<PAGE>
As filed with the Securities and Exchange Commission on March 10, 2000
Registration No. 333-______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
----------------
U.S. INTERACTIVE, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
Delaware 7379 22-3316696
---------------------------------- --------------------------- ---------------------------------------
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer Identification Number)
of Incorporation or Organization) Classification Code Number)
</TABLE>
2012 Renaissance Boulevard
King of Prussia, PA 19406
(610) 313-9700
--------------------
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
----------------
Stephen T. Zarrilli
Chief Executive Officer
U.S. Interactive, Inc.
2012 Renaissance Boulevard
King of Prussia, PA 19406
(610) 313-9700
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
----------------
Copies of all communications to:
Merritt A. Cole, Esq. Stephen A. Riddick, Esq.
Susan E. Pendery, Esq. Stephen J. Bolin, Esq.
Dilworth Paxson LLP Robin F. Wallace, Esq.
3200 Mellon Bank Center Brobeck, Phleger & Harrison LLP
1735 Market Street 701 Pennsylvania Avenue, N.W.
Philadelphia, PA 19103-7595 Washington, DC 20004
(215) 575-7000 (202) 220-6000
<PAGE>
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
========================================================================================================
Proposed Maximum Proposed Maximum
Title Of Securities Amount To Offering Price Aggregate Offering Amount Of
To Be Registered Be Registered(1) Per Share Price Registration Fee
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001
Par Value .......... 3,650,000 Shares $ 39.375(2) $ 143,718,750(2) $39,954
========================================================================================================
</TABLE>
(1) Includes 450,000 shares which the underwriters will have the options to
purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee,
pursuant to Rule 457(c) under the Securities Act of 1933, as amended, on
the basis of the average of the high and low prices for the Common Stock
on March 9, 2000, as reported by the Nasdaq National Market System.
<PAGE>
The information contained in this prospectus is not complete and may be
changed. These securities may not be sold until the registration statement
filed with the Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities, and it is not soliciting an offer to
buy these securities in any state where the offer or sale is not permitted.
Subject to Completion, dated March 10, 2000
PROSPECTUS
3,200,000 Shares
[GRAPHIC OMITTED]
Common Stock
- --------------------------------------------------------------------------------
We are a leading Internet professional services firm which provides
end-to-end (e2e) solutions to help companies take advantage of the business
opportunities presented by the Internet and various wireless and broadband
technologies.
We are offering 3,000,000 shares of our common stock in a public offering.
One of our stockholders is offering a total of 200,000 shares owned by it in
the offering. We will not receive any of the proceeds from the sale of shares
being sold by the selling stockholder.
Our common stock trades on the Nasdaq National Market under the symbol
"USIT." On March 9, 2000, the last reported sale price of the common stock on
the Nasdaq National Market was $39.44 per share.
Investing in our common stock involves risks. See "Risk Factors" beginning
on page 6 of this prospectus.
Per Share Total
----------- ---------
Public Offering Price .................... $ $
Underwriting Discount .................... $ $
Proceeds to U.S. Interactive ............. $ $
Proceeds to Selling Stockholder .......... $ $
We have granted the underwriters an option to purchase up to an aggregate
of 450,000 additional shares of common stock at the public offering price, less
the underwriting discount, within 30 days from the date of this prospectus to
cover any over-allotments.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
Lehman Brothers expects to deliver the shares of common stock on or about
, 2000.
- --------------------------------------------------------------------------------
LEHMAN BROTHERS
CHASE H&Q
DEUTSCHE BANC ALEX. BROWN
FIRST UNION SECURITIES, INC.
ADAMS, HARKNESS & HILL, INC.
, 2000
<PAGE>
COVER ART DESCRIPTION
We intend to display our Logo prominately on the left side and the right
side of the inside covers. The background will be blue, with copy written in
orange.
Underneath our logo will be our name and the following phrase:
"providing e2e Solutions to think, build, and run eBusiness"
<PAGE>
TABLE OF CONTENTS
Page
-----
Prospectus Summary .................................. 1
Risk Factors ........................................ 6
Forward-Looking Statements .......................... 13
Soft Plus Acquisition ............................... 14
Use of Proceeds ..................................... 15
Dividend Policy ..................................... 15
Price Range of Common Stock ......................... 15
Capitalization ...................................... 16
Dilution ............................................ 17
Selected Consolidated Financial Data ................ 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ....................................... 20
Page
---
Business ............................................ 28
Management .......................................... 41
Certain Relationships and Related Transactions 49
Principal and Selling Stockholders .................. 50
Description of Capital Stock ........................ 53
Shares Eligible for Future Sale ..................... 56
Underwriting ........................................ 59
Legal Matters ....................................... 61
Experts ............................................. 61
Additional Information .............................. 61
Index to Financial Statements ....................... F-1
ABOUT THIS PROSPECTUS
Investors should rely only on the information contained in this
prospectus. U.S. Interactive and the underwriters have not authorized anyone to
provide any different or additional information. This prospectus is not an
offer to sell or a solicitation of an offer to buy our common stock in any
jurisdiction where it is unlawful. The information contained in this prospectus
is accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of our common stock. This
preliminary prospectus is subject to completion prior to this offering.
The U.S. Interactive name and design and "e-Roadmap" are registered
service marks of U.S. Interactive. In addition, U.S. Interactive has filed for
service mark registration of "U.S. Interactive," "IVL Methodology," "CAPTURE"
and "e2e Solution." This prospectus also includes trademarks and trade names of
other parties.
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information and financial statements and notes appearing elsewhere in this
prospectus. Generally, this prospectus does not take into account the possible
sale of additional shares of common stock to the underwriters under the
over-allotment option granted to the underwriters.
U.S. Interactive
Our Business
We are a leading Internet professional services firm focused on providing
end-to-end (e2e) solutions to Global 2000 organizations. e2e Solutions(SM)
utilize Internet, wireless and broadband technologies to enable organizations to
fully leverage their information resources to effectively communicate, share
knowledge and conduct business transactions with key constituencies such as
employees, customers, suppliers and partners. When developing our solutions, we
draw upon our expertise in Internet strategy consulting, application
development, digital brand creation, security and enterprise application
integration.
We deliver our services through a development platform that we created and
call e-Roadmap(R). e-Roadmap is a group of service offerings that can be
customized to meet the needs of each client. These services are delivered
through our IVL Methodology(SM), a process comprised of three phases. These
phases include:
o an "Innovation" phase, during which we define the overall vision and
scope for a project
o a "Validation" phase, during which we create and test a prototype that
addresses the client's objective
o a "Launch" phase, during which we refine, integrate and deploy the final
solution
To facilitate our implementation process, we employ an extranet template,
which we refer to as CAPTURE(SM) for ongoing client communication on individual
projects. Extranets are linked computer networks designed for use by a company
and third parties that the company designates. CAPTURE serves as a
communications center for a client project that enables our clients to monitor
and comment on a project's direction and progress on a real-time basis.
To provide a comprehensive, integrated solution for our clients, we have
created a strategic alliance network with over 25 leading providers of
e-business applications, infrastructures and promotions. Some of these
alliances include Akamai, BroadVision, IBM, Intel, Microsoft and Vignette.
We have performed over 500 client projects since we commenced operations
in May 1994. For the 12 month period ending December 31, 1999, we worked on
approximately 200 client projects for companies such as AIG, adidas, Citigroup,
Commerce One, Sprint, Thomson Consumer Electronics, Toyota and Universal Music
Group.
1
<PAGE>
Our Market Opportunity
The emergence and adoption of the Internet are changing the way consumers
and organizations communicate, share information and conduct business.
Businesses are attempting to utilize innovative Internet strategies to develop
a competitive advantage to:
o attract and retain customers
o lower sales costs
o improve operational efficiencies
o strengthen supplier relationships
o improve communications
However, many businesses lack the in-house expertise required to develop
and deploy these solutions. Instead, many of these businesses are seeking
third-party service providers that can deliver integrated Internet strategy
consulting, marketing and technology expertise to develop and deploy Internet
business solutions. For instance, International Data Corp. (IDC) estimates that
the market for Internet professional services will grow from $7.8 billion in
1998 to $78.6 billion in 2003.
Our Strategy
Our strategy is to strengthen our position as a provider of Internet-based
business solutions. Key elements of this strategy include:
o developing technology frameworks for repeatable e-business solutions
o continuing vertical market penetration to take advantage of Business to
Business (B2B) e-commerce opportunities
o strengthening our relationships with technology companies such as Akamai,
BroadVision, IBM, Intel, Microsoft and Vignette
o increasing the size and scope of our business opportunities with our
clients
o enhancing our knowledge management and knowledge distribution
capabilities
o hiring and retaining skilled professionals in the areas of strategic
business consulting, online marketing and Internet technology
o expanding geographically into other metropolitan markets, both
domestically and internationally
Recent Developments
On March 8, 2000, we acquired by merger (the Merger) Soft Plus, Inc., a
California corporation with headquarters in Cupertino, California, which
provides electronic customer relationship management (e-CRM) solutions,
primarily to wireless communications providers and to other companies in the
emerging communications industry. We paid to the Soft Plus shareholders: (i)
3,391,106 unregistered shares of our common stock, (ii) $20 million in cash,
and (iii) an unsecured $80 million note due to the former shareholders of Soft
Plus to be paid upon the earlier of one year or the completion of this
offering. In addition, we assumed the stock options which were outstanding
under the Soft Plus stock option plans, which became options to purchase a total
of 1,408,866 shares of our common stock.
2
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered by U.S. Interactive ................. 3,000,000 shares
Common stock offered by the selling stockholder .......... 200,000 shares
Common stock outstanding after this offering including the
shares issued in connection with the Merger ............ 25,879,589 shares
Use of proceeds .......................................... Repayment of the $80 million note issued in
the Merger, repayment of debt under credit
facilities with a commercial bank, opening of
new offices, capital expenditures, funding of
potential acquisitions and other general
corporate purposes. U.S. Interactive will not
receive any proceeds from the sale of shares
by the selling stockholder.
Nasdaq National Market symbol ............................ USIT
</TABLE>
Common stock outstanding after this offering is based on the pro forma
number of shares outstanding as of December 31, 1999, including the shares
issued in the Merger and excluding:
o 3,400,972 shares of common stock issuable upon the exercise of stock
options outstanding at December 31, 1999, at a weighted average exercise
price of $11.94 per share
o 2,081,480 shares of common stock reserved for future grant under U.S.
Interactive's stock option plans
o 70,000 shares of common stock issuable upon the exercise of a warrant
outstanding at December 31, 1999, at an exercise price of $3.50 per share
o on a pro forma basis, 1,408,866 shares of common stock issuable upon the
exercise of stock options assumed in connection with the Soft Plus Merger,
at a weighted average exercise price of $1.86 per share
Additional Information
We were formed in August 1991 and commenced operations in May 1994. We changed
our name from MasterSmith, Inc. to U.S. Interactive, Inc. in November 1995 and
reincorporated in Delaware in September 1998. We completed our initial public
offering in August 1999. Our principal executive offices are located at 2012
Renaissance Boulevard, King of Prussia, Pennsylvania 19406, and our telephone
number is (610) 313-9700. We maintain a site on the World Wide Web at
www.usinteractive.com. The information found on our site is not a part of this
prospectus and should not be relied upon when making a decision to invest in
our common stock.
3
<PAGE>
Summary Consolidated Financial Information
The following summary historical consolidated financial data has been
derived from our audited consolidated financial statements and is not
necessarily indicative of future anticipated results of operations. This
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the consolidated
financial statements and the notes thereto, and the other information contained
in this prospectus.
On March 8, 2000, we completed a merger with Soft Plus. The unaudited pro
forma consolidated statements of operations data for the year ended December
31, 1999, reflects the effect of the Soft Plus merger as if the transaction had
occurred on January 1, 1999. The unaudited pro forma consolidated balance sheet
data as of December 31, 1999, reflects the effect of the Merger as if the
transaction had occurred on December 31, 1999.
On July 2, 1998, we completed a merger with Digital Evolution, Inc., an
Internet professional services company. The results of operations of Digital
Evolution have been included in our consolidated financial statements since
July 1, 1998.
The pro forma, as adjusted, balance sheet data gives effect to the sale of
the shares offered by us at an assumed public offering price of $39.44 per
share and the application of the net proceeds as described in "Use of
Proceeds," after deducting underwriting discounts and commissions and estimated
offering expenses.
