that: (a) in all matters
in which action by the Shareholders' Representative are required or permitted,
the Shareholders' Representative is authorized to act on behalf of such
Shareholder, notwithstanding any dispute or disagreement among Shareholders or
between any Shareholder and the Shareholders' Representative, and Parent, Sub
and the Surviving Corporation shall be entitled to rely on any and all action
taken by the Shareholders' Representative, under this Agreement without any
liability to, or obligation to inquire of, any of the Shareholders
notwithstanding any knowledge on the part of the Purchaser of any such dispute
or disagreement; (b) the power and authority of the Shareholders'
Representative, as described in this Agreement, shall be effective until all
rights and obligations of Shareholders under this Agreement have terminated,
expired or been fully performed; and (c) if the Shareholders' Representative
resigns or otherwise ceases to function in his or her capacity as such for any
reason whatsoever, a majority of the Shareholders shall have the right,
exercisable upon written notice delivered to Purchaser to appoint another
individual to serve as a new Shareholders' Representative to fill the vacancy
caused by the circumstance described above.
10.04 INDEMNIFICATION OF PARENT, SUB AND THEIR AFFILIATES. Shareholders
jointly and severally, shall indemnify the Purchaser Indemnities against, and
agree to hold the Purchaser Indemnities harmless from, any and all Damages
incurred or suffered by any Purchaser Indemnitee arising out of, with respect to
or incident to the operation of, or any breach of any covenant or agreement
pursuant to, this Article X by a Shareholder or a Shareholders' Representative,
or the designation, appointment and actions of the Shareholders' Representative
pursuant to the provisions hereof, including with respect to (i) actions taken
by the Shareholders' Representative, and (ii) reliance in good faith by any
Purchaser Indemnitee on, and actions in good faith taken by any Purchaser
Indemnitee in response to or in reliance on, the instructions of, notice given
by or any other action taken by the Shareholders' Representative.
10.05 INDEMNIFICATION OF SHAREHOLDERS' REPRESENTATIVE. Each Shareholder
shall severally indemnify and hold the Shareholders' Representative harmless
from and against any Damages (except as result from such Person's gross
negligence or willful
A-53-
<PAGE> 144
misconduct) that such Person may suffer or incur in connection with any action
taken by such Person as the Shareholders' Representative. Each Shareholder shall
bear its pro-rata portion of such Damages. No Shareholders' Representative shall
be liable to any Shareholder with respect to any action or omission taken or
omitted to be taken by the Shareholders' Representative pursuant to this Article
X, except for such person's gross negligence or willful misconduct. No
Shareholders' Representative shall be responsible in any manner whatsoever for
any failure or inability of Parent or Sub, or of anyone else, to honor any of
the provisions of this Agreement. The Shareholders' Representative shall be
fully protected by Shareholders in acting on and relying upon any written
notice, direction, request, waiver, notice, consent, receipt or other paper or
document which they in good faith believe to be genuine and to have been signed
or presented by the proper party or parties. The Shareholders' Representative
shall not be liable to the Shareholders for any error of judgment, or any act
done or step taken or omitted by any of them in good faith or for any mistake in
fact or law, or for anything which any of them may do or refrain from doing in
connection herewith, except for their own bad faith, willful misconduct or gross
negligence. The Shareholders' Representative may seek the advice of legal
counsel, engage experts or otherwise incur reasonable expenses in the event of
any dispute or question as to the construction of any of the provisions of this
Agreement or their duties hereunder, and they shall incur no liability to
Shareholders with respect to any action taken, omitted or suffered by them in
good faith in accordance with the opinion of such counsel. The Shareholders
shall severally hold the Shareholders' Representative harmless from and against
any and all such expenses, and, in addition to any and all other remedies
available, the Shareholders' Representative shall have the right to set-off
against any amounts due to the Shareholders.
ARTICLE XI
GENERAL PROVISIONS
11.01 NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed given when delivered personally or telecopied
(with confirmation from recipient) provided that a copy of all telecopies is
sent by one of the other delivery methods set forth in this Section 11.01 within
one (1) day of being telecopied, three (3) days after mailed by registered or
certified mail (return receipt requested) or on the day delivered by an express
courier (with confirmation from recipient) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
A-54-
<PAGE> 145
(a) if to Parent or Sub, to:
Perficient, Inc.
7600-B North Capital of Texas Highway
Suite 220
Austin, Texas 78731
Attn: John T. McDonald, Chief Executive Officer
Phone: (512) 306-7337
Facsimile: (512) 306-7331
with a copy to:
Gibbons, Del Deo, Dolan, Griffinger & Vecchione, P.C.
125 West 55th Street
New York, New York 10019-5369
Attn: Jeffrey A. Baumel, Esq.
Phone: (212) 649-4700
Facsimile: (212) 333-5980
(b) if to the Company, to:
Compete Inc.
1019 School Street
Lisle, Illinois 60532
Attn: Sam Fatigato
Phone: (630) 235-1438
Facsimile: (630) 969-1384
with a copy to:
Altheimer & Gray
10 South Wacker Drive
Suite 4000
Chicago, Illinois 60606
Attn: Laurence R. Bronska, Esq.
Phone: (312) 715-4000
Facsimile: (312) 715-4800
10.02 INTERPRETATION. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation."
A-55-
<PAGE> 146
11.03 COUNTERPARTS. This Agreement may be executed in counterparts, all
of which shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each of the parties and
delivered to the other parties, it being understood that all parties need not
sign the same counterpart.
11.04 ENTIRE AGREEMENT. This Agreement (including the documents and the
instruments referred to herein) constitutes the entire agreement and supersede
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof.
11.05 GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of New York, without regard to any
applicable conflicts of law principles thereof.
11.06 ENFORCEMENT OF AGREEMENT. The parties hereto agree that
irreparable damage would occur in the event that the provisions contained in
Sections 5.02 or 6.04 of this Agreement were not performed in accordance with
its specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
Sections 5.02 or 6.04 of this Agreement and to enforce specifically the terms
and provisions thereof in any court of the United States or any court located in
the State of New York, this being in addition to any other remedy to which they
are entitled at law or in equity.
11.07 SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is deemed to be so broad as to be unenforceable, the provision shall
be interpreted to be only so broad as is enforceable.
11.08 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns. Except as otherwise expressly
provided herein, this Agreement (including the documents and instruments
referred to herein) is not intended to confer upon any person other than the
parties hereto any rights or remedies hereunder.
A-56-
<PAGE> 147
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the date first above written.
PERFICIENT, INC.
By:
-----------------------------
Name: John T. McDonald
Title: Chief Executive Officer
PERFICIENT COMPETE, INC.
By:
-----------------------------
Name: John T. McDonald
Title: Chief Executive Officer
COMPETE INC.
By:
-----------------------------
Name: Sam Fatigato
Title: Chief Executive Officer
SHAREHOLDERS
---------------------------------
Sam Fatigato, individually
---------------------------------
Eric Simone, individually
---------------------------------
Robert A. Anderson, individually
A-57-
<PAGE> 148
---------------------------------
Joseph Klewicki, individually
---------------------------------
Fred Graichen, individually
---------------------------------
Courtney Spooner, individually
---------------------------------
Andrew Sweet, individually
---------------------------------
John Jenkins, individually
---------------------------------
Matthew Clark, individually
A-58-
<PAGE> 149
FINANCIAL STATEMENTS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Contents
<S> <C>
FINANCIAL STATEMENTS FOR PERFICIENT, INC.
Report of Independent Auditors............................................................................ F-1
Balance Sheets............................................................................................ F-2
Statements of Operations.................................................................................. F-3
Statements of Stockholders' Equity........................................................................ F-4
Statements of Cash Flows.................................................................................. F-5
Notes to Financial Statements............................................................................. F-6
FINANCIAL STATEMENTS FOR LOREDATA, INC.
Report of Independent Auditors............................................................................ F-17
Balance Sheets............................................................................................ F-18
Statements of Operations.................................................................................. F-19
Statements of Stockholders' Equity........................................................................ F-20
Statements of Cash Flows.................................................................................. F-21
Notes to Financial Statements............................................................................. F-22
FINANCIAL STATEMENTS FOR COMPETE, INC.
Report of Independent Auditors............................................................................ F-27
Balance Sheets............................................................................................ F-28
Statements of Operations.................................................................................. F-30
Statements of Stockholders' Equity........................................................................ F-31
Statements of Cash Flows.................................................................................. F-32
Notes to Financial Statements............................................................................. F-33
</TABLE>
F-i
<PAGE> 150
Report of Independent Auditors
The Board of Directors
Perficient, Inc.
We have audited the accompanying balance sheets of Perficient, Inc. (the
"Company"), as of December 31, 1998 and 1999, and the related statements of
operations, stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Perficient, Inc. at December
31, 1998 and 1999, and the results of its operations and its cash flows for the
years then ended, in conformity with accounting principles generally accepted in
the United States.
Austin, Texas
February 21, 2000
Ernst & Young, LLP
F-1
<PAGE> 151
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 at
December 31, 1998 and 1999, respectively 2,000 3,503
Additional paid-in capital 148,000 7,777,392
Unearned stock compensation, net of $76,000 in
amortization for the
year ended December 31, 1999 - (152,000)
Retained earnings (deficit) 28,159 (1,376,804)
-------------------------------
Total stockholders' equity 178,159 6,252,091
===============================
Total liabilities and stockholders' equity $230,007 $6,616,417
===============================
</TABLE>
See accompanying notes.
F-2
<PAGE> 152
Perficient, Inc.
Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1999
----------------------------
<S> <C> <C>
Consulting revenue $825,800 $3,154,936
Cost of consulting revenue 400,977 1,541,389
----------------------------
Gross margin 424,823 1,613,547
Selling, general and administrative 357,014 2,197,560
Stock compensation - 956,000
Interest expense - 13,380
Interest income - (127,518)
----------------------------
Income (loss) before income tax 67,809 (1,425,875)
Income tax benefit (expense) (27,581) 20,912
------------------------------
Net income (loss) $40,228 $(1,404,963)
==============================
------------------------------
Net income (loss) per share - basic and diluted $0.02 $(0.47)
==============================
</TABLE>
See accompanying notes.
F-3
<PAGE> 153
Perficient, Inc.
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
ADDITIONAL UNEARNED RETAINED TOTAL
COMMON STOCK PAID-IN STOCK EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION (DEFICIT) EQUITY
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock at inception 1,000,000 $1,000 $ 49,000 $ - $ - $ 50,000
Net loss - - - - (12,069) (12,069)
-----------------------------------------------------------------------------------
Balance at December 31, 1997 1,000,000 1,000 49,000 - (12,069) 37,931
Issuance of common stock 1,000,000 1,000 99,000 - - 100,000
Net income - - - - 40,228 40,228
-----------------------------------------------------------------------------------
Balance at December 31, 1998 2,000,000 2,000 148,000 - 28,159 178,159
Issuance of common stock 1,503,333 1,503 7,401,392 - - 7,402,895
Unearned compensation - - 228,000 (228,000) - -
Amortization of unearned compensation
- - - 76,000 - 76,000
Net loss - - - - (1,404,963) (1,404,963)
-----------------------------------------------------------------------------------
Balance at December 31, 1999 3,503,333 $3,503 $7,777,392 $(152,000) $(1,376,804) $ 6,252,091
===================================================================================
</TABLE>
See accompanying notes.
F-4
<PAGE> 154
Perficient, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1999
----------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 40,228 $(1,404,963)
Adjustments to reconcile net income (loss) to net
cash used in operating
activities:
Depreciation 10,530 22,950
Non-cash stock compensation - 956,000
Gain from disposal of fixed assets (822) -
Deferred income taxes 8,362 (1,350)
Changes in operating assets and liabilities:
Accounts receivable (164,961) (398,373)
Other assets 911 (142,422)
Income tax receivable - (10,916)
Accounts payable 18,640 146,536
Income tax payable 19,219 (19,219)
Accrued liabilities 12,639 186,511
----------------------------
Net cash used in operating activities (55,254) (665,246)
INVESTING ACTIVITIES
Purchase of property and equipment (47,870) (61,727)
Proceeds from disposal of fixed assets 5,596 -
----------------------------
Net cash used in investing activities (42,274) (61,727)
FINANCING ACTIVITIES
Proceeds from line of credit 35,000 802,673
Payments on line of credit (35,000) (802,673)
Proceeds from stock issuances 100,000 6,522,895
----------------------------
Net cash provided by financing activities 100,000 6,522,895
----------------------------
Increase in cash 2,472 5,795,922
Cash at beginning of year 20,524 22,996
----------------------------
Cash at end of year $ 22,996 $ 5,818,918
============================
Supplemental noncash financing activities:
January 12, 1999 issuance of 500,000 common
shares in exchange for shareholder receivable $ - $ 250,000
============================
</TABLE>
See accompanying notes.
F-5
<PAGE> 155
Perficient, Inc.
Notes to Financial Statements
December 31, 1999
(Information subsequent to December 31, 1999 is unaudited)
1. BUSINESS OVERVIEW
Perficient, Inc. (the "Company") works with Internet software companies by
providing them a professional services organization to implement and integrate
the software products. The Company effectively operates as an internal services
organization. The Company was incorporated on September 17, 1997 in Texas. The
Company began operations in 1997 and is structured as a "C" corporation. On May
3, 1999 the Company reincorporated in Delaware.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
REVENUE RECOGNITION
Consulting revenues are comprised of revenue from consulting fees recognized on
a time and material basis as performed.