4
<PAGE>
Summary Consolidated Financial Information
<TABLE>
<CAPTION>
Year Ended
Year Ended December 31, December 31,
---------------------------------------------------------------------- -------------
1995 1996 1997 1998 1999 1999
----------- ---------- ---------- ------------- -------------- -------------
(Pro Forma
(in thousands, except per share data) Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statements of
Operations Data:
Revenue ...................... $ 935 $ 1,950 $ 6,061 $ 13,636 $ 35,255 $ 59,540
Operating expenses ........... 882 2,295 6,319 21,927 50,098 151,274
------ ------- ------- --------- ---------- ---------
Income (loss) from opera-
tions ...................... 53 (345) (258) (8,291) (14,843) (91,734)
Other income (expense),
net ........................ (2) 235 (32) (152) 454 (4,654)
------ ------- ------- --------- ---------- ---------
Income (loss) before
income tax expense ......... 51 (110) (290) (8,443) (14,389) (96,388)
Income tax expense ........... 13 19 -- -- -- --
------ ------- ------- --------- ---------- ---------
Net income (loss) ............ 38 (129) (290) (8,443) (14,389) (96,388)
Accretion of mandatorily
redeemable preferred
stock to redemption
value ...................... -- -- -- (625) (916) (916)
------ ------- ------- --------- ---------- ---------
Net income (loss) attribut-
able to common stock-
holders .................... $ 38 $ (129) $ (290) $ (9,068) $ (15,305) $ (97,304)
====== ======= ======= ========= ========== =========
Net income (loss) per
common share:
Basic and diluted ............ $ .01 $ (.03) $ (.06) $ (1.36) $ (1.19) $ (6.00)
====== ======== ======== ========= ========== =========
Weighted average shares
outstanding used in the
basic and diluted per
common share calcula-
tion ....................... 2,813 4,486 4,737 6,670 12,826 16,217
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
-----------------------------------------
Pro Forma
Pro Forma As Adjusted
Actual (Unaudited) (Unaudited)
---------- ------------- ------------
(in thousands)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents ...................... $34,130 $ 9,953 $ 41,853
Working capital (deficit) ...................... 38,504 (64,520) 47,380
Total assets ................................... 62,278 411,754 443,654
Acquisition note payable ....................... -- 80,000 --
Long-term debt, net of current portion ......... 1,666 3,366 3,366
Total stockholders' equity ..................... 49,976 311,996 423,896
</TABLE>
5
<PAGE>
RISK FACTORS
You should carefully consider the risks described below and other
information in this prospectus before making an investment decision. If any of
the following risks actually occur, our business, financial condition or
results of operations could be materially adversely affected. As a result, the
trading price of our common stock may decline, and you may lose all or part of
your investment.
Risks Related to U.S. Interactive
Management of Growth -- We may be unable to manage our future growth
effectively.
Our success depends on our ability to effectively manage our future
growth. Our past growth has placed significant demands on our resources. We
have incurred substantial increases in expenses as our revenues have grown. As
a result, our losses have increased significantly in recent periods. For
example, our net loss was $14.4 million for the year ended December 31, 1999,
compared to $8.4 million for the year ended December 31, 1998. Our net loss
increased to $8.4 million for the year ended December 31, 1998, from $290,000
for the year ended December 31, 1997. Our net loss would have been $96.4 million
for the year ended December 31, 1999, as calculated on a pro forma basis.
A key part of our strategy is to increase our revenues, both by hiring more
personnel and by acquiring additional companies, which may continue to place a
strain on our resources. To manage any future growth effectively, we must, among
other things, do the following:
o hire, train and retain highly qualified employees
o estimate our project costs and requirements accurately
o efficiently match employees with client projects
o maintain levels of expertise that are expected by clients
o continue to refine our operational, financial and other systems
o improve, upgrade and expand our infrastructure
o manage expansion into additional geographic territories
If we do not effectively manage any future growth we may achieve, our
revenues, reputation and operating results will be materially adversely
affected. We may never be able to achieve profitability.
Integration of Current and Potential Acquisitions -- We may be unable to
achieve the anticipated benefits from our acquisition of Soft Plus or other
acquisitions we may complete.
On March 8, 2000, we completed the acquisition of Soft Plus. We may, in
the future, seek to consummate other acquisitions. Some of the risks we may
encounter in connection with our acquisition of Soft Plus and any future
acquisitions we may consummate include:
o unforeseen expenses, delays and difficulties in integrating the acquired
company into our organization
o difficulties in integrating the culture of the acquired company into our
own culture
o loss of senior executives or other key employees from the acquired
company
o adverse client reaction to the acquisition including, but not limited to,
a client's termination of contracts with us or with the acquired company
o diversion of our management team's focus during the integration process
o undisclosed or potential liabilities of the acquired company, related to
its employees, operations, business contracts or intellectual property
If we are unable to effectively manage these risks, our revenues,
reputation and operating results could be materially adversely affected.
6
<PAGE>
Hiring and Retaining Key Personnel and Other Employees -- Our success is
dependent on our personnel, who we may not be able to retain.
Our success depends on the continued employment of our executive
management team. The employment of any of our senior executives could cease at
any time. If one or more members of our executive management team cease to be
employed by us, we could be materially adversely affected.
Additionally, our success depends on our ability to identify, hire, train
and retain individuals who are highly skilled in the Internet and its rapidly
changing technology. There is intense competition in our industry for qualified
personnel. There is currently a shortage of such personnel due to the rapid
growth in demand for individuals with Internet technology-related skills. This
shortage is likely to continue for the foreseeable future. We have had
difficulty hiring a sufficient number of technical employees. We may not be
able to attract, assimilate or retain enough qualified personnel to support our
growth, and this would have a material adverse affect on our ability to retain
existing projects and bid for new projects.
Revenue Concentration -- We generate a large part of our revenues from a
limited number of clients.
For the year ended December 31, 1998, our five largest clients by revenue
accounted for approximately 36% of our revenues. For the year ended December
31, 1999, our five largest clients by revenue accounted for approximately 48%
of our revenues. Three of these clients, Chromazone LLC, Exist Corporation
(formerly known as Juggernaut Partners LLC) and Thomson Consumer Electronics,
Inc., accounted for 13%, 12% and 12%, respectively, of our revenues in this
period. We do not have long-term contracts with these clients. We may be unable
to sustain the volume of work we perform for these clients. They may terminate
their relationship with us at any time without penalty. These clients may not
retain us in the future. Any cancellation, deferral or significant reduction in
work performed for these clients could have a material adverse effect on our
business, financial condition and results of operations.
Eric Pulier, our Chairman of the Board, and John D. Shulman, a director,
are shareholders of Exist and owned during part of 1999, in the aggregate, 36%
of the equity of Exist on a fully diluted basis. Their aggregate ownership is
currently 17% on a fully diluted basis. In addition, Mr. Pulier and Mr. Shulman
each hold currently exercisable options to acquire an additional 6% of the
equity ownership of Exist. Mr. Shulman is the Chairman of the Board and Mr.
Pulier is a director of Exist. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business-Clients" and "Certain
Relationships and Related Transactions" for more information relating to our
clients.
Variability of Operating Results -- The variability of our operating results
may adversely affect our stock price.
Our operating results have fluctuated from quarter to quarter and may
continue to fluctuate in the future. Fluctuations in our operating results may
be significant. It is difficult for us to forecast accurately the frequency and
duration of our client projects. We incur expenses, which are mainly fixed
expenses, based on our expectations concerning the costs of our future
projects. We may not be able to adjust our spending in a timely manner to
compensate for any shortfall in our projected revenues. In the event of such a
shortfall, our expenses as a percentage of our revenue would increase. Our
operating results may fluctuate because of:
o the number, size and scope of projects
o the accuracy of our project estimates
o project delays
o our ability to hire, train and retain qualified personnel
o the amount and timing of client expenditures for our consulting services
o the amount and timing of our capital expenditures and other costs
relating to the expansion of our operations
o the amortization of goodwill relating to acquisitions
7
<PAGE>
o our ability to utilize our employees in a cost efficient manner
We also have experienced seasonality with respect to our revenues that has
resulted in lower revenue during summer, year-end vacation and holiday periods.
Our quarterly operating results may not meet the expectations of analysts
or investors. This may cause a decline in the market price of our common stock.
Contract Terminations -- If a large client project or a significant number of
other client projects are terminated or reduced, we may have a large number of
employees who are not generating revenue.
Most of our client projects may be canceled by the client without penalty.
We may have a large number of employees who are not generating revenue if a
large client project or a significant number of client projects are terminated
or materially reduced. When a client project is completed, terminated,
postponed or materially reduced, we must shift our employees to other client
projects or they will not be generating revenue. If we do not use these
employees efficiently on other projects, our revenues will decrease and our
results of operations will be materially adversely affected.
Fixed Price Contracts -- We have many fixed price contracts which create a risk
that the costs we incur in performing these contracts will exceed the revenues
we will receive for these contracts.
For the year ended December 31, 1999, approximately 61% of our revenue was
derived from fixed price contracts. There are many risks and difficulties
associated with fixed price contracts. To achieve profitability from fixed
price contracts, we must, among other things:
o accurately estimate the resources required to perform these contracts
o complete our clients' projects on a timely basis
o effectively manage our clients' expectations
o complete the projects within budget and to our clients' satisfaction
If we do not successfully accomplish these goals, we could be exposed to
cost overruns and penalties. If this occurs in connection with a large project
or a sufficient number of projects, our revenues will decrease and our results
of operations will be materially adversely affected.
Complex and Critical Projects -- If we fail to meet our clients' expectations,
we could severely damage our reputation and have difficulty attracting new
business.
Many of our projects are complex and critical to the success of our
clients' businesses. Our reputation could be severely damaged if we fail to
meet a client's expectations. This could materially adversely affect our
ability to attract new business from that client or others. In addition, some
clients might sue us in an attempt to collect monetary damages. If these events
were to occur, our revenues, results of operations and financial condition may
be materially adversely affected.
Limited Management History -- The majority of our senior management team has
worked together in their present capacities for less than one year.
Subsequent to our initial public offering, we have added one new member to
our senior management team, James J. Huser, the General Manager of our Los
Angeles office, who became our Chief Operating Officer in December 2000. (Mr.
Huser will continue to serve as General Manager of our Los Angeles office
through March 2000.) Since the Merger, Mohan Uttarwar has served as President
of our subsidiary, U.S. Interactive Corp. (Delaware). The majority of our
senior management team has worked together in their present capacities for less
than one year. Our success depends on the ability of our management team to
work together effectively. Our business, revenues, results of operations and
financial condition will be materially adversely affected if our management
team does not manage our business effectively, or if we are unable to retain
existing senior management personnel.
8
<PAGE>
History of Losses -- We have a history of losses, and we may never achieve
profitability.
Since our inception, we have incurred significant losses. As of December
31, 1999, we have an accumulated deficit of approximately $24.7 million. Our
net loss in 1999 was $14.4 million. Our revenue may never be sufficient for us
to recognize a profit. We intend to continue to make significant investments
in:
o the development of our infrastructure
o marketing and sales
o geographic expansion
As a result, we may continue to incur substantial losses even if our
revenues increase. We may never achieve profitability.
Strategic Relationships -- We may not be successful in retaining our current
relationships or entering into new relationships.
We have strategic relationships with over 25 companies. We have written
agreements with 12 companies, and all other strategic relationships rely on
oral agreements. These relationships are non-exclusive and the other parties
are free to enter similar or more favorable relationships with our competitors.
Whether written or oral, the agreements underlying our relationships are
general in nature, do not legally bind the parties, have indefinite terms and
may be ended at the will of either party. We may not be able to maintain our
existing strategic relationships, and may fail to enter into new relationships.
If we are unable to maintain these relationships, the benefits we derive from
these relationships to joint-market or otherwise collaborate and cooperate with
these companies may be lost. If we are unable to maintain our existing
strategic relationships, or fail to enter into new relationships, we may not
gain access to technologies and client opportunities that are important to our
business. This may have a material adverse effect on our business, financial
condition and results of operations.
Intellectual Property -- Our success depends, in part, on intellectual property
which may be difficult to protect. This could affect our ability to compete
effectively.
Existing trade secret and copyright laws give us only limited protection
for our copyrights, trademarks and trade secrets. Third parties may attempt to
disclose, obtain or use our intellectual property without paying us. This is
particularly true in foreign countries where laws or law enforcement practices
may not protect our intellectual property rights as fully as in the United
States. Third parties may independently develop and obtain patents or
copyrights for technologies that are similar or superior to our technologies.
Year 2000 -- Year 2000 compliance issues may adversely affect either our
clients or us.
Prior to January 1, 2000, there was a great deal of concern regarding the
ability of computers to adequately recognize 21st century dates from 20th
century dates due to the two-digit date fields used by many systems. Most
reports to date, however, are that computer systems are functioning normally
and the compliance and remediation work accomplished leading up to the year
2000 was effective to prevent any problems. Computer experts have warned that
there may still be residual consequences of the change in centuries and any
such difficulties could result in a decrease in the services we provide, an
increase in allocation of our and our client's resources to address Year 2000
problems without additional revenue commensurate with such dedication of
resources, or an increase in litigation costs relating to losses suffered by us
or our clients due to such Year 2000 problems.
Risks Related to our Industry
Competition -- We may not be able to compete successfully.
The market for Internet professional services is intensely competitive and
subject to rapid technological change. We compete with:
9
<PAGE>
o other Internet professional services firms
o information technology consulting and integration firms
o web design firms
o management consulting firms
o software application providers
o application service providers
In addition, we face potential competition from the in-house technology
and marketing departments of our clients and potential clients.
Many of our current and potential competitors have advantages over us.
These advantages include longer operating histories, larger client bases and
significantly greater financial, personnel, marketing, sales and public
relations resources. These competitors may increase their commitments to our
market in response to the growth of the Internet.
There are relatively low barriers to entry into our business. We expect
that we will face additional competition from new entrants into the market in
the future. Existing or future competitors may develop or offer services that
provide significant performance, price, creative or other advantages over those
offered
by us.
Our revenues and results of operations will be adversely affected if we do
not compete successfully.
Market Acceptance -- Continued market acceptance of our industry is uncertain.
Widespread market acceptance of the outsourcing of the design, development
and maintenance of Internet-based applications to Internet professional
services firms is uncertain. Many of our potential clients may ultimately
decide to perform these services in-house. In-house personnel may have better
access to both key client decision-makers and the information required to
prepare proposals for such solutions. If independent providers of Internet
professional services prove to be unreliable, ineffective or too expensive, or
if software companies develop tools that are sufficiently user-friendly and
cost-effective, companies may instead choose to design, develop or maintain
their Internet-based applications internally. We will be materially adversely
affected if the market for our services does not continue to develop or
develops more slowly than we expect, or if our services are not accepted by the
market.