ADVERTISING EXPENSE
The cost of advertising is expensed as incurred. Advertising cost for the years
ended December 31, 1998 and December 31, 1999 were immaterial to the financial
statements.
F-6
<PAGE> 156
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation on property and
equipment is computed using the straight-line method over the estimated useful
lives, which is three years.
SEGMENTS
The Company considers its business activities as a single segment.
STOCK BASED COMPENSATION
Financial Accounting Standards Board Statement No. 123, Accounting for Stock
Based Compensation (FAS 123), prescribed accounting and reporting standards for
all stock-based compensation plans, including employee stock options. As allowed
by FAS 123, the Company has elected to account for its employee stock-based
compensation in accordance with Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, (APB 25).
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued FAS 133, Accounting for Derivative Instruments and
Hedging Activities, as amended by FAS 137 which is effective for fiscal years
beginning after June 15, 2000. This statement requires companies to record
derivatives on the balance sheet as assets or liabilities measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. FAS 133 will be effective for the Company's year
ended December 31, 2001. Management believes that this statement will not have a
material impact on the Company's financial position or results of operations.
F-7
<PAGE> 157
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In December 1999, the Securities and Exchange Commission staff released Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB
101), which provides guidance on the recognition, presentation and disclosure of
revenue in financial statements. The application of SAB 101 did not have a
material impact on the financial statements of the Company.
In March 1999, the FASB issued an exposure draft entitled "Accounting for
Certain Transactions involving Stock Compensation," which is a proposed
interpretation of APB 25. However, the exposure draft has not been finalized.
Once finalized and issued, the current accounting practices for transactions
involving stock compensation may need to change and such changes could affect
the Company's future operating results.
3. NET INCOME (LOSS) PER SHARE
The Company follows the provisions of SFAS No. 128, Earnings Per Share. Basic
net income (loss) per share is computed by dividing net income (loss) available
to common stockholders by the weighted-average number of common shares
outstanding during the period. Net income per share, assuming dilution, includes
the effect of dilutive potential common stock issuable upon exercise of stock
options using the treasury stock method.
Diluted net loss per share has not been presented for the year ended December
31, 1999, as the effect of the assumed exercise of stock options and warrants is
antidilutive due to the Company's net loss. Total common stock equivalents not
included in diluted net loss per share amounted to 251,750 common stock
equivalents.
F-8
<PAGE> 158
3. NET INCOME (LOSS) PER SHARE (CONTINUED)
Computations of the net income (loss) per share for the year ended December 31,
1999 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1999
--------------------------------
<S> <C> <C>
Numerator:
Income (loss) from continuing operations - numerator for basic
earnings per share $ 40,228 $ (1,404,963)
Denominator:
Denominator for basic earnings per share - weighted-average shares
1,750,000 3,000,556
Effect of dilutive securities:
Stock options 124,000 --
--------------------------------
Denominator for diluted earnings per share - adjusted
weighted-average shares and assumed conversions 1,874,000 3,000,556
===============================
Basic earnings per share $ 0.02 $ (0.47)
===============================
Diluted earnings per share $ 0.02 $ (0.47)
===============================
</TABLE>
4. CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Cash and accounts receivable potentially expose the Company to concentrations of
credit risk. Excess cash is placed with highly rated financial institutions. The
Company provides credit, in the normal course of business, to its customers. The
Company performs ongoing credit evaluations of its customers and maintains
allowances for potential credit losses. The Company generally requires certain
up-front payments from customers, and customers can be denied access to services
in the event of non-payment. One customer accounted for approximately 100% and
97% of accounts receivable and 91% and 96% of revenues at December 31, 1998 and
1999, and for the years then ended, respectively.
F-9
<PAGE> 159
5. EMPLOYEE BENEFIT PLAN
The Company has a qualified 401(k) profit sharing plan available to full-time
employees who meet the plan's eligibility requirements. This defined
contribution plan permits employees to make contributions up to maximum limits
allowed by Internal Revenue Code. The Company, at its discretion, matches a
portion of the employee's contribution under a predetermined formula based on
the level of contribution and years of vesting services. No contributions were
made to the plan in 1998 or 1999. The Company's related costs for the plan
during 1998 and 1999 were $1,750 and $1,564, respectively.
6. STOCK OPTIONS
Pro forma information regarding net income is required by SFAS 123, Accounting
for Stock Based Compensation, which also requires that the information be
determined as if the Company had accounted for its employee stock options
granted under the fair value method prescribed by SFAS 123. The fair value for
these options was estimated at the date of grant using the Black-Scholes pricing
model with the following weighted-average assumptions:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31 1998 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
Risk-free interest rate 6.00% 6.00%
Dividend yield 0.00% 0.00%
Weighted-average expected life of options 5 years 5 years
Expected volatility .65 .622
</TABLE>
The Company has granted stock options to various employees under the terms of
the respective employee agreements. The stock options generally vest over three
years. The term of each option is ten years from the date of grant.
At December 31, 1998 the Company did not reserve common stock for future
issuance and no options were designated as being available for future grants. At
December 31, 1999, 2,150,000 shares of common stock were reserved for future
issuance and 1,651,666 options were available for future grants.
F-10
<PAGE> 160
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>
WEIGHTED-
RANGE OF AVERAGE
EXERCISE EXERCISE
SHARES PRICES PRICE
------------------------------------
<S> <C> <C> <C>
Options outstanding at December 31, 1997 80,000 $0.05 - 0.60 $ 0.53
====================================
Options vested, December 31, 1997 556 0.05 - 0.60 0.53
====================================
Options granted 249,000 0.05 - 0.50 0.40
Options exercised - - -
Options canceled (56,667) 0.60 0.40
------------------------------------
Options outstanding at December 31, 1998 272,334 0.05 - 0.60 0.40
====================================
Options vested, December 31, 1998 50,222 0.05 - 0.60 0.38
====================================
Options granted 272,000 0.05 - 8.12 4.25
Options exercised (3,333) 0.20 0.20
Options canceled (42,667) 0.20 - 8.12 3.74
====================================
Options outstanding at December 31, 1999 498,334 0.05 - 8.12 2.22
====================================
Options vested, December 31, 1999 197,667 $0.05 - 8.12 1.95
====================================
</TABLE>
F-11
<PAGE> 161
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
RANGE OF WEIGHTED REMAINING WEIGHTED
EXERCISE PRICES AVERAGE CONTRACTUAL AVERAGE
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 - 8.125 110,000 8.06 9.68 Years 40,000 8.00
-------------------------------------------- --------------------------------
$0.05 - $8.125 498,334 $2.22 8.92 Years 197,667 $1.95
=========================== ================================
</TABLE>
At December 31, 1998 and 1999, the weighted-average remaining contractual life
of outstanding options was 9.54 years and 8.92 years, respectively.