Rapid Technological Change -- Our industry is characterized by rapid
technological change, a pace which we may not be able to match.
The market for Internet professional services is characterized by rapid
technological change including:
o changing client requirements and preferences
o frequent new product and service introductions embodying new processes
and technologies
o evolving industry standards and practices
These changes could render our existing service practices and methods
out-of-date. Our success will depend, in large part, on our ability to:
o improve on the performance and reliability of existing services
o develop new services and solutions that address increasingly
sophisticated and varied client needs
o respond to technological advances
o respond to emerging industry standards and practices
o respond to the innovations of our competitors
10
<PAGE>
If we do not respond effectively to these developments, our business,
financial condition and results of operations would be materially adversely
affected.
Decline in Internet Usage -- Lack of growth or decline in Internet usage could
cause our business to suffer.
We have derived all of our revenue from projects involving the Internet.
Our business will be adversely affected if Internet usage does not continue to
grow. Internet usage may not continue to grow because of inadequate network
infrastructure, security concerns, inconsistent service quality and lack of
cost-effective, high-speed service, among other reasons. On the other hand, if
Internet usage grows too rapidly, the Internet infrastructure may not support
the demands this growth will place on it. As a result, the Internet's
performance and reliability may decline. In addition, outages and delays have
occurred throughout the Internet network infrastructure and have interrupted
Internet service. If these outages or delays occur frequently in the future,
Internet usage could grow more slowly or decline.
We may also incur substantial costs to keep up with changes surrounding
the Internet. Unresolved critical issues concerning the commercial use and
government regulation of the Internet include the following:
o security
o cost and ease of Internet access
o intellectual property ownership
o privacy
o taxation
o liability issues
Any costs we incur due to these factors would materially and adversely affect
our business, financial condition and results of operations.
Risks Related to the Offering
Shares Eligible for Future Sale -- If our current stockholders sell significant
amounts of additional shares of our common stock, our stock price may decline.
The market price of our common stock could decline as a result of sales of
a large number of shares in the market after this offering, or the perception
that such sales could occur. This may make it more difficult for us to raise
funds through future offerings of our common stock. Certain shares of our
common stock that were outstanding on December 31, 1999, will not be sold in the
offering and will become eligible for sale without registration pursuant to
Rule 144 or Rule 701 under the Securities Act as follows:
o 3,697,562 shares are currently eligible for sale into the public market
under Rule 144(k) or Rule 701
o 8,171,791 shares are eligible for sale under Rule 144
o 919,120 shares of common stock will become eligible for sale from time to
time after the date of this prospectus under Rule 144 upon expiration of
their respective holding periods
Some holders of shares of our common stock outstanding immediately prior to
the offering also have registration rights relating to a total of 4,145,982
shares of our common stock (other than shares which are being sold by the holder
in this offering), enabling them to require us to register their shares under
the Securities Act for sale in the future. The underwriters have requested that
the stockholder who is selling shares in this offering, who will hold a total of
492,355 shares outstanding after the offering, agree not to sell shares of our
common stock for 90 days after the date of this prospectus without the consent
of Lehman Brothers Inc.
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<PAGE>
Control Over U.S. Interactive -- The interests of our controlling stockholders
may conflict with our interests and the interests of our other stockholders.
Upon the consummation of the offering, eight stockholders, including two
former executive officers and Safeguard Scientifics, Inc., collectively, will
own approximately 41.2% of our outstanding common stock. If our controlling
stockholders chose to act together, they may be able to exert considerable
influence over us, including in the election of directors and the approval of
actions submitted to our stockholders. In addition, without the consent of
these stockholders, we may be prevented from entering into transactions that
could be beneficial to us. The interests of our controlling stockholders could
conflict with the interests of our other stockholders.
Volatility of Stock Price -- Our common stock price has been and is likely to
continue to be highly volatile.
The public markets often experience extreme price and volume fluctuations.
In some cases these fluctuations are unrelated to the operating performance of
particular companies or industries. New issues and securities of
Internet-related companies in particular are often subject to greater
fluctuation than the stock markets in general. The trading price of our common
stock has and may continue to fluctuate widely. This volatility may result from
many events directly involving us, including our operating results, potential
litigation, strategic relationship developments and analysts' statements.
Volatility may also result from developments not directly involving us such as
general economic, industry and market conditions and competitive developments.
In particular, the market prices of the securities of Internet-related
companies have been especially volatile. In the past, companies that have
experienced volatility in the market price of their stock have been the subject
of securities class action litigation. We would incur substantial costs and
experience a diversion of our management's attention and resources if we were
the subject of securities class action litigation.
Anti-takeover Mechanisms -- Our certificate of incorporation and Delaware law
contain provisions that could discourage a takeover.
Our certificate of incorporation provides for the division of our board of
directors into three classes and provides our board of directors the power to
issue shares of preferred stock without stockholder approval. This preferred
stock could have voting rights, including voting rights that could be superior
to that of our common stock, and the board of directors has the power to
determine these voting rights. In addition, Section 203 of the Delaware General
Corporation Law contains provisions which impose restrictions on stockholder
action to acquire control of U.S. Interactive. The effect of these provisions
of our certificate of incorporation and Delaware law provisions would likely
discourage third parties from seeking to obtain control of U.S. Interactive.
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<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements under the captions
"Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business" and elsewhere. These
forward-looking statements include statements about the following:
o implementing our business strategy
o managing our growth and employee costs
o our business and growth strategies and other statements contained herein
that are not historical facts
When used in this prospectus, the words "anticipate," "believe,"
"estimate," "expect," "seek," "intend," "may" and similar expressions are
generally intended to identify forward-looking statements. There are important
factors that could cause actual results to differ materially from those
expressed or implied by such forward-looking statements including:
o changes in general economic and business conditions and those in the
Internet professional services market in particular
o changes in Internet-related technologies
o actions of competitors
o the extent to which we are able to expand our business into new markets
o our inability to effectively manage our growth
o the level of demand for our services
o changes in our business strategies
o our inability to obtain financing when required
o other factors discussed under the caption "Risk Factors"
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<PAGE>
SOFT PLUS ACQUISITION
On March 8, 2000, we acquired by merger Soft Plus, with headquarters in
Cupertino, California, which provides e-CRM solutions primarily to wireless
communications providers and other companies in the emerging communications
industry. We paid to the Soft Plus shareholders: (i) 3,391,106 unregistered
shares of our common stock, (ii) $20 million in cash, and (iii) an unsecured
$80 million note due to the former shareholders of Soft Plus. In addition, we
assumed the stock options which were outstanding under Soft Plus' stock option
plans, which became options to purchase a total of 1,408,866 shares of our
common stock. As a result of the Merger, Soft Plus became our wholly owned
Delaware subsidiary with the name "U.S. Interactive Corp. (Delaware)."
The amount of principal which we must pay under the $80 million note will
be reduced under certain circumstances relating to (i) our rights to be
indemnified by the principal shareholders of Soft Plus under the Merger
agreement, (ii) the results of certain audits being performed after the closing
of the Merger, and (iii) costs incurred by Soft Plus in the Merger above agreed
levels. The $80 million note is due and payable on the earlier of March 8, 2001
or the closing of this offering. We intend to pay the $80 million note in full
with a portion of the proceeds of this offering.
To secure any of our potential indemnification claims against the former
principal shareholders of Soft Plus under the Merger agreement, we placed in
escrow for one year a total of 717,972 of the 3,391,106 shares of our common
stock issued in the Merger. These shares will be released from the escrow to
satisfy any valid indemnification claims we make during the one-year period
following March 8, 2000, the closing date of the Merger.
We are holding an additional 127,013 of the shares of our common stock
issued in the Merger these shares were exchanged in the Merger for shares of
Soft Plus common stock that had been acquired by a total of 12 persons under
restricted stock purchase agreements. These shares continue to be subject to a
right of repurchase upon termination of employment or engagement by us of these
former Soft Plus shareholders. Our right to repurchase a portion of these share
lapses on a monthly basis over periods ranging from 30 to 36 months commencing
on March 8, 2000.
At the closing of the Merger, the President and CEO of Soft Plus, Mohan
Uttarwar, entered into an employment agreement with us under which he is now
employed as the President of our subsidiary, U.S. Interactive Corp. (Delaware).
Moreover, on March 8, 2000, Mr. Uttarwar was appointed to fill the unexpired
term of the vacant seat on our board of directors, which term ends on the date
of the 2001 annual meeting of our stockholders. Since the closing of the Merger,
in addition to Mr. Uttarwar, each of the other principal shareholders of Soft
Plus has also become our employee and has entered into a Non-Disclosure,
Assignment of Developments, Non-Solicitation and Non-Competition Agreement with
us that, among other things, prohibits each principal shareholder from competing
with us for one year following termination of their employment with us, or for a
period of two years from March 8, 2000, the date the Merger closed, whichever
date is later.
Shareholders of Soft Plus holding a total of approximately 2,880,351
unregistered shares of our common stock which they received in the Merger
signed an agreement requiring them to hold their shares for up to two years,
with the restriction to lapse with respect to 25% of the shares every six
months beginning on a date six months following the closing of the Merger.
We agreed to register for resale up to 25% of the shares of our stock which are
subject to the lock-up restrictions when we are eligible to register shares of
our common stock on Form S-3. We granted additional limited registration rights
under a registration rights agreement covering the shares of our common stock
issued in the Merger. Additional information regarding the lock-up restrictions
and registration rights is provided below under "Shares Eligible For Future
Sale."
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<PAGE>
USE OF PROCEEDS
Based on an assumed offering price of $39.44 per share, we estimate that
our net proceeds from the sale of the 3,000,000 shares of our common stock by
us in this offering will be approximately $111.9 million, after deducting
underwriting discounts and estimated offering expenses payable by us. We will
not receive any proceeds from the sale of our common stock by our selling
stockholder.
We intend to use approximately $80 million of the proceeds from the
offering to repay the Soft Plus note. We intend to use the balance of the net
proceeds to repay any outstanding balance under our revolving credit agreement
with a commercial bank, open new offices and for other general corporate
purposes. In addition, we may use a portion of the net proceeds from this
offering for acquisitions. We actively investigate and conduct discussions with
potential candidates for acquisition, joint venture opportunities or other
relationships on an ongoing basis. However, we are not presently conducting
discussions or negotiations with respect to any such material transactions.
Pending such uses, we will invest the net proceeds of this offering in
short-term, investment grade securities.
There was no outstanding balance under our revolving credit agreement on
December 31, 1999. Borrowings under the revolving credit agreement bear
interest at variable rates which averaged 9.06% for the year ended December 31,
1999. We may reborrow amounts under our revolving credit agreement, which will
be available for future borrowings through June 30, 2000.
DIVIDEND POLICY
We have not paid cash dividends on our common stock. We do not currently
anticipate paying any cash dividends, as we currently intend to retain all
future earnings to fund the development and growth of our business. Future
decisions regarding cash dividends on our common stock will be made by our
board of directors. These decisions will depend on our results of operations,
financial position, capital requirements, general business conditions and
restrictions imposed by any financing arrangements. Our revolving credit
agreement currently prohibits the payment of dividends.
PRICE RANGE OF COMMON STOCK
Our common stock has been quoted on the Nasdaq National Market since
August 10, 1999, under the symbol "USIT." Prior to that time, there was no
public market for our common stock. The following table sets forth, for the
periods indicated, the high and low closing sales prices per share of the
common stock on the Nasdaq National Market.
Common Stock Price
--------------------------
1999 High Low
- ----- ------------ -----------
Third Quarter (from August 10, 1999) .......... $ 29.63 $ 10.00
Fourth Quarter ................................ $ 56.13 $ 18.50
2000
- ----
First Quarter (through March 9, 2000) ......... $ 76.50 $ 39.00
On March 9, 2000, the last reported sale price for our common stock on the
Nasdaq National Market was $39.44 per share. As of March 9, 2000, there were
approximately 450 holders of record of our common stock.
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<PAGE>
CAPITALIZATION
The following table sets forth:
o our total capitalization as of December 31, 1999
o our pro forma capitalization as of December 31, 1999, to give effect to
the Merger
o our pro forma, as adjusted capitalization to give effect to the sale of
3,000,000 shares of common stock by us pursuant to this offering and the
application of the estimated net proceeds of approximately $111.9 million.