The weighted-average grant-date fair value of options granted is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1999
-----------------------------
<S> <C> <C>
Granted at market prices $ 0.40 $ 1.60
Granted at below market prices $ - $ 5.40
</TABLE>
F-12
<PAGE> 162
7. LINE OF CREDIT
On July 1, 1999, the Company entered into an agreement with a bank to borrow up
to $1,000,000 against qualified accounts receivables with full recourse. Under
the contract, the bank shall purchase the accounts receivable under the
following terms: 80% of the balance is remitted at the sale date, the rest is
remitted upon receipt of the balance due from the customer less finance and
administrative fees charged by the bank. The agreement has a one-year term and
borrowings under the agreement bear interest at the banks' prime rate. In
connection with this agreement, the Company issued warrants to the bank to
purchase 3,750 shares at the initial public offering price of $8 per share. As
the effect of the warrants are not material to the financial statements, the
Company has not discounted the line of credit to separately account for the
warrants.
8. INCOME TAXES
As of December 31, 1999, the Company had tax net operating loss carryforwards of
approximately $274,000 that will begin to expire in 2019 if not utilized.
Utilization of net operating losses may be subject to an annual limitation due
to the "change in ownership" provisions of the Internal Revenue Code of 1986.
The annual limitation may result in the expiration of net operating losses
before utilization.
Significant components of the provision for income taxes attributable to
continuing operations are as follows:
<TABLE>
<CAPTION>
1998 1999
---------------------
<S> <C> <C>
Current:
Federal $17,661 $(17,661)
State 1,558 (1,558)
---------------------
Total current 19,219 (19,219)
---------------------
Deferred:
Federal 7,684 (1,583)
State 678 (110)
---------------------
Total deferred 8,362 (1,693)
---------------------
$27,581 $(20,912)
=====================
</TABLE>
F-13
<PAGE> 163
8. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred taxes as of December 31, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
1998 1999
----------------------
<S> <C> <C>
Deferred tax liabilities:
Depreciable assets $(6,292) $ (9,985)
----------------------
Total deferred tax liabilities (6,292) (9,985)
----------------------
Deferred tax assets:
Tax carryforwards - 101,265
Bad debt - 25,181
Stock Compensation - 28,121
Accrued liabilities and other 4,942 17,364
----------------------
Total deferred tax assets 4,942 171,931
Valuation allowance for deferred tax assets - (161,946)
----------------------
Net deferred tax assets 4,942 9,985
----------------------
Net deferred taxes $(1,350) $ -
======================
</TABLE>
The Company has established a valuation allowance equal to the net deferred tax
assets due to uncertainties regarding the realization of deferred tax assets
based on the Company's lack of earnings history. The valuation allowance
increased by approximately $162,000 during 1999.
F-14
<PAGE> 164
8. INCOME TAXES (CONTINUED)
The Company's provision for income taxes differs from the expected tax expense
(benefit) amount computed by applying the statutory federal income tax rate of
34% to income before income taxes as a result of the following:
<TABLE>
<CAPTION>
1998 1999
---------------------
<S> <C> <C>
Tax at statutory rate of 34% $23,057 $(472,897)
State taxes, net of federal benefit 1,653 (14,798)
Stock based compensation - 299,200
Permanent items 2,288 5,638
Change in valuation allowance - 161,945
Other 583 -
---------------------
$27,581 $ (20,912)
=====================
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
The Company leases equipment under an operating lease that expires in 2000.
Future lease commitments are as follows:
<TABLE>
<S> <C>
2000 $ 84,606
2001 116,208
2002 70,878
---------
Total $ 271,692
=========
</TABLE>
In addition, the Company has entered into a sublease with a related party for
office rent. The agreement is month-to-month. For the years ended December 31,
1998 and 1999, the Company recorded rent expense of $16,707 and $88,666,
respectively.
10. SUBSEQUENT EVENTS
On January 3, 2000, the Company acquired LoreData, Inc., a Connecticut
corporation, and merged LoreData, Inc. into a wholly-owned subsidiary,
Perficient Acquisition Corp., a Delaware corporation. Perficient Acquisition
Corp. is the surviving corporation to the merger and will continue under the
name, "Perficient LoreData, Inc." LoreData, Inc. was a 17 person internet
professional services firm based in New London, CT. The Company acquired
LoreData for an aggregate purchase price of (i) $385,000 in cash that was paid
at closing, (ii) 30,005 shares of common stock, also paid at closing, and (iii)
131,709 shares of common stock that are being held in escrow for disposition by
the escrow agent in accordance with an Escrow Agreement dated as of January 3,
2000.
On January 14, 2000 the Board of Directors authorized an additional 1,100,000
shares of Common Stock to be available under the Company's Stock Option/Stock
Issuance Plan. An additional 50,000 shares of Common Stock were authorized and
added to the Plan on February 14, 2000.
F-15
<PAGE> 165
10. SUBSEQUENT EVENTS (CONTINUED)
On February 7, 2000, the Company completed an $8.1 million private placement of
common stock. The Company intends to use the proceeds from the private placement
to further accelerate its previously announced acquisition program and for other
corporate purposes. A total of 400,000 shares of common stock were issued and
sold by the Company, resulting in gross proceeds to the Company of $5.6 million.
The private placement was priced at $14 per share. Gilford Securities
Incorporated acted as placement agent in connection with the private placement.
On February 16, 2000, the Company entered into an Agreement and Plan of Merger
with Compete Inc. ("Compete"), Perficient Compete, Inc., and the shareholders of
Compete. The aggregate purchase price of Compete consists of (i) $3,500,000 in
cash, (ii) $2,527,500 in promissory notes to be repaid within six months
following the closing, (iii) 2,200,000 shares of common stock, of which
1,100,000 shares are subject to adjustment and (iv) the assumption of Compete,
Inc.'s outstanding employee options. The closing of the acquisition of Compete
is conditioned upon, among other things, obtaining the consent of Perficient's
stockholders. Accordingly, there can be no assurance that the acquisition will
be completed.
F-16
<PAGE> 166
Report of Independent Auditors
The Board of Directors
LoreData, Inc.
We have audited the accompanying balance sheets of LoreData, Inc. (the
"Company"), as of December 31, 1998 and 1999, and the related statements of
operations, stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of LoreData, Inc. at December 31,
1998 and 1999, and the results of its operations and its cash flows for the
years then ended, in conformity with accounting principles generally accepted in
the United States.
Austin, Texas
February 17, 2000
Ernst & Young, LLP
F-17
<PAGE> 167
LoreData, Inc.
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1999
-----------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 17,204 $ -
Accounts receivable 158,012 128,148
-----------------------
Total current assets 175,216 128,148
Property and equipment
Computer equipment 31,410 91,534
Software 7,807 18,439
Furniture and fixtures 2,919 4,819
-----------------------
42,136 114,792
Accumulated depreciation (6,761) (35,535)
-----------------------
Net property and equipment 35,375 79,257
Other assets 1,455 2,729
-----------------------
Total assets $ 212,046 $ 210,134
=======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 29,229 $ 33,279
Accrued liabilities 50,103 34,015
Note payable to related party, current portion - 3,922
Obligation under line of credit 30,000 39,854
-----------------------
Total current liabilities 109,332 111,070
Note payable to related party, less current portion - 48,968
-----------------------
Total liabilities 109,332 160,038
Commitments and contingencies
Stockholders' equity:
Common stock, no par value; 20,000 shares authorized; 100
shares issued and outstanding at December 31, 1998 and
1999, respectively 1,000 1,000
Additional paid-in capital 12,668 12,668
Note receivable from stockholder - (53,828)
Retained earnings 89,046 90,256
-----------------------
Total stockholders' equity 102,714 50,096
-----------------------
Total liabilities and stockholders' equity $ 212,046 $ 210,134
=======================
</TABLE>
See accompanying notes.
F-18
<PAGE> 168
LoreData, Inc.
Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1999
------------------------
<S> <C> <C>
Total revenue $290,409 $1,348,480
Cost of consulting revenue 151,527 968,584
------------------------
Gross margin 138,882 379,896
Selling, general and administrative 49,586 371,421
Interest expense - 7,265
------------------------
Net income $ 89,296 $ 1,210
========================
</TABLE>
See accompanying notes.
F-19
<PAGE> 169
LoreData, Inc.
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL NOTE RECEIVABLE RETAINED TOTAL
--------------- SUBSCRIPTION PAID-IN FROM EARNINGS STOCKHOLDERS'
SHARES AMOUNT RECEIVABLE CAPITAL STOCKHOLDER (DEFICIT) EQUITY
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 - $1,000 $ (1,000) $ - $ - $ (250) $ (250)
Issuance of common stock 100 - 1,000 - - - 1,000
Capital contribution - - - 12,668 - - 12,668
Net income - - - - - 89,296 89,296
---------------------------------------------------------------------------------------------
Balance at December 31, 1998 100 1,000 - 12,668 - 89,046 102,714
Issuance of stockholder note - - - - (53,828) - (53,828)
Net income - - - - - 1,210 1,210
---------------------------------------------------------------------------------------------
Balance at December 31, 1999 100 $1,000 $ - $ 12,668 $ (53,828) $ 90,256 $ 50,096
=============================================================================================
</TABLE>
See accompanying notes.
F-20
<PAGE> 170
LoreData, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1999
------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 89,296 $ 1,210
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 6,761 28,774
Legal fees paid as consideration for capital 2,668 -
Changes in operating assets and liabilities:
Accounts receivable (158,012) 29,864
Other assets (1,455) (1,274)
Accounts payable 28,979 4,050
Accrued liabilities 50,103 (16,088)
------------------------
Net cash provided by operating activities 18,340 46,536
INVESTING ACTIVITIES
Purchase of property and equipment (42,136) (72,656)
------------------------
Net cash used in investing activities (42,136) (72,656)
FINANCING ACTIVITIES
Proceeds from line of credit 30,000 20,000
Payments on line of credit - (10,146)
Payments on related party note payable - (938)
Proceeds from contributed capital 10,000 -
Proceeds from stock issuance 1,000 -
------------------------
Net cash provided by financing activities 41,000 8,916
------------------------
Change in cash 17,204 (17,204)
Cash at beginning of year - 17,204
========================
Cash at end of year $ 17,204 $ -
========================
Supplemental noncash financing activities:
Issuance of note receivable to stockholder $ - $ 53,828
========================
Issuance of note payable to related party $ - $ 53,828
========================
</TABLE>
See accompanying notes.
F-21
<PAGE> 171
LoreData, Inc.
Notes to Financial Statements
December 31, 1999
1. BUSINESS OVERVIEW
LoreData, Inc. (the "Company") offers Internet systems development, architecture
and implementation services, to companies in a wide array of industries. The
Company was incorporated on December 17, 1997 in Connecticut, at which time it
began operations, and is structured as an "S" corporation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
REVENUE RECOGNITION
Consulting revenues are comprised of revenue from consulting fees recognized on
a time and material basis as performed.
ADVERTISING EXPENSE
The cost of advertising is expensed as incurred. Advertising cost for the years
ended December 31, 1998 and December 31, 1999 were $13,562 and $14,819,
respectively.
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard ("SFAS") 130, Reporting Comprehensive Income,
which requires that an enterprise report, by major components and as a single
total, the change in its net assets during the period from nonowner sources. The
Company adopted SFAS 130 during the year ended December 31, 1998. There was no
accumulated other comprehensive gain or loss during 1998 or 1999.
F-22
<PAGE> 172
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation on property and
equipment is computed using the straight-line method over the estimated useful
lives, which is three to seven years.
INCOME TAXES
The Company has elected to be treated as a Subchapter S corporation under the
Internal Revenue Code of 1986, as amended, whereby federal income taxes are the
responsibility of the individual shareholders. The Company is subject to state
income taxes. Accordingly, the Company provides for state income taxes based on
statutory rates.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued Financial Accounting Standards ("FAS") 133,
Accounting for Derivative Instruments and Hedging Activities, as amended by FAS
137 which is effective for fiscal years beginning after June 15, 2000. This
statement requires companies to record derivatives on the balance sheet as
assets or liabilities measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for depending on
the use of the derivative and whether it qualifies for hedge accounting. FAS 133
will be effective for the Company's year ended December 31, 2001. Management
believes that this statement will not have a material impact on the Company's
financial position or results of operations.
In December 1999, the Securities and Exchange Commission staff released Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements ("SAB
101"), which provides guidance on the recognition, presentation and disclosure
of revenue in financial statements. The application of SAB 101 did not have a
material impact on the financial statements of the Company.
F-23
<PAGE> 173
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In March 1999, the FASB issued an exposure draft entitled "Accounting for
Certain Transactions involving Stock Compensation," which is a proposed
interpretation of APB 25. However, the exposure draft has not been finalized.
Once finalized and issued, the current accounting practices for transactions
involving stock compensation may need to change and such changes could affect
the Company's future operating results.
3. CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Cash and accounts receivable potentially expose the Company to concentrations of
credit risk. Excess cash is placed with highly rated financial institutions. The
Company provides credit, in the normal course of business, to its customers. The
Company performs ongoing credit evaluations of its customers and maintains
allowances for potential credit losses. One customer accounted for approximately
29% and 44% of accounts receivable and 60% and 53% of revenues at December 31,
1998 and 1999, and for the years then ended, respectively.