You should read this information together with the consolidated financial
statements and notes to those consolidated financial statements and the
unaudited pro forma combined financial statements and the notes thereto
appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
As of December 31, 1999
-------------------------------------------
Pro Forma
Pro Forma As Adjusted
Actual (Unaudited) (Unaudited)
------------ ------------- ------------
(dollar amounts in thousands)
<S> <C> <C> <C>
Long-term debt and capital lease obligations, current portion ......... $ 977 $ 1,528 $ 1,528
Acquisition note payable, short term .................................. -- 80,000 --
Long-term debt and capital lease obligations, net of current portion 1,666 3,366 3,366
--------- --------- ---------
Stockholders' equity:
Preferred stock, $.001 par value; 15,000,000 shares authorized, no
shares issued and outstanding -- actual, pro forma and pro forma
as adjusted .......................................................... -- -- --
Common stock, $.001 par value; 90,000,000 shares authorized,
20,551,192 shares issued of which 19,488,483 are outstanding --
actual; 23,942,298 shares issued of which 22,879,589 are out-
standing -- pro forma and 26,942,298 shares issued of which
25,879,589 shares are outstanding, pro forma as adjusted ............. 21 24 27
Additional paid-in capital ............................................ 80,581 342,598 454,495
Deferred stock compensation ........................................... (831) (831) (831)
Treasury stock, 1,062,709 shares, at cost ............................. (5,055) (5,055) (5,055)
Accumulated deficit ................................................... (24,740) (24,740) (24,740)
--------- --------- ---------
Total stockholders' equity ............................................ 49,976 311,996 423,896
--------- --------- ---------
Total capitalization .................................................. $ 51,642 $ 315,362 $ 427,262
========= ========= =========
</TABLE>
The foregoing table excludes as of December 31, 1999:
o 3,400,972 shares of common stock issuable upon the exercise of
outstanding stock options at a weighted average exercise price of $11.94
per share
o 2,081,480 shares of common stock reserved for future grant under our
stock option plans
o 70,000 shares of common stock issuable upon the exercise of a warrant
outstanding at December 31, 1999, at an exercise price of $3.50 per share
o on a pro forma basis, 1,408,866 shares of common stock issuable upon the
exercise of stock options assumed in connection with the Soft Plus merger
at a weighted average exercise price of $1.86 per share
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<PAGE>
DILUTION
Our pro forma net tangible book value at December 31, 1999, was $(57.2)
million, or $(2.50) per share of common stock. Pro forma net tangible book
value per share represents the amount of our stockholders' equity less
intangible assets divided by the total number of shares of common stock
outstanding on a pro forma basis after giving effect to the Merger.
Net tangible book value dilution per share represents the difference
between the amount per share paid by the purchasers of shares of our common
stock in this offering and the net tangible book value per share of our common
stock immediately after completion of this offering. Our pro forma net tangible
book value as of December 31, 1999, would have been $54.7 million, or $2.11 per
share after
o giving effect to our sale of 3,000,000 shares of common stock offered by
this prospectus at an assumed public offering price of $39.44 per share
o deducting underwriting discounts and estimated offering expenses
o giving effect to the Merger
This represents an immediate increase in pro forma net tangible book value
of $4.61 per share to existing stockholders and an immediate dilution in pro
forma net tangible book value of $37.33 per share to new investors purchasing
shares at the assumed public offering price. The following table illustrates
this per share dilution:
<TABLE>
<S> <C> <C>
Assumed offering price per share ......................................... $ 39.44
Pro forma net tangible book value per share as of December 31, 1999 ...... $(2.50)
Increase per share attributable to new investors ......................... $ 4.61
------
Pro forma net tangible book value per share after this offering .......... $ 2.11
-------
Net tangible book value dilution per share to new investors .............. $ 37.33
=======
</TABLE>
The foregoing table excludes 4,879,838 shares of common stock issuable
upon exercise of an outstanding warrant and outstanding stock options at a
weighted average exercise price of $8.91 per share. The table also excludes
2,081,480 shares reserved for future grants under our stock option plans. The
exercise of the outstanding warrant and stock options will cause further
dilution to new investors.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated statement of operations data for each of the years in the
three-year period ended December 31, 1999, and the consolidated balance sheet
data as of December 31, 1998 and 1999 are derived from our consolidated
financial statements, which have been audited by KPMG LLP, independent
accountants, and are included elsewhere in this prospectus. The consolidated
statement of operations data for each of the years in the two-year period ended
December 31, 1996, and the balance sheet data as of December 31, 1995, 1996 and
1997 have been derived from our audited financial statements that are not
included in this prospectus. The historical results are not necessarily
indicative of results to be expected for any future period. The selected
consolidated financial data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the consolidated financial statements and the notes thereto and
the unaudited pro forma combined financial statements and the notes thereto.
The unaudited pro forma consolidated statements of operations data for the
year ended December 31, 1999, reflect the effect of the Soft Plus merger, as if
the transaction had occurred on January 1, 1999. The unaudited pro forma
consolidated balance sheet as of December 31, 1999, reflects the effect of the
Soft Plus merger as if the transaction had occurred on December 31, 1999.
18
<PAGE>
Selected Consolidated Financial Data
<TABLE>
<CAPTION>
Year Ended December 31, Year Ended
--------------------------------------------------------------- December 31,
1995 1996 1997 1998 1999 1999
-------- ---------- ---------- ------------- -------------- -------------
(in thousands, except per share data)
(Pro Forma
Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statements of Operations
Data:
Revenue ....................................... $ 935 $ 1,950 $ 6,061 $ 13,636 $ 35,255 $ 59,540
Operating costs and expenses:
Project personnel and related expenses ....... 544 945 2,841 7,405 18,687 32,051
Management and administrative ................ 316 1,012 2,196 7,876 17,370 25,953
Research and development ..................... -- -- -- -- -- 2,764
Marketing and sales .......................... 5 277 1,013 2,054 3,531 7,187
Depreciation and amortization ................ 17 61 269 4,592 10,510 83,319
------ ------- ------- --------- ---------- ---------
Total Operating Expenses .................. 882 2,295 6,319 21,927 50,098 151,274
------ ------- ------- --------- ---------- ---------
Income (loss) from operations ................. 53 (345) (258) (8,291) (14,843) (91,734)
Other income (expense), net ................... (2) 235 (32) (152) 454 (4,654)
------- ------- ------- --------- ---------- ---------
Income (loss) before income tax expense ....... 51 (110) (290) (8,443) (14,389) (96,388)
Income tax expense ............................ 13 19 -- -- -- --
------ ------- ------- --------- ---------- ---------
Net income (loss) ............................. 38 (129) (290) (8,443) (14,389) (96,388)
Accretion of mandatorily redeemable
preferred stock to redemption value .......... -- -- -- (625) (916) (916)
------ ------- ------- --------- ---------- ---------
Net income (loss) attributable to common
stockholders ................................. $ 38 $ (129) $ (290) $ (9,068) $ (15,305) $ (97,304)
====== ======= ======= ========= ========== =========
Net income (loss) per common share:
Basic and diluted ............................. $ .01 $ (.03) $ (.06) $ (1.36) $ (1.19) $ (6.00)
====== ======== ======== ========= ========== =========
Weighted average shares outstanding used in
the basic and diluted per common share
calculation .................................. 2,813 4,486 4,737 6,670 12,826 16,217
</TABLE>
<TABLE>
<CAPTION>
December 31,
1995 1996 1997 1998
------ -------- -------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents ...................... $ 13 $ 594 $ 786 $ 3,698
Working capital (deficit) ...................... 105 747 701 1,916
Total assets ................................... 238 1,770 4,122 22,262
Acquisition note payable ....................... -- -- -- --
Long-term debt, net of current portion ......... -- 46 79 583
Manditorily redeemable convertible preferred
stock ........................................ -- -- -- 17,293
Total stockholders' equity (deficit) ........... 73 1,111 1,795 (1,820)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31,
1999
----------------------------------------
(in thousands)
Pro Forma
Pro Forma As Adjusted
Actual (Unaudited) (Unaudited)
----------- ------------- ------------
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents ...................... $ 34,130 $ 9,953 $ 41,853
Working capital (deficit) ...................... 38,504 (64,520) 47,380
Total assets ................................... 62,278 411,754 443,654
Acquisition note payable ....................... -- 80,000 --
Long-term debt, net of current portion ......... 1,666 3,366 3,366
Manditorily redeemable convertible preferred
stock ........................................ -- -- --
Total stockholders' equity (deficit) ........... 49,976 311,996 423,896
</TABLE>
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion together with "Selected
Consolidated Financial Data," our consolidated financial statements and the
notes to those financial statements elsewhere in this prospectus. In addition
to historical information, this discussion contains forward-looking information
that involves risks and uncertainties. Our actual results could differ
materially from those anticipated by such forward-looking information due to
competitive factors, risks associated with our expansion plans and other
factors discussed under "Risk Factors" and elsewhere in this prospectus.
Overview
Revenue. Revenue is derived from fixed fee or time and materials
contracts. Revenue under fixed fee arrangements is recognized on the
percentage-of-completion method based on the ratio of costs incurred to total
estimated costs. Fees and expenditures in excess of billings represent the
costs incurred on projects and anticipated profits earned on projects in excess
of amounts billed to date. These amounts are recorded as an asset. Billings in
excess of fees and expenditures represent amounts billed in excess of costs
incurred and estimated profit earned. These amounts are recorded as a
liability. Revenues exclude reimbursable expenses charged to clients. Losses on
projects in progress are recognized when known.
Approximately 61% of our revenue for the year ended December 31, 1999, was
derived from fixed fee arrangements. The percentage of our revenue that is
derived from fixed fee arrangements may increase in the future. Substantially
all of our client projects may be terminated early by the client without
penalty.
Cost Structure. The largest portion of our costs consists of
employee-related expenses for our project personnel and other direct costs,
such as third-party vendor costs. The remainder of our costs are associated
with the development of our business and support of our project personnel, such
as marketing and sales, and management and administrative support. Marketing
and sales consists primarily of personnel costs and commissions as well as the
cost associated with our development and maintenance of our marketing materials
and programs. Management and administrative expense consists primarily of the
costs associated with:
o operations
o finance
o human resources
o information systems
o facilities and other administrative support for project personnel
We regularly review our fees for services, compensation and overhead costs
in an effort to remain competitive within our industry. In addition, we monitor
the progress of client projects with our clients' senior management from time
to time. Monitoring the costs and progress associated with each project is
aided by our intranet-based project management systems. We manage the
activities of our service delivery personnel by monitoring project schedules
closely and staffing requirements for new projects. Most of our client projects
can, and may in the future, be terminated by the client without penalty. As a
result, an unanticipated termination of a client project could require us to
maintain underutilized employees, resulting in higher than expected percentage
and number of inactive professionals. While we intend to adjust our
professional staff to reflect our active projects, we must maintain a
sufficient number of senior professionals to oversee existing and anticipated
client projects and participate with our sales efforts to secure new client
projects.
Variability of Operating Results. Our operating results have fluctuated
from quarter to quarter and may continue to fluctuate in the future. These
fluctuations may be significant. It is difficult for us to forecast accurately
the frequency and duration of our projects. We incur expenses, which are mainly
fixed expenses, based on our expectations concerning the costs of our future
projects. We may not be able to adjust our
20
<PAGE>
spending in a timely manner to compensate for any shortfall in our projected
revenues. In the event of such a shortfall, our expenses as a percentage of our
revenue would increase. We also have experienced seasonality with respect to
our revenues that has resulted in lower revenue during summer, year-end
vacation and holiday periods.
In July 1998, we completed the Digital Evolution merger, which resulted in
the issuance of 4,383,954 shares of common stock and 1,573,533 shares of Series
A preferred stock to the shareholders of Digital Evolution. Prior to the
merger, Digital Evolution was an Internet professional services firm. The
Digital Evolution merger has been accounted for using the purchase method of
accounting. Of the total value of the consideration paid of $17.0 million,
$872,000 has been allocated to the fair value of the net tangible assets
acquired and liabilities assumed, and $16.1 million has been allocated to
goodwill and other intangible assets, which is being amortized over a two year
period. The annual amortization expense associated with this goodwill and other
intangible assets is approximately $8.0 million. The results of operations of
Digital Evolution have been consolidated with our results of operations since
July 1, 1998.
In March 1999, we acquired certain assets and assumed certain liabilities
of InVenGen LLC, a regional Internet professional service firm, in exchange for
584,800 shares of our common stock having an estimated fair market value of
$2,924,000 at the time of the transaction. The acquisition was accounted for
using the purchase method of accounting. Accordingly, a portion of the purchase
price was allocated to the net assets acquired and liabilities assumed. The
balance of the purchase price was recorded as goodwill and is being amortized
over two years. The results of operations of InVenGen LLC have been
consolidated with our results of operations since April 1, 1999.
In March 2000, we acquired by the merger Soft Plus, a provider of e-CRM
solutions. We paid to the Soft Plus shareholders in the Merger: (i) 3,391,106
unregistered shares of our common stock, (ii) $20 million in cash, and (iii) an
unsecured $80 million note due to the former shareholders of Soft Plus to be
paid upon the earlier of one year or the completion of this offering. In
addition, we assumed the stock options which were outstanding under Soft Plus'
stock option plans, which became options to purchase a total of 1,408,866
shares of our common stock. The Merger will be accounted for using the purchase
method of accounting. Accordingly, the purchase price will be allocated to the
net assets acquired and liabilities assumed. The balance of the purchase price
will be allocated to goodwill and other intangible assets and amortized over
their estimated useful lives of approximately five years.
Results of Operations
The following table sets forth, as a percentage of revenue, our statement
of operations for the years ended December 31, 1997, 1998 and 1999.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1997 1998 1999
---------- ----------- ----------
<S> <C> <C> <C>
Statement of Operations Data:
Revenue ......................................................... 100% 100% 100%
Operating costs and expenses:
Project personnel and related expenses ......................... 47 54 53
Management and administrative .................................. 36 58 49
Marketing and sales ............................................ 17 15 10
Depreciation and amortization .................................. 4 34 30
---- ---- ---
Total operating expenses ..................................... 104 161 142
---- ---- ---
Operating loss .................................................. (4) (61) (42)
Other income (expense), net ..................................... (1) (1) 1
----- ---- ---
Loss before income tax expense .................................. (5) (62) (41)
Income tax expense .............................................. -- -- --
---- ----- ---
Net loss ........................................................ (5) (62) (41)
Accretion of mandatorily redeemable preferred stock to redemption
value .......................................................... -- (5) (2)
Net loss attributable to common stockholders .................... (5)% (67)% (43)%
==== ===== =====
</TABLE>
21
<PAGE>
1999 Compared to 1998
Revenue. Revenue increased $21.7 million, or 159%, to $35.3 million for
the year ended December 31, 1999 from $13.6 million for the year ended December
31, 1998. This increase in revenue was primarily due to growth in services
delivered to new clients, additional projects for existing clients and larger
average project sizes.