4. EMPLOYEE BENEFIT PLAN
On January 1, 1999, the Company adopted a qualified simple profit sharing plan
for all full time employees who received a specified amount in any given year.
Eligible employees may elect to contribute to the plan based up to certain
amounts specified in the plan. The Company, at its discretion, matches 3% of
employee contributions up to $6,000 per year. Employer contributions to the plan
in 1999 were $14,182. No administrative costs were incurred in conjunction with
the plan in 1999.
5. LINE OF CREDIT
The Company has a revolving line of credit with a financial institution that
provides maximum borrowings of $50,000 with interest payable at prime plus 1.5%
(9.25% and 10.00% at December 31, 1998 and 1999, respectively). The line matures
on October 31, 2000 and is guaranteed by the primary stockholder. At December
31, 1998 and 1999, the Company had borrowings against the line of $30,000 and
$39,854, respectively.
F-24
<PAGE> 174
6. COMMITMENTS AND CONTINGENCIES
The Company leases equipment and facilities under operating leases that expire
ratably through 2002. Future lease commitments are as follows:
<TABLE>
<S> <C>
2000 $ 16,226
2001 7,084
2002 1,181
------------
Total $ 24,491
============
</TABLE>
For the years ended December 31, 1998 and 1999, the Company recorded lease
expense of $2,478 and $27,363, respectively. During 1999, approximately $5,000
in lease expense was paid on an operating lease for an automobile used by a
shareholder and officer of the Company.
7. RELATED PARTY TRANSACTIONS
During 1998, the Company paid approximately $141,000 in subcontracted labor fees
to a related-party company which shares common ownership with the Company.
During 1999, the shareholders of the related-party company discontinued
operations and the Company hired certain employees of the related-party.
On September 1, 1999 the Company's shareholders entered into an agreement
whereby one of the shareholders sold 100% of his common stock to the remaining
shareholder for $150,000 in consideration. Consideration consists of a note
payable and guaranteed retainer fees.
In conjunction with this agreement, the Company obligated itself to pay the note
to the former shareholder. The note bears interest of 7% and specifies for
monthly payments of $625 through September 2009. At December 31, 1999 the
remaining note balance was $52,896. Future minimum commitments under this
agreement are as follows:
<TABLE>
<S> <C>
2000 $ 3,922
2001 4,206
2002 4,509
2003 4,836
2004 5,126
</TABLE>
F-25
<PAGE> 175
7. RELATED PARTY TRANSACTIONS (CONTINUED)
In conjunction with the agreement, the Company also issued a note receivable to
the existing shareholder. The note bears 7% interest and is to be paid by the
existing shareholder in monthly installments of $625 through September 2009. At
December 31, 1999 the remaining note balance was $53,828.
During 1999, the Company paid approximately $55,000 to a former shareholder for
consulting services performed on behalf of the Company.
8. SUBSEQUENT EVENTS
On January 3, 2000, the Company was acquired by way of merger with Perficient
Acquisition Corp., a Delaware corporation. Perficient Acquisition Corp. is the
surviving corporation to the merger and will continue under the name,
"Perficient LoreData, Inc." Perficient acquired LoreData for an aggregate
purchase price of (i) $385,000 in cash that was paid at closing, (ii) 30,005
shares of Perficient common stock, par value $0.001 per share, also paid at
closing, and (iii) 131,709 shares of Perficient common stock that are being held
in escrow for disposition by the escrow agent in accordance with an Escrow
Agreement dated as of January 3, 2000.
F-26
<PAGE> 176
Report of Independent Auditors
The Board of Directors
Compete, Inc.
We have audited the accompanying balance sheets of Compete, Inc. (the
"Company"), as of December 31, 1998 and 1999, and the related statements of
operations, stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Compete, Inc. at December 31,
1998 and 1999, and the results of its operations and its cash flows for the
years then ended, in conformity with accounting principles generally accepted in
the United States.
Austin, Texas
February 19, 2000
Ernst & Young, LLP
F-27
<PAGE> 177
Compete, Inc.
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1999
-----------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 84,194 $ 43,172
Accounts receivable, net of allowance for doubtful accounts of
$10,000 and $19,616 in 1998 and 1999 1,035,368 1,149,214
-----------------------------
Total current assets 1,119,562 1,192,386
Property and equipment:
Computer equipment 279,607 360,991
Software 14,183 87,364
Office equipment 58,995 93,248
-----------------------------
352,785 541,603
Accumulated depreciation (167,333) (296,070)
-----------------------------
Net property and equipment 185,452 245,533
Goodwill, net of accumulated amortization of $5,000 and $35,000 at
December 31, 1998 and 1999 85,000 55,000
Other assets 5,391 8,724
-----------------------------
Total assets $ 1,395,405 $ 1,501,643
=============================
</TABLE>
F-28
<PAGE> 178
Compete, Inc.
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1999
------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued liabilities $ 251,299 $ 128,968
Accrued payroll 110,794 50,892
Income tax payable 2,175 855
Deferred income tax 9,920 14,375
Deferred revenue 11,950 20,360
Short-term borrowings 315,100 400,000
Note payable to shareholder 54,133 -
Current portion of lease obligation 47,080 99,757
------------------------------
Total current liabilities 802,451 715,207
Lease obligation, net of current portion 79,948 119,515
------------------------------
Total liabilities 882,399 834,722
Stockholders' equity:
Common stock, no par value; 3,000,000 and 3,600,000
shares authorized; 2,700,000 and 2,634,668 shares
issued and outstanding at December 31, 1998 and
1999, respectively
21,300 20,495
Less cost of common stock held in treasury, 300,000
shares in 1998 and 365,332 shares in 1999 (200,300) (243,696)
Additional paid-in capital 2,000 4,595,413
Unearned stock compensation - (4,593,413)
Retained earnings 690,006 888,122
------------------------------
Total stockholders' equity 513,006 666,921
------------------------------
Total liabilities and stockholders' equity $ 1,395,405 $ 1,501,643
==============================
</TABLE>
See accompanying notes.
F-29
<PAGE> 179
Compete, Inc.
Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1999
-----------------------------
<S> <C> <C>
Revenue $ 4,181,458 $ 6,643,577
Cost of consulting revenue 2,626,430 4,087,063
-----------------------------
Gross margin 1,555,028 2,556,514
Selling, general and administrative 973,525 2,149,642
Interest and other 13,711 53,694
-----------------------------
Income before income tax 567,792 353,178
Income tax expense (8,710) (3,135)
-----------------------------
Net income $ 559,082 $ 350,043
=============================
</TABLE>
See accompanying notes.
F-30
<PAGE> 180
Compete, Inc.
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL UNEARNED TOTAL
--------------------- PAID-IN STOCK TREASURY RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION STOCK EARNINGS EQUITY
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997
(Unaudited) 3,000,000 $ 24,000 $ 2,000 $ - $ - $ 203,374 $ 229,374
Purchase of treasury stock (300,000) (2,700) - - (200,300) - (203,000)
Stockholder distribution - - - - - (72,450) (72,450)
Net income - - - - - 559,082 559,082
---------------------------------------------------------------------------------------------
Balance at December 31, 1998 2,700,000 21,300 2,000 - (200,300) 690,006 513,006
Purchase of treasury stock (215,332) (805) - - (144,896) - (145,701)
Net income - - - - - 350,043 350,043
Issuance stock dividend 150,000 - - - 101,500 (101,500) -
Deferred stock compensation - - 4,593,413 (4,593,413) - - -
Stockholder distribution - - - - - (50,427) (50,427)
---------------------------------------------------------------------------------------------
Balance at December 31, 1999 2,634,668 $ 20,495 $ 4,595,413 $ (4,593,413) $(243,696) $ 888,122 $ 666,921
=============================================================================================
</TABLE>
See accompanying notes.
F-31
<PAGE> 181
Compete, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1999
-----------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 559,082 $ 350,043
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 86,878 158,737
Deferred income tax 6,535 4,455
Changes in operating assets and liabilities:
Accounts receivable (676,736) (113,846)
Other assets (986) (3,333)
Accrued liabilities 174,863 (122,331)
Accrued payroll 54,260 (59,902)
Income tax payable 2,175 (1,320)
Deferred revenue 11,950 8,410
-----------------------------
Net cash provided by operating activities 218,021 220,913
INVESTING ACTIVITIES
Purchase of property and equipment (21,014) (24,085)
Acquisition (100,000) -
-----------------------------
Net cash used in investing activities (121,014) (24,085)
FINANCING ACTIVITIES
Proceeds from issuance of debt 1,258,100 1,733,000
Payments on debt (1,033,000) (1,648,100)
Principle payments under capital lease obligations (32,516) (72,489)
Payments of shareholder distribution (72,450) (50,427)
Purchase of treasury stock (148,867) (199,834)
-----------------------------
Net cash provided by financing activities (28,733) (237,850)
-----------------------------
Increase in cash 68,274 (41,022)
Cash at beginning of year 15,920 84,194
-----------------------------
Cash at end of year $ 84,194 $ 43,172
=============================
Supplemental noncash activities:
Purchase of treasury stock with note payable to shareholder
$ 54,133 $ -
=============================
Property and equipment acquired under capital lease obligations
$ 110,952 $ 164,733
=============================
</TABLE>
See accompanying notes.
F-32
<PAGE> 182
Compete, Inc.
Notes to Financial Statements
December 31, 1999
(Information subsequent to December 31, 1999 is unaudited)
1. BUSINESS OVERVIEW
Compete, Inc. ("the Company") offers Internet systems development and
architecture services, implementation services, and education to companies in a
wide array of industries throughout the United States and New Zealand. The
Company was incorporated on October 7, 1994 in Illinois, at which time it began
operations, and is structured as an "S" Corporation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
REVENUE RECOGNITION
Consulting revenues are comprised of revenue from consulting fees and are
recognized on a time and material basis as performed.
ADVERTISING EXPENSE
The cost of advertising is expensed as incurred. Advertising cost for years
ended December 31, 1998 and December 31, 1999 was $14,375 and $13,321,
respectively.
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard ("SFAS") 130, Reporting Comprehensive Income.
The Company adopted SFAS 130 during the year ended December 31, 1998. There was
no impact to the Company as a result of the adoption of SFAS 130, as there was
no difference between net loss and comprehensive loss.
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<PAGE> 183
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL
Goodwill is carried at the lower of unamortized cost or fair value. Management
reviews the valuation and amortization of goodwill on a periodic basis, taking
into consideration any events or circumstances which may result in diminished
fair value. Goodwill is amortized using the straight line method over their
estimated life which has been determined to be three years. During 1998 and
1999, the Company incurred approximately $5,000 and $30,000 in amortization
expense, respectively.
INCOME TAXES
The Company has elected to be treated as a Subchapter S corporation under the
Internal Revenue Code of 1986, as amended, whereby federal income taxes are the
responsibility of the individual shareholders. The Company is subject to state
income taxes. Accordingly, the Company provides for state income taxes based on
statutory rates.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation on property and
equipment is computed using the straight-line method over the estimated useful
lives, which is three years.
SEGMENTS
Effective January 1, 1998, the Company adopted the FASB's SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. The
adoption of SFAS 131 did not have a significant effect on the disclosure of
segment information as the Company continues to consider its business activities
as a single segment.
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<PAGE> 184
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK BASED COMPENSATION
Financial Accounting Standards Board Statement No. 123, Accounting for Stock
Based Compensation ("FAS 123"), prescribed accounting and reporting standards
for all stock-based compensation plans, including employee stock options. As
allowed by FAS 123, the Company has elected to account for its employee
stock-based compensation in accordance with Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees ("APB 25").
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued FAS 133, Accounting for Derivative Instruments and
Hedging Activities, as amended by FAS 137, which is effective for fiscal years
beginning after June 15, 2000. This statement requires companies to record
derivatives on the balance sheet as assets or liabilities measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. FAS 133 will be effective for the Company's year
ended December 31, 2001. Management believes that this statement will not have a
material impact on the Company's financial position or results of operations.
In December 1999, the Securities and Exchange Commission staff released Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements ("SAB
101"), which provides guidance on the recognition, presentation and disclosure
of revenue in financial statements. The application of SAB 101 did not have a
material impact on the financial statements of the Company.
In March 1999, the FASB issued an exposure draft entitled "Accounting for
Certain Transactions involving Stock Compensation," which is a proposed
interpretation of APB 25. However, the exposure draft has not been finalized.
Once finalized and issued, the current accounting practices for transactions
involving stock compensation may need to change and such changes could affect
the Company's future operating results.
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<PAGE> 185
3. CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Cash and accounts receivable potentially expose the Company to concentrations of
credit risk, as defined by SFAS 105, Disclosure of Information about Financial
Instruments with Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risk. Excess cash is placed with highly rated financial
institutions. The Company provides credit, in the normal course of business, to
its customers. The Company performs ongoing credit evaluations of its customers
and maintains allowances for potential credit losses. At December 31, 1998 and
1999, three customers accounted for approximately 60% of revenues and 24% of
accounts receivable, and 57% of revenue and 54% of accounts receivable,
respectively.