Project Personnel and Related Expenses. Project personnel and related
expenses consist primarily of payroll, associated taxes, employee benefits and
any third-party fees incurred in the delivery of our services. These costs
increased $11.3 million, or 152%, to $18.7 million for the year ended December
31, 1999, from $7.4 million for the comparable period of 1998. The increase was
primarily due to the increase in the hiring of project personnel as well as
increased contracted services associated with the increased demand for our
services. Headcount for project personnel as of December 31, 1999, was 245
compared with 131 as of December 31, 1998. As a percentage of revenue, project
personnel and related expenses were 53% for the year ended December 31, 1999,
and 54% for the year ended December 31, 1998.
Management and Administrative. Management and administrative expenses
increased $9.5 million, or 121%, to $17.4 million for the year ended December
31, 1999, from $7.9 million for the same period of 1998. The increase was
principally due to expenses incurred to accommodate current and anticipated
growth, including the expansion of office facilities and the increased cost of
management and administrative personnel and other general operating expenses in
the areas of legal, accounting, human resources, travel and general operations.
Office rent expense increased to $2.1 million for the year ended December 31,
1999, from $1.1 million for the year ended December 31, 1998. Management and
administrative headcount increased to 112 as of December 31, 1999, from, 58 as
of December 31, 1998. The increases in office rent and personnel accounted for
11% and 40% of the overall increase, respectively. As a percentage of revenue,
management and administrative expense was 49% for the year ended December 31,
1999, and 58% for the year ended December 31, 1998.
Marketing and Sales. Marketing and sales expenses increased $1.5 million,
or 71%, to $3.5 million for the year ended December 31, 1999, from $2.1 million
for the same period in 1998. The increase was attributable to the continuing
investment in our marketing and sales programs including the hiring of new
business development and marketing personnel. As a percentage of revenue,
marketing and sales expenses were 10% for the year ended December 31, 1999, and
15% for the year ended December 31, 1998.
Depreciation and Amortization. Depreciation and amortization increased
$5.9 million to $10.5 million for the year ended December 31, 1999, from $4.6
million for the comparable period in 1998. The increase was primarily due to
amortization of approximately $1.3 million from the InVenGen LLC acquisition in
March 1999 and a $4.1 million increase in amortization expense associated with
the Digital Evolution merger which was effective July 2, 1998. These amounts
are being amortized over a two year period. There were also increased capital
expenditures for new equipment and leasehold improvements.
Other Income (Expense). Other income increased $606,000 to $454,000 for
the year ended December 31, 1999 compared to an expense of $152,000 for the
same period in 1998. The increases were primarily attributable to increased
interest income from cash investments which was partially offset by increased
interest expense from borrowings under the bank line of credit and term loan.
The average aggregate balance outstanding on our line of credit and our term
loan was $2.0 million during the year ended December 31, 1999, as compared to
$1.4 million during the year ended December 31, 1998. Interest expense under
these facilities was $146,000 for the year ended December 31, 1999, and $93,000
for the year ended December 31, 1998.
Interest Income. Our cash, cash equivalents and short-term investments are
invested primarily in money market accounts. During 1998, we received $10.8
million of net proceeds from the sale of our preferred stock. During the year
ended December 31, 1999, we received $44.5 million of net proceeds from the
sale of shares of our common stock in our initial public offering. The increase
in interest income in 1998 and the year ended December 31, 1999, was primarily
due to the significant increase in our cash and cash equivalents throughout
1998 and 1999 as a result of these transactions.
22
<PAGE>
Income Tax Expense. As a result of our losses, we had no income tax
expense for either the year ended December 31, 1999, or the year ended December
31, 1998. As of December 31, 1999 we had approximately $9.9 million and $8.3
million of federal and state net operating loss carryforwards, respectively,
available to offset future taxable income. The federal net operating loss
carryforwards will expire between 2010 and 2019, if not utilized. The state net
operating loss carryforwards will expire through the year 2019, if not
utilized.
Under the Tax Reform Act of 1986, the utilization of a corporation's net
operating loss carryforward is limited following a greater than 50% change in
ownership. Due to our prior and current equity transactions, our net operating
loss carryforwards may be subject to an annual limitation. Any unused annual
limitation may be carried forward to future years for the balance of the net
operating loss carryforward period.
1998 Compared to 1997
Revenue. Revenue increased by $7.5 million, or 123%, to $13.6 million for
the year ended December 31, 1998, from $6.1 million for the year ended December
31, 1997. The increase is primarily attributable to the Digital Evolution
merger as well as an increase in the volume of services delivered to new
clients and additional work delivered for existing clients. Approximately 23%
of the increase was attributable to the Digital Evolution client base and 77%
was attributable to overall increases in project sizes.
Project Personnel and Related Expenses. Project personnel and related
expenses increased by $4.6 million, or 164%, to $7.4 million for the year ended
December 31, 1998, from $2.8 million for the year ended December 31, 1997. The
absolute increase was attributable to the hiring of additional project
personnel associated with the increase in the volume of services delivered to
clients. Direct salary expense increased $4.2 million as a result of 58 new
hires and overall increases in compensation expense. As a percentage of
revenue, project personnel and related expenses were 54% for the year ended
December 31, 1998, and 47% for the year ended December 31, 1997.
Management and Administrative. Management and administrative expenses
increased $5.7 million, or 259%, to $7.9 million for the year ended December 31,
1998, from $2.2 million for the year ended December 31, 1997. The absolute
increase was primarily attributable to expenses incurred to accommodate our
current and anticipated growth, including the expansion of some of our office
facilities and the increased cost of management and administrative personnel and
other general operating expenses in the areas of accounting, human resources and
general operations. Office rent expense increased to $1.1 million for the year
ended December 31, 1998 from $213,000 for the year ended December 31, 1997.
Headcount for management and administrative staff increased to 36 from 19. As a
percentage of revenue, management and administrative expenses were 58% for the
year ended December 31, 1998, and 36% for the year ended December 31, 1997.
Marketing and Sales. Marketing and sales expenses increased by $1.1
million, or 110%, to $2.1 million for the year ended December 31, 1998, from
$1.0 million for the year ended December 31, 1997. The absolute increase in
these expenses was attributable to the hiring of business development and
marketing personnel, increased public relations activities and the
implementation and continuance of our marketing programs. Total marketing and
sales personnel headcount was 16 as of December 31, 1998, compared to nine as of
December 31, 1997. As a percentage of revenue, marketing and sales expenses were
15% for the year ended December 31, 1998, and 17% for the year ended December
31, 1997.
Depreciation and Amortization. Depreciation and amortization increased by
$4.3 million to $4.6 million for the year ended December 31, 1998, from
$269,000 for the year ended December 31, 1997. The increase was primarily due
to amortization expense of $4.0 million associated with the Digital Evolution
merger which was effective July 2, 1998. The remaining amount of depreciation
was related to increased investments in furniture and equipment in prior years.
Other Income (Expense). Other expense increased by $120,000 to $152,000
for the year ended December 31, 1998, from $32,000 for the year ended December
31, 1997. The increase was primarily attributable to increased borrowings under
our bank line of credit, partially offset by an increase in interest income.
Interest expense related to these borrowings was $93,000 for the year ended
December 31, 1998, and $25,000 for the year ended December 31, 1997.
23
<PAGE>
Income Tax Expense. As a result of our losses, we had no income tax
expense. As of December 31, 1998 we had approximately $7.1 million and $5.9
million of federal and state net operating loss carryforwards, respectively,
available to offset future taxable income.
Our Unaudited Quarterly Operating Results
The following table presents our unaudited historical quarterly statement
of operations. We believe that all necessary adjustments, consisting only of
normal recurring adjustments, have been included in the amounts stated below to
present fairly such quarterly information. The operating results for any
quarter are not necessarily indicative of results for any subsequent period.
The results of operations of Digital Evolution have been consolidated with
our results since the beginning of the quarter ended September 30, 1998.
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------
Mar. 31, Jun. 30, Sept. 30,
1998 1998 1998
------------ ------------- ---------------
(in thousands, unaudited)
<S> <C> <C> <C>
Statement of Operations Data:
Revenue ......................................... $2,378 $2,546 $ 4,554
Operating costs and expenses:
Project personnel and related expenses ......... 1,249 1,424 2,412
Management and administrative .................. 690 1,200 2,747
Marketing and sales ............................ 351 490 623
Depreciation and amortization .................. 91 123 2,181
------ ------ --------
Total operating expenses ...................... 2,381 3,237 7,963
------ ------ --------
Income (loss) from operations ................... (3) (691) (3,409)
Other income (expense), net ..................... (17) (12) (76)
------ ------ --------
Net income (loss) ............................... (20) (703) (3,485)
Accretion of mandatorily redeemable preferred
stock to redemption value ...................... -- -- (251)
------ ------ --------
Net income (loss) attributable to common
stockholders ................................... $ (20) $ (703) $ (3,736)
====== ====== ========
As a Percentage of Revenue:
Revenue ......................................... 100% 100% 100%
Operating costs and expenses:
Project personnel and related expenses ......... 52 56 53
Management and administrative .................. 29 47 60
Marketing and sales ............................ 15 19 14
Depreciation and amortization .................. 4 5 48
------ ------ --------
Total operating expenses ...................... 100 127 175
------ ------ --------
Income (loss) from operations ................... -- (27) (75)
Other income (expense), net ..................... (1) (1) (2)
------- --------- ---------
Net income (loss) ............................... (1) (28) (77)
Accretion of mandatorily redeemable preferred
stock to redemption value ...................... -- -- (5)
Net income (loss) attributable to common
stockholders ................................... (1)% (28)% (82)%
====== ======== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------
Dec. 31, Mar. 31, Jun. 30, Sept. 30,
1998 1999 1999 1999
--------------- --------------- -------------- --------------
(in thousands, unaudited)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenue ......................................... $ 4,158 $ 6,123 $ 7,641 $ 9,887
Operating costs and expenses:
Project personnel and related expenses ......... 2,320 3,071 4,181 5,521
Management and administrative .................. 3,239 2,683 3,921 5,007
Marketing and sales ............................ 590 723 728 1,013
Depreciation and amortization .................. 2,197 2,496 2,597 2,680
-------- -------- ------- -------
Total operating expenses ...................... 8,346 8,973 11,427 14,221
-------- -------- ------- -------
Income (loss) from operations ................... (4,188) (2,850) (3,786) (4,334)
Other income (expense), net ..................... (47) (92) (90) 215
-------- -------- ------- -------
Net income (loss) ............................... (4,235) (2,942) (3,876) (4,119)
Accretion of mandatorily redeemable preferred
stock to redemption value ...................... (374) (374) (374) (168)
-------- -------- ------- -------
Net income (loss) attributable to common
stockholders ................................... $ (4,609) $ (3,316) $(4,250) $(4,287)
======== ======== ======= =======
As a Percentage of Revenue:
Revenue ......................................... 100% 100% 100% 100%
Operating costs and expenses:
Project personnel and related expenses ......... 56 50 55 56
Management and administrative .................. 78 44 51 51
Marketing and sales ............................ 14 12 10 10
Depreciation and amortization .................. 53 41 34 27
-------- -------- ------- -------
Total operating expenses ...................... 201 147 150 144
-------- -------- ------- -------
Income (loss) from operations ................... (101) (47) (50) (44)
Other income (expense), net ..................... (1) (1) (1) 2
----------- ----------- ---------- -------
Net income (loss) ............................... (102) (48) (51) (42)
Accretion of mandatorily redeemable preferred
stock to redemption value ...................... (9) (6) (5) (2)
Net income (loss) attributable to common
stockholders ................................... (111)% (54)% (56)% (44)%
========== ========== ========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three Months
Ended
-------------
Dec. 31,
1999
-------------
(in thousands,
unaudited)
<S> <C>
Statement of Operations Data:
Revenue ......................................... $11,604
Operating costs and expenses:
Project personnel and related expenses ......... 5,914
Management and administrative .................. 5,759
Marketing and sales ............................ 1,067
Depreciation and amortization .................. 2,737
-------
Total operating expenses ...................... 15,477
-------
Income (loss) from operations ................... (3,873)
Other income (expense), net ..................... 423
-------
Net income (loss) ............................... (3,450)
Accretion of mandatorily redeemable preferred
stock to redemption value ...................... --
-------
Net income (loss) attributable to common
stockholders ................................... $(3,450)
=======
As a Percentage of Revenue:
Revenue ......................................... 100%
Operating costs and expenses:
Project personnel and related expenses ......... 51
Management and administrative .................. 50
Marketing and sales ............................ 9
Depreciation and amortization .................. 24
-------
Total operating expenses ...................... 134
-------
Income (loss) from operations ................... (34)
Other income (expense), net ..................... 3
-------
Net income (loss) ............................... (31)
Accretion of mandatorily redeemable preferred
stock to redemption value ...................... --
Net income (loss) attributable to common
stockholders ................................... (31)%
=======
</TABLE>
Liquidity and Capital Resources
Prior to the completion of our initial public offering in August 1999, we
had financed operations primarily from sales of preferred stock and borrowings
under a line of credit and term loan from a commercial bank. Through December
31, 1998, we had raised approximately $12.7 million, net of offering expenses,
through the sale of our preferred stock. At December 31, 1999, we had
approximately $34.1 million in cash and cash equivalents.
24
<PAGE>
In August 1999, we completed our initial public offering of 4,865,848
shares of common stock at a price of $10.00 per share. We received net proceeds
from our initial public offering of approximately $44.5 million (net of
underwriters' discount and offering expenses).
Net cash used in operating activities for the years ended December 31,
1997, 1998 and 1999 was $23,000, $3.4 million and $9.9 million, respectively.
Cash used in operating activities in each of these periods was primarily the
result of net losses, adjusted for non-cash items primarily related to
depreciation and amortization, increases in accounts receivable and fees and
expenditures in excess of billings, partially offset by increases in accounts
payable and accrued expenses.
Net cash used in investing activities for the years ended December 31,
1997, 1998 and 1999 was $612,000, $649,000 and $5.0 million, respectively. Cash
used in investing activities in each period consisted primarily of purchases of
furniture and equipment and, to a lesser extent in 1997, the acquisition of an
Internet professional services firm.
Net cash provided by financing activities for the years ended December 31,
1997, 1998 and 1999 was $827,000, $7.0 million and $45.3 million, respectively.
In 1996 and 1997, the cash provided by financing activities was almost entirely
from the sale of our preferred stock. In 1998, the cash provided by our
financing activities was from the sale of our preferred stock and borrowings
under our credit facility, offset by our repurchase of common stock and
preferred stock from certain of our stockholders. In August 1999, we completed
our initial public offering of securities and issued a total of 4,865,848
shares of common stock at $10.00 per share (including a total of 692,250 shares
issued to the underwriters upon exercise of the option which we had granted to
them solely to cover overallotments). An additional 441,402 shares were sold by
existing stockholders at $10.00 per share. Upon the initial closing of the
public offering, all 5,341,096 of the outstanding shares of manditorily
redeemable convertible preferred stock were converted to 5,341,096 shares of
common stock. Proceeds to us from our initial public offering net of
underwriting discounts and costs of the offering were approximately $44.5
million. The Company used a total of $2.9 million of the net proceeds to repay
all outstanding debt under its line of credit and term loan.
As of December 31, 1999, our principal commitments consisted of obligations
under equipment leases. The equipment leasing arrangements consist primarily of
the payment of rental fees to third-party leasing providers at interest rates
between 5% and 19%. Although we have no material commitments for capital
expenditures, we anticipate an increase in our capital expenditures consistent
with anticipated growth in our operations, infrastructure and personnel.
As of December 31, 1999, we had a $3.3 million line of credit with a
commercial bank. The line of credit is secured by substantially all of our
assets. Under the terms of the line of credit, borrowings are subject to a
limit of 80% of eligible accounts, as defined in the line of credit. The line
of credit bears interest at a rate of prime plus 1.25% (9.75% at December 31,
1999). There was no balance outstanding and $3.3 million available under the
line of credit as of December 31, 1999. In June 1999, as further amended in
September 1999, the commercial bank extended the expiration date of the line of
credit to June 30, 2000, and amended the financial covenants.
On March 8, 2000, we acquired by merger Soft Plus, with headquarters in
Cupertino, California, which provides e-CRM solutions, primarily to wireless
communications providers and other companies in the emerging communications
industry. We paid to the Soft Plus shareholders: (i) 3,391,106 unregistered
shares of our common stock, (ii) $20 million in cash, and (iii) an unsecured
$80 million note due to the former shareholders of Soft Plus. In addition, we
assumed the stock options which were outstanding under the Soft Plus stock
option plans, which became options to purchase a total of 1,408,866 shares of
our common stock in the Merger. As a result of the Merger, Soft Plus became our
wholly owned Delaware subsidiary with the name "U.S. Interactive Corp.
(Delaware)."
The amount of principal which we must pay under the $80 million note will
be reduced under certain circumstances relating to (i) our rights to be
indemnified by the principal shareholders of Soft Plus under the Merger
Agreement, (ii) the results of certain audits being performed after the closing
of the Merger, and (iii) certain costs incurred by Soft Plus in the Merger. The
$80 million note is due and payable on the earlier of March 8, 2001 or the
closing of this offering. We intend to pay the $80 million note in full with a
portion of the proceeds of this offering.
25
<PAGE>
The Company believes that the net proceeds from this offering, current
cash balances and borrowings available under the credit facilities will be
sufficient to fund requirements for working capital and capital expenditures
for at least the next 18 months. The Company may seek to obtain additional
capital from time to time through the sale of equity or debt securities, through
additional credit facilities or otherwise. Sales of additional equity or
convertible debt securities would result in additional dilution to our
stockholders. The Company may need to raise additional funds sooner in order to
support more rapid expansion, develop new or enhanced services and products,
respond to competitive pressures, acquire complementary businesses or
technologies or take advantage of unanticipated opportunities. Future liquidity
and capital requirements will depend on numerous factors, including the success
of existing and new service offerings and competing technological and market
developments. Additional financing, if any, may not be available on satisfactory
terms.
Year 2000
Background. Prior to January 1, 2000, there was a great deal of concern
regarding the ability of computers to adequately distinguish 21st century dates
from 20th century dates due to the two-digit date fields used by many systems.
We believe that our compliance and remediation efforts leading up to the year
2000 were effective in preventing any problems, since we have not received any
reports to date of any erroneous results or system failures in the solutions we
market or in the software and hardware we utilize internally due to the
changeover to the year 2000. There may, however, still be residual problems
related to the change in centuries. Any such difficulties could result in a
decrease in the sales of the services we provide, an increase in the allocation
of both our and our clients' resources to address Year 2000 problems without
additional revenue commensurate with such dedication of resources, or an
increase in litigation costs relating to losses suffered by us or our clients
due to such Year 2000 problems.
Corporate Infrastructure State of Readiness. We believe that our
identification of Year 2000 compliance issues is complete with respect to our
internal operating systems. The infrastructure is composed of Information
Technology (IT) systems (e.g. financial, human resources, order entry, client
support tracking, voicemail) and non-IT systems (e.g. elevators, fire
suppression systems, United Parcel Service systems). We believe that all
identified systems that were at risk were made Year 2000 compliant or replaced
before December 31, 1999, and that our business critical systems that have date
sensitivity were fixed, tested and in place before the year 2000. We believe
that we have communicated with all our material vendors, suppliers, landlords
and other third parties regarding Year 2000 compliance of embedded processors
in computers, facilities, software, other information technology, and other
products and services which we obtain from such third parties. We believe that
affected embedded processors were replaced before the year 2000. We have tested
all business critical systems for Year 2000 compliance, whether or not these
systems have been warranted Year 2000 compliant by the manufacturer. We made
any required modifications to the IT and non-IT systems within the corporate
infrastructure. We continue to monitor and assess Year 2000 issues relating to
such products, facilities and services.
Costs. We have expensed approximately $271,000 through December 31, 1999,
in our Year 2000 compliance program, mainly for consulting services and
hardware costs. Approximately 37% of the costs were for modification and
replacement, approximately 51% were for testing, and approximately 12% of the
costs were for identification and assessment of the Year 2000 issue. The
portion of this amount attributable to the year ended December 31, 1999
constitutes approximately 18% of the IT budget for the year ended December 31,
1999.
Risks. Solutions as complex as those offered by us might contain
undetected errors or failures when first introduced. This includes the risk
that solutions thought to be Year 2000 compliant are not Year 2000 compliant.
In addition, we might experience unforeseen difficulties that could delay or
prevent the continued successful development and release of solutions that are
Year 2000 compliant. If we experience any unforeseen delays, there could be a
material adverse effect upon our business, operating results, financial
condition and cash flows.
26
<PAGE>
We utilize third-party vendor equipment, telecommunications products and
software products, all of which appear to be functioning normally in the year
2000. There may, however, still be residual problems related to the change in
centuries. The failure of any critical technology components to operate
properly may have a material impact on business operations or require us to
incur unanticipated expenses to remedy any problems.
Disclosures About Market Risk
Our exposure to market risk for changes in interest rates relates
primarily to the increase or decrease in the amount of interest income we can
earn on our available funds for investment and on the increase or decrease in
the amount of interest expense we must pay with respect to our various
outstanding debt instruments. The risk associated with fluctuating interest
expense is limited, however, to the exposure related to those debt instruments
and credit facilities which are tied to variable market rates. We do not plan
to use derivative financial instruments in our investment portfolio. We plan to
ensure the safety and preservation of our invested principal funds by limiting
default risks, market risk and reinvestment risk. We plan to mitigate default
risk by investing in high-credit quality securities. If market interest rates
were to increase by 10% from rates as of December 31, 1999, the effect would
not be material to our company.
All of our revenues are realized currently in U.S. dollars and are from
clients primarily in the United States. We do not believe that we currently
have any significant direct foreign currency exchange rate risk. As a result of
the Merger, our future financial results could be affected by factors such as
changes in foreign currency, exchange rates or weak economic conditions in
foreign markets.
27
<PAGE>
BUSINESS
Overview
We are a leading Internet professional services firm focused on providing
end-to-end (e2e) solutions to Global 2000 organizations. e2e Solutions utilize
Internet, wireless and broadband technologies to enable organizations to fully
leverage their information resources to effectively communicate, share
knowledge and conduct business transactions with key constituencies such as
employees, customers, suppliers and partners. Our three key practice areas are
e-commerce, digital marketing and electronic customer relationship management
(e-CRM). When developing our solutions, we draw upon our expertise in Internet
strategy consulting, application development, digital brand creation, security
and enterprise application integration. We deliver our e2e Solutions through
our e-Roadmap delivery platform leveraging our IVL Methodology, e-business
frameworks and CAPTURE -- our extranet relationship management tool. We believe
that our focus on innovation, capabilities in Internet strategy and expertise
in emerging technologies, position us to enable our clients to think, build and
run e-business.
The Industry
The continual innovation in and increasing penetration of Internet,
wireless and broadband technologies have significantly impacted the way
companies conduct business as they utilize these technologies to provide new
ways of delivering information, communicating and completing business
transactions. Companies have increasingly begun to implement solutions which
leverage all of these technologies, combining devices including personal
computers, cellular phones, pagers and Personal Digital Assistants (PDAs) into
comprehensive technology applications. In 1999, there were more than 7 million
U.S. users logged on with wireless devices. According to IDC, the use of cell
phones and PDAs for Internet-based transactions is projected to increase to
61.5 million users by 2003 in the United States. The development of these
technology applications offers companies unprecedented opportunities to enhance
their competitive position in the marketplace by potentially increasing revenue
opportunities, improving customer service and retention, increasing operating
efficiencies, reducing costs and streamlining the transactional processes
between an enterprise and its trading partners. Importantly, the use of wireless
and broadband technologies is allowing organizations to deploy their information
resources onto new platforms and create new business systems. We define these
new business systems as e2e Solutions.
An increasing number of companies are using these technologies to
capitalize on new Business to Consumer (B2C) and Business to Business (B2B)
e-commerce opportunities. Revenue from B2C sites is projected to grow
significantly as consumers become increasingly familiar and comfortable with
making online purchases. According to Forrester Research, in 1999 twice as many
paying customers shopped online as in 1998, and they project the B2C market to
grow from $20.3 billion in 1999 to $100 billion by the end of 2003.
In the B2B sector, most businesses initially focused on using the Internet
to eliminate middlemen and sell directly to their customers. Now, most B2B
e-commerce initiatives are designed to change the way companies interact with
their customers, suppliers and partners, and eliminate current, relatively
inefficient, trading processes. As a result, organizations are developing
e-commerce business models such as portals and exchanges to facilitate
transactions for specific vertical markets or business processes, aggregate
buyers and sellers, create marketplace liquidity and reduce transaction costs.
These portals and exchanges are transforming the competitive landscape of many
industries as buyers increasingly use them to purchase goods and services
because of their convenience and cost-saving potential. The widespread adoption
of these applications by corporate customers is in turn leading an increasing
number of sellers to distribute their goods via portals and exchanges. Forrester
projects the B2B e-commerce market to grow from $43 billion in 1998 to $2.7
trillion in 2004. Additionally, Forrester estimates that over the next five
years, exchanges will capture more than 50% of all online business trade in the
United States.
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Companies seeking to capitalize on the opportunities presented by creating
B2C and B2B solutions must ensure that these e-commerce initiatives integrate
seamlessly with their overall enterprises and back-end systems to provide a
positive customer experience. Businesses seeking to realize the benefits of the
Internet face formidable challenges in linking their business strategies to
their B2B / B2C initiatives. Before creating a solution, a company must first
review its strategic business requirements and compare them to the capabilities
of its existing processes and systems. A company must also identify existing
silos of marketing, sales, finance and production information which may help
provide a multi-faceted view of its customers' demographics, purchasing profile,
billing status and payment history. Next, the company must architect the
solution and develop an implementation plan. The implementation and maintenance
of the solution will require significant technical expertise in a number of
areas such as e-commerce systems, security and privacy technologies, application
and database programming, and mainframe and legacy integration techniques.
Furthermore, these solutions must be delivered in a manner that leverages the
existing technology infrastructure, established systems and processes, brand
values and design and customer relationship management objectives. Thus, it is
important to address the cross-disciplinary integration of services required to
successfully serve clients and create effective Internet solutions.