4. EMPLOYEE BENEFIT PLAN
During 1998, the Company created a qualified 401(k) profit sharing plan
available to full-time employees who meet the plan's eligibility requirements.
This defined contribution plan permits employees to make contributions up to
maximum limits allowed by Internal Revenue Code. The Company, at its discretion,
matches a portion of the employee's contribution under a predetermined formula
based on the level of contribution and years of vesting service. During 1998 and
1999, the Company made contributions to the plan totaling $9,500 and $26,700,
respectively.
5. STOCK OPTIONS
Pro forma information regarding net income is required by SFAS 123, Accounting
for Stock Based Compensation, which also requires that the information be
determined as if the Company had accounted for its employee stock options
granted under the fair value method prescribed by SFAS 123. The fair value for
these options was estimated at the date of grant using the Black-Scholes pricing
model with the following weighted-average assumptions:
<TABLE>
<S> <C>
Risk-free interest rate 7.00%
Dividend yield 0.00%
Weighted-average expected life of options 2.5 years
Expected volatility .65
</TABLE>
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<PAGE> 186
5. STOCK OPTIONS (CONTINUED)
The Company has granted stock options to various employees under the terms of
the respective employee agreements. The stock options generally vest over
two-to-four years. The term of each option is ten years from the date of grant.
At December 31, 1998, the Company did not reserve common stock for future
issuance and no options were designated as being available for future grants. At
December 31, 1999, 750,000 shares of common stock were reserved for future
issuance and 184,652 options were available for future grants.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma compensation expense and net income is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1999
<S> <C> <C>
Pro forma compensation expense $ 156 $ 210,153
Pro forma net income $ 558,926 $ 139,890
</TABLE>
A summary of changes in common stock options during 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
WEIGHTED-
RANGE OF AVERAGE
EXERCISE EXERCISE
SHARES PRICES PRICES
--------------------------------------
<S> <C> <C> <C>
Options outstanding December 31, 1997 - $ - $ -
--------------------------------------
Options granted 60,000 - 0.02
Options exercised - - -
Options canceled - - -
--------------------------------------
Options outstanding, December 31, 1998 60,000 $ 0.02 $ 0.02
Options granted 505,348 $3.01 - $3.31 3.03
Options exercised - - -
Options canceled - - -
======================================
Options outstanding, December 31, 1999 565,348 $0.02 - $3.31 $ 2.71
======================================
</TABLE>
5. STOCK OPTIONS (CONTINUED)
At December 31, 1998 and 1999, the weighted-average remaining contractual life
of outstanding options was 9.03 years and 9.79 years, respectively. The
weighted-average grant-date fair value of options granted during 1998 and 1999
was approximately $0.02 and $12.12 per share, respectively. No options were
vested as of December 31, 1998 or 1999.
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<PAGE> 187
6. LINE OF CREDIT
During 1998 and 1999, the Company continued to borrow funds under an existing
line of credit agreement with a financial institution. The agreement allowed for
borrowings up to $500,000 and $750,000 at December 31, 1998 and 1999
respectively, which are secured by all assets of the Company. The line of credit
bears interest at the financial institution's prime rate plus one percent, which
was 8.75% at December 1998 and 1999. Interest is due monthly until the line
matures on June 30, 2000. At December 1998 and 1999, the Company had outstanding
balances under the line of credit approximating $315,000 and $400,000
respectively.
7. COMMITMENTS AND CONTINGENCIES
The Company leases its principle office under a noncancelable operating lease
agreement that expires in September 2001. Rental expense for all operating
leases was approximately $61,362 and $125,000 for the years ended December 31,
1998 and 1999, respectively.
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<PAGE> 188
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
As of December 31, 1999, minimum lease payments under all noncancelable lease
agreements were as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING LEASES
LEASES
---------------------------------
<S> <C> <C>
2000 $ 128,978 $ 147,321
2001 95,846 121,048
2002 29,721 29,764
2003 4,730 8,169
2004 - 6,127
---------------------------------
Total minimum lease payments $ 259,275 $ 312,429
===========
Less amount representing interest 40,003
------------
Present value of minimum lease payments 219,272
Less current portion 99,757
------------
Long-term capital lease obligation $ 119,515
============
</TABLE>
In December 1999, the Company entered into capital lease agreements for
equipment that was received subsequent to year end. The present value of the
future minimum lease commitment related to these capital leases are
approximately $45,000. The leases will expire in January 2002.
As of December 31, 1998 and 1999, the Company held approximately $129,000 (net
of $41,000 in accumulated depreciation) and $212,000 (net of $122,000 in
accumulated depreciation) in fixed asset acquired under capital leases.
8. ACQUISITION
On November 13, 1998, the Company acquired Visual Software Integrations, Inc.
("VSI") for $100,000. The consideration was allocated between computer equipment
and goodwill. As a condition of the acquisition, the Company entered into
employment agreements with the former owners of VSI which specified bonus
payments contingent
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<PAGE> 189
8. ACQUISITION (CONTINUED)
upon the successful retention of certain former VSI employees. During 1999, the
Company recognized expense of $100,000 relating to these agreements. Should
future retention goals be met, the Company could potentially be liable for an
additional $100,000.
9. INCOME TAXES
The stockholders elected to have the Company treated as a S Corporation under
the Internal Revenue Code. Accordingly, the Company does not pay federal
corporate tax on its income. The Company's stockholders include their pro rata
share of the Company's taxable income in their individual income tax returns. It
is the intent of the Company to provide distribution to its stockholders in
amounts that are at least sufficient to cover the tax effect that results from
the Company's taxable income being included in the stockholders' individual
income tax returns.
The Company is subject to state income taxes in certain states which do not
recognize S Corporation status. The Company accounts for such state income taxes
using the liability method in accordance with Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes. Under this method, deferred tax
assets and liabilities are determined based upon differences between financial
reporting and tax basis of assets and liabilities. At December 31, 1999 and
1998, deferred taxes resulted primarily from differences between the book basis
and tax basis of accounts receivable, accounts payable, and other accrued
liabilities.
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<PAGE> 190
10. SUBSEQUENT EVENTS
ACQUISITION OF COMPETE, INC.
On February 16, 2000, the shareholders of the Company entered into an Agreement
and Plan of Merger with Perficient, Inc. ("Perficient"). The aggregate purchase
price to be paid by Perficient consists of (i) $3,500,000 in cash, (ii)
$2,527,500 in promissory notes to be received within six months following the
closing, (iii) 2,200,000 shares of Perficient common stock, of which 1,100,000
shares are subject to adjustment and iv) the assumption of the Company's
outstanding employee options. The closing of the acquisition of the Company is
conditioned upon, among other things, obtaining the consent of Perficient's
stockholders. Accordingly, there can be no assurance that the acquisition will
be completed.
F-41