However, the rapid pace of technological change often makes it difficult
and expensive for businesses to maintain the necessary technical and management
capabilities to handle their evolving needs. Professionals with the requisite
strategic, technical and creative skills are often in short supply. In
addition, many organizations have begun to focus on their core competencies. As
a result, businesses are increasingly relying on Internet services firms to
help them create comprehensive Internet solutions. This demand for an
integrated service offering has led to the emergence of Internet professional
services firms. These services providers must not only have the necessary
expertise to serve this rapidly changing market, but also provide a structured
approach to integrating strategy, marketing and technology to create a single,
Internet-based solution. IDC estimates that the market for Internet
professional services will grow from approximately $7.8 billion in 1998 to
$78.6 billion in 2003.
We believe that in order to be successful in this market, professional
services firms must possess an integrated model of Internet strategy, marketing
skills, expertise in wireless and broadband technologies, technology
integration skills, and client and project management capabilities. We believe
that we are the only Internet professional services firm that integrates all of
these skills, with a dedicated focus on e2e Solutions.
Our Solution
We provide e2e Solutions that help our clients take advantage of the
business opportunities presented by the Internet and various wireless and
broadband technologies. We deliver our services through integrated,
multi-disciplinary teams consisting of business strategists, digital marketing
experts and IT professionals. We combine our people, processes, strategic
relationships, technology and integrated service offerings to deliver solutions
to our clients primarily on a fixed-time, fixed-price basis. Our integrated,
client-focused delivery model includes:
o Defined Service Offerings
o e-business Technology Frameworks
o Internet Focused Delivery Methodology
o Extranet Based Client Management System
o Strategic Alliance Network
Defined Service Offerings. Our proprietary delivery platform, e-Roadmap,
serves as a blueprint to define and create a customized solution for an
organization's e-business initiatives. The e-Roadmap is a development platform
that includes 17 specific service offerings. We created these service offerings
based on our cumulative experience in e-commerce solutions development. The
e-Roadmap establishes a specific sequence for the delivery of these defined
service offerings. Given the rapid pace of development within the Internet
professional services industry, we believe that our focus on innovation within
our e-Roadmap delivery platform is critical to our ability to promote our
clients' long-term success.
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e-business Technology Frameworks. Our e-business technology frameworks are
applications that link various software applications, operating systems and
business processes using pre-defined modules. These frameworks utilize a
collection of portable code (JAVA), portable data (XML-enhanced information),
web application servers and middleware. The framework consists of the following:
o an enterprise application integration (EAI) layer to connect different
applications together into one system or network
o a common information model to serve as the primary storage hub for data
on transactions and customers
o personalized "e-views" or screen presentments of the data to multiple
devices including personal computers, personal digital assistants and
wireless phones
Internet Focused Delivery Methodology. To provide rapid development while
ensuring quality and cost- efficiency, we deploy our service offerings in
phases according to our IVL Methodology. Under this approach, each project is
comprised of:
o an "Innovation" phase that focuses on high level strategic planning and
development of the proposed solution. We seek to promote creative thinking
and align business objectives by using a series of techniques including
facilitated workshops between our service delivery team and the client's
internal project team, as well as one-on-one interviews with the client.
o a "Validation" phase that focuses on providing and proving the concepts
or strategies developed during the Innovation phase. Validation can be
achieved through extended market research and concept prototype
development.
o a "Launch" phase that consists of the final development and deployment of
the solutions. We accomplish this through a series of design and
development reviews and checkpoints with the client.
Extranet Based Client Management System. We provide an extranet template
called CAPTURE, which we customize for our individual client projects. These
customized extranets are password-protected and allow continuous communications
between our project managers, key employees and clients. We believe that by
enabling our clients to monitor and comment on a project's direction and
progress on a real-time basis, these extranets improve our ability to provide
on-time delivery of solutions that meet client expectations.
Strategic Alliance Network. We maintain strategic alliances with over 25
leading providers of e-business applications, infrastructures and promotion.
We believe that this approach allows us to be nimble to market shifts in
technology and provides our clients with increased efficiencies in the form of
time and cost savings. We believe that giving our clients open and free access
to our strategic alliance network will potentially increase the duration of the
client relationship and subsequently decrease the costs of sales.
Our Strategy
Our strategy is to strengthen our position as a leading provider of
e-business solutions. The key elements of our strategy are as follows:
Continued Development of e-business Framework Technologies. We intend to
continue to invest in the development of technology that connects disparate
applications, operating systems and business processes. Through our advanced
e-engineering group in Murray Hill, New Jersey and SoftPlus' global research and
development facility in India these efforts will continue.
"Vertical Market" Penetration. We intend to leverage the model Soft Plus
has established in the communications industry. Soft Plus' "vertical in a box"
organizational methodology brought to market the industry experts, process,
technology, alliances and growth model. We believe in order to truly capitalize
on B2B e-commerce opportunities, an organization must possess a strong expansion
model to serve additional vertical markets.
Strengthen Our Relationships with Technology and Internet Infrastructure
Companies. We seek to enter into relationships with companies that we believe
are well positioned to take advantage of current and future
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electronic enterprise opportunities. We have established and currently maintain
over 25 strategic relationships with software and Internet infrastructure
firms. We believe that these non-exclusive relationships enable us to deliver
more effective solutions to our clients with greater efficiency due to the
advanced training and information we receive regarding the availability of new
products and features which are provided by these third parties. These
relationships have also been an important source for identifying new business
opportunities.
Expand Client Relationships. We seek to use our client service delivery
model to increase business opportunities with our clients. Our client service
personnel work closely with our clients and our project managers to identify
these opportunities. Additionally, the application of our proprietary e-Roadmap
development platform includes an assessment of our clients' needs which
provides insight into potential opportunities for expanding their Internet
initiatives. We are also extending the use of CAPTURE beyond the term of
particular projects in order to enhance our communication with our clients and
enable us to market our services more proactively. We believe these actions
will enable us to continue building long-term client relationships and better
respond to our clients' evolving needs.
Enhance Knowledge Management and Knowledge Distribution Capabilities. We
seek to use our knowledge management and knowledge distribution capabilities to
employ our resources more efficiently and institutionalize the collective
knowledge and experience gained from over 500 client projects. Our knowledge
management system consists of databases, written materials and related internal
procedures. Our intranet provides access to this knowledge management system,
which includes:
o reusable templates for new business presentations
o project management tools for application development knowledge
o libraries of creative material
We are continuing to make substantial investments in our intranet to
improve access to our knowledge management system. This enables our service
delivery professionals to utilize our past experiences to speed deployment of
our solutions.
Hire and Retain Skilled Professionals. We intend to identify, hire, train
and retain individuals who are highly skilled in the rapidly changing
technology of the Internet. Therefore, we seek to foster a corporate culture
that offers employee stock ownership, promotion from within, advanced training,
challenging assignments and involvement in many facets of our business.
Specifically, we are currently implementing the following initiatives:
o creation of specific career path models for all levels of staff
o global implementation of our advanced e-engineering group's benchmark
studies
o increase research and development efforts related to emerging wireless
and broadband initiatives
o development of wireless e-business technology frameworks
Expand Geographically. We intend to continue to expand geographically in
order to enhance our profile and market reach both domestically and
internationally. Additionally, we will from time to time evaluate the
acquisition of other Internet professional services businesses to accelerate
our growth in particularly attractive geographic markets.
Services
Our solutions are delivered using four primary elements: our e-Roadmap,
IVL Methodology, e-business technology frameworks and our CAPTURE extranet
template.
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e-Roadmap
Our e-Roadmap development platform incorporates a combination of defined
service offerings from our three primary practice areas. These practice areas,
which allow us to focus our resources on specific areas of product development
and implementation skills, are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Electronic Commerce Digital Marketing e-CRM
------------------- ----------------- -----
<S> <C> <C>
o e-commerce software application o Website design and o Customer care application
implementation development design
o Internet catalogue systems o Media planning and buying o Packaged software
implementation
o Custom e-commerce software o Affiliate marketing program
development of complex development o Customer care audits
transaction processing solutions
o Brand creation and o Software evaluation workshops
management
o Enterprise application
integration
- -----------------------------------------------------------------------------------------------------------
Enables clients to market products Helps clients create a Enables organizations to utilize
and services, fulfill and confirm compelling Internet presence to the Internet to acquire, retain and
orders, approve and process credit market their company, products develop customers. Transforms an
card transactions, and deliver or services organization's traditional call
on-line customer service center(s) into next generation
"Internet Contact Center(s)."
- -----------------------------------------------------------------------------------------------------------
</TABLE>
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IVL Methodology
When completing projects encompassing only one practice area or an e2e
Solution which would encompass all our three practice areas, we group our
service offerings into one of three IVL Methodology phases. These service
offerings are detailed below.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Innovation Phase Validation Phase Launch Phase
---------------- ---------------- ------------
<S> <C> <C>
Business Case Creative Concepts Enterprise Design and
Development
Strategy development, cost Creating brand logos, banner
benefit analysis and return on advertisements and layout and Iterative construction and
investment evaluation design of websites definition of requirements,
determining project scope
Customer Care Audit Digital Channel Strategy
Custom Software Development
Providing a framework for Strategic analysis of a client's
customer service offerings, value chain systems architecture, Creating reusable code and
detailed analysis of current establishing guidelines for software applications
consumer attitudes technology architecture
Custom Commerce Solutions
Enterprise Architecture Audit Digital Prototyping
Integration and development of
Aligning current technology Visual demonstration of the Internet business solutions
infrastructure to the Internet proposed solution
Brand Audit Enterprise Software
Usability Testing Implementation
Evaluating the perception of a
company's existing brand and Testing a preliminary solution Partnering with Internet software
developing strategies to maintain through a target market sampling application providers to integrate
and extend the brand using the e-commerce, digital marketing,
Internet Software Evaluation Workshop enterprise relationship
management and knowledge
Competitive Analysis Bypasses the Request for Proposal management solutions
(RFP) process to identify the most
Rating existing web presence effective software application Systems Integration
against a competitor's site, ease
of navigation, design, technology Integration of a client's existing
and presentation technologies to new electronic
enterprise systens
Digital Brand Positioning
Media Plan
Generating guidelines for brand
strategy development through Analysis and recommendation of
competitive product, service Internet media, placement,
and/or consumer research distribution and tracking
analysis
Media Placement and Tracking
Placing and measuring the
effectiveness of print and Internet
promotional campaigns
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
e-business Technology Frameworks
In order to deliver Internet solutions in the future, we believe leading
Internet professional services firms must offer their clients an e-business
framework. An e-business framework is a "middleware" application that links
various software applications, operating systems and business processes using
pre-determined modules.
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These modules serve to speed deployment of the client initiative by re-using
proven components from previous client engagements and internal research and
development activities. To date, we have utilized our e-business technology
frameworks on more than ten client projects. These client projects have been
principally in the communications and financial services industries. On any
given client engagement, 80% of the e-business framework is re-usable across
vertical industries.
CAPTURE Extranet Template
As part of many of our client projects, we create individually customized
extranets, which we call CAPTURE, to facilitate communications throughout the
project. CAPTURE allows a client to monitor the progress of the project
electronically through a secure extranet. CAPTURE extranets allow clients to
view shared:
o work plans
o project updates
o project communications
o creative / technical prototypes
o new business proposals
CAPTURE also allows us to gather instant feedback from key decision-makers
within a client's organization regarding specific elements of a project. This
feedback allows us to address client issues during the development phase. We
intend to continue to expand the features of CAPTURE.
Clients
Set forth below is a selected list of clients we (including Soft Plus)
have served since January 1, 1999.
AIG E*TRADE
adidas France Telecom
Asia Online GeoCities
British Telecom NaviNet
Business.com Sprint
Citigroup Sun Microsystems
Commerce One Thomson Consumer Electronics
Dairy Farm International Toyota
Deloitte Consulting LLP Universal Music Group
Disney Online Viag Interkom
Selected Case Studies
AIG
Challenge
AIG is the leading U.S. based international insurance organization and the
largest underwriter of commercial and industrial insurance in the United
States. To maintain its lead in the insurance industry and gain online market
share, AIG engaged us to help it develop its overall Internet strategy. This
strategy helps AIG to reach and sell insurance products to new online customers,
enhances customer service and integrates disparate markets and sales channels
into one comprehensive e-business solution.
Solution
Using our e-Roadmap development platform, we helped AIG create and execute
its direct-to-consumer e-commerce strategy providing one-stop shopping for
virtually all of a customer's insurance needs. We worked with AIG to develop
and deploy aigdirect.com, a comprehensive, direct-to-consumer, e-business
solution.
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The aigdirect.com initiative enables consumers to access a wide array of
easy to use, secure online services, including price quotes, calculator tools,
a resource center and online transactions. aigdirect.com offers a broad range
of personal and small business insurance coverage from auto, homeowners,
renters, life, accidental death and dismemberment, to home warranty products.
Additionally, this solution offers Internet-based first claim filing and policy
processing as well as interactive, web-based customer service. Providing
enhanced product distribution and services through e-business reinforces AIG's
commitment to customer service, as well as the cost savings benefit of
providing customers with a direct, secure vehicle to conduct transactions
online.
e-Roadmap services delivered:
o Business Case
o Customer Care Audit
o Enterprise Architecture Audit
o Digital Prototyping
o Enterprise Design and Development
o Custom Commerce Solutions
o Systems Integration
Asia Online
Challenge
Asia Online, a leading Hong Kong Internet service provider, is the largest
provider of fast, reliable and efficient communication links for businesses in
Hong Kong, China, the Philippines and Australia. Funded by Softbank Group, a
leading Internet investment firm in Asia, Asia Online's goal is to develop a
complex, Pan-Asia Pacific network through acquisitions and strategic partners.
Asia Online engaged Soft Plus to develop a robust IT infrastructure to enable
streamlined and efficient customer operations. Superior customer service and
rapid deployment were key to the success of this e-business initiative.
Solution
Using a phased delivery schedule and the e-Roadmap development platform,
Soft Plus worked with Asia Online to deliver an e-business solution for its Hong
Kong operations. A deep understanding of the ISP business, IT challenges,
experience in delivering solutions to many ISPs around the world and the
e-business technology framework enabled the deployment of the e-business
solution. The implementation of customer eViews, the Vantive TelcoCare CRM
application and Portal Software intranet billing system together provide a
single unified view of all customer interactions including billing information
and all customer interactions. These applications were integrated so that
customer interaction processes are made seamless, faster and more responsive for
Asia Online's customers. The ability to leverage this scalable and flexible
platform allows Asia Online to apply this e-business solution to the new
properties that Asia Online acquires.
e-Roadmap services delivered:
o Business Case
o Customer Care Audit
o Custom Software Development
Commerce One
Challenge
Commerce One is the leading provider of e-commerce solutions that
dynamically link buying and supplying organizations into real-time trading
communities. Commerce One retained us to help develop its B2B e-commerce
marketplace portal, MarketSite.net(TM). The portal integrates a wide variety of
buying and selling applications and connects to the Commerce One Global Trading
Web(R), the world's largest B2B trading community. Commerce One developed
MarketSite.net)(TM) to enable all organizations, regardless of size, to
participate in e-commerce.
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Solution
Commerce One MarketSite(R), a leading open B2B marketplace portal for
electronic procurement, provides commerce services and the ability to interact
with numerous buying and selling applications. It provides a comprehensive
solution and set of commerce services for companies that want to participate in
B2B e-commerce with their suppliers to streamline their procurement process and
communicate with them in real time. By linking buyers with their suppliers over
the Internet, it creates more efficient and cost-effective purchasing processes
for all trading partners involved.
Using our e-Roadmap delivery platform, we helped Commerce One to combine
technology, digital marketing, creative, and strategy skill sets to help
establish MarketSite.net(TM) as the premier e-business portal for one of the
world's leading B2B e-commerce companies.
e-Roadmap services delivered:
o Creative Concepts
o Systems Architecture
o Digital Prototyping
o Enterprise Design and Development
Thomson Direct Inc.
Challenge
Thomson Direct Inc., (TDI) is a wholly owned subsidiary of Thomson
Consumer Electronics, Inc. (Thomson), one of the world's largest consumer
electronics companies headquartered in Paris, France. Thomson's U.S. brands,
RCA, GE and PROSCAN, are recognized names in consumer electronics and a
valuable asset to Thomson. Thomson engaged us to develop a strategic e-business
solution that would provide its customers with online information on products
and services, while at the same time developing long-term relationships with
customers by increasing the quality of customer service.
Solution
Working with cross-functional departments at Thomson, we created and
implemented a strategic e-commerce business for RCA.com and Lyrazone.com. The
e-business implementation provides a comprehensive database of information on
RCA products, dealer locator, automatic product warranty, real time product
fulfillment and a product demonstration of RCA's new personal digital player,
"The Virtual Lyra." Customer service and satisfaction were primary factors in
the development of this e-business initiative. We helped TDI to develop their
overall online strategy using our e-Roadmap development platform. Also featured
in the e-solution is a robust infrastructure that allows TDI to easily grow
their e-business initiatives. In addition, we developed Thomson's online media
strategy, planning, creative development and affiliate marketing programs.
e-Roadmap services delivered:
o Business Case
o Customer Care Audit
o Enterprise Architecture Audit
o Brand Audit
o Competitive Analysis
o Digital Brand Positioning Strategy
o Creative Concepts
o Enterprise Software Implementation
o Systems Integration
o Media Plan
o Media Placement & Tracking
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Viag InterKom
Challenge
Viag InterKom is the third largest communications services provider in
Germany offering Internet access and mobile services to both corporate and
residential customers. Viag InterKom, a joint venture between British Telecom,
Viag and Telenor was formed to take advantage of the opportunities arising out
of the deregulation of the German communications market. To differentiate Viag
from its competitors and provide superior e-CRM services to its customers, Viag
engaged Soft Plus to develop a strategic e-business solution that would help
Viag update its overall IT infrastructure, while providing its customers with
information on products and services, and increasing the quality of the total
customer experience and services.
Solution
Working with the internal IT group at Viag Interkom, Soft Plus delivered an
e-business solution which included Web-based registration and automatic
provisioning for ISP customers, and a single, unified view for the contact
center agent. Using the e-Roadmap development platform, the e-business solution
helped Viag InterKom enter the German communications market with a platform to
deliver better customer service. Our IVL Methodology ensured the delivery of the
solution in a phased manner to meet or better deadlines consistently. Also
featured in the e-business solution is a technology infrastructure providing
seamless integration of the order fulfillment process into back-end systems,
which reduces the cost of customer operations.
e-Roadmap services delivered:
o Business Case
o Customer Care Audit
o Enterprise Architecture Audit
o Enterprise Software Implementation
o Systems Integration
Strategic Relationships
We maintain several strategic relationships that have been an important
source for new client opportunities. We have relationships with over 25
companies including Akamai, Be Free, BroadVision, Commerce One, IBM, Intel
Online Services, Portal Software and Vignette. We have written agreements with
12 companies, and all other strategic relationships rely on oral agreements.
These agreements are non-binding and non-exclusive and normally have an
indefinite term that can be ended by either party. The following is a brief
summary of some of our relationships:
Akamai: We combine with Akamai's Global Server Network to provide global
web content and Internet applications delivery for high-performance e-business
sites by utilizing our digital and creative marketing, business strategies and
technology. In February 2000, we were named Akamai's Partner of the Year.
Be Free: Together with Be Free, we help clients, leading on-line
merchants, portals and information sites, build and manage their own branded
on-line sales channels. These "affiliate" or e-mail marketing programs allow
clients to drive site awareness and capture incremental additional revenue
streams by selling products in context throughout the Web. We are Be Free's
principal solutions provider in the Internet professional services space.
BroadVision: BroadVision is a provider of e-commerce and Internet-based
business software. We have a "Channel Partner" agreement with BroadVision. We
engage in joint marketing activities and help BroadVision sell its software,
while BroadVision helps market our services.
Commerce One: Together with Commerce One, we enable clients to access a
B2B portal for procurement. We are Commerce One's Premier Partner for
MarketSite(TM) deployments for global clients. MarketSite(TM) is Commerce One's
real-time B2B trading community that helps participating companies to increase
efficiencies by reducing cost and time to market for the procurement of goods
and services.
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IBM: In January 2000, we announced an enhanced strategic alliance with IBM
to help our clients take advantage of the convergence of wireless and broadband
computing and the next generation of e-business. Through a technology
partnership with IBM's Web Integrator Initiative, our Advanced e-Engineering
Group has direct access to IBM's research labs.
Intel Online Services (IOS): Together with IOS, we deliver hosting
solutions and expertise that support e-business. Support includes standard and
non-standard hardware and software platforms, various levels of administration,
maintenance, monitoring, reporting and website analysis.
Portal Software: Together with Portal Software, we help customers develop
e-CRM solutions for Internet and emerging, next-generation communications
services. These solutions enable service providers to manage customers, support
services and collect money. In February 2000, we were named a "Gold" strategic
alliance partner for Portal Software.
Vignette: Vignette is a provider of content management solutions for
e-commerce. We have a "Solution Provider" agreement Vignette Corporation to
deliver solutions to companies building businesses online. This relationship
provides for the installation, implementation, training customization, project
management and content loading of software for our joint clients. Our agreement
with Vignette allows for a commission in the form of a finder's fee for
assisting them with selling their software as a reseller.
Marketing and Sales
Our marketing efforts are focused on increasing our brand awareness and
market share through:
o defining our services as deliverable products
o entering into and managing strategic alliances
o public relations
o marketing communications
o seminar and forum development and direct mail
All information pertaining to these activities, including industry
research and development trends, is distributed internally through the use of
the marketing section of our intranet. As of December 31, 1999, our marketing
department consisted of seven full-time employees encompassing both field and
corporate marketing.
We primarily market and sell our services through a direct sales force. As
of December 31, 1999, our direct sales force consisted of 11 full-time sales
professionals whose primary responsibilities are to close new business
opportunities marketed to senior executives of national and international
corporations.
Competition
The market for Internet professional services is intensely competitive and
subject to rapid technological change. We believe we compete with the
following companies in the following categories:
o other Internet professional services firms (such as Viant and Scient)
o information technology consulting and integration firms (such as
Cambridge Technology Partners and Sapient)
o web design firms (such as Zefer and Razorfish)
o management consulting firms (such as the "Big 5" consulting firms)
o software application providers (such as Ariba and i2 Technologies)
o application service providers (Breakaway Solutions and USinternetworking,
Inc.)
In addition, we face competition with the in-house technology and
marketing departments of our clients and potential clients. We believe that the
principal competitive factors in our industry are:
o integrated Internet strategy, marketing and technology capabilities
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o knowledge of emerging technologies
o reliability of client service
o technology expertise and client industry knowledge
o cost management
o referenceable client base
There are relatively low barriers to entry into our business. We expect
that we will face additional competition from new entrants into the market in
the future. Existing or future competitors may develop or offer services that
provide significant performance, price, creative or other advantages over those
offered by us.
Employees
As of March 2000, we employ over 700 people, consisting of approximately
475 project personnel, 45 marketing and sales personnel, 45 research and
development engineers and 135 administrative personnel. Project personnel
includes client service personnel, project managers, designers, programmers and
other personnel designated to complete client projects. Administrative
personnel includes finance and accounting, human resources and general
administration personnel. None of our employees is covered by any collective
bargaining agreements. We have not experienced any work stoppages and believe
our relationships with our employees are good.
Facilities
Our principal administrative, finance, marketing and sales offices are
located in approximately 28,000 square feet of leased office space in King of
Prussia, Pennsylvania. The lease for this office space is for a term of seven
years and expires on May 14, 2005. We also lease office space in the following
domestic cities:
o Atlanta, Georgia
o Boston, Massachusetts
o Chicago, Illinois
o Cupertino, California
o Los Angeles, California
o Murray Hill, New Jersey
o New York, New York
o Reston, Virginia
o San Jose, California
We also lease office space in the following cities outside of the United
States:
o Andheri East, India
o Bangalore, India
o Berkshire, U.K.
o Munich, Germany
o Toronto, Canada
We lease all of our facilities and believe our current facilities are
adequate to meet our needs for the foreseeable future.
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Legal Matters
We are not a party to any material legal proceedings.
In September 1999, Soft Plus engaged First Albany Corporation (FAC) to
serve as its financial advisor in connection with the possible sale of Soft
Plus. FAC has submitted to Soft Plus a claim for fees and expenses which FAC
asserts it is entitled to receive in connection with the Merger. We have
rejected FAC's claims. Our management believes that the ultimate resolution of
this dispute would not likely have a material adverse effect on our business
or financial condition.
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MANAGEMENT
Executive Officers and Directors
The following table presents information about each of U.S. Interactive's
executive officers and directors. U.S. Interactive's board of directors is
divided into three classes serving staggered three-year terms.
<TABLE>
<CAPTION>
Year of Annual Meeting that
Name Age Position(s) with Company Term as Director Expires
---- ----- ----------------------------------- ----------------------------
<S> <C> <C> <C>
Eric Pulier .................. 33 Chairman of the Board 2002
Stephen T. Zarrilli .......... 38 Director, Chief Executive 2000
Officer and President
Mohan Uttarwar ............... 41 Director, President of subsidiary 2001
U.S. Interactive Corp. (Delaware)
James J. Huser ............... 48 Senior Vice President and Chief
Operating Officer
Philip L. Calamia ............ 37 Senior Vice President, Chief
Financial Officer, Treasurer and
Assistant Secretary
Lawrence F. Shay ............. 41 Senior Vice President, Legal and
Corporate Affairs, General
Counsel and Secretary
Ajit M. Prabhu ............... 40 Senior Vice President and Chief
Technology Officer
Michael M. Carter. ........... 27 Senior Vice President and Chief
Marketing Officer
Robert E. Keith, Jr. ......... 58 Director 2001
John D. Shulman .............. 37 Director 2002
E. Michael Forgash ........... 41 Director 2002
John H. Klein ................ 54 Director 2001
William C. Jennings .......... 60 Director 2000
Robert V. Napier ............. 53 Director 2000
</TABLE>
- ------------
Eric Pulier has been the Chairman of the Board since July 1998. He served
as Chief Technology Officer from July 1998 to May 1999. Mr. Pulier was Chairman
and CEO of Digital Evolution from July 1995 to July 1998 and acted in such
capacities prior thereto. Mr. Pulier was the founder of Digital Evolution.
Digital Evolution performed Internet consulting services for MCI, Microsoft,
AT&T and Intel. Although Mr. Pulier had no involvement in the management or
ownership of our company prior to the merger, we consider Mr. Pulier to be a
co-founder of our business because of the continuity of Digital Evolution's
business with ours. Mr. Pulier has been a director of Exist Corporation since
November 1999. Mr. Pulier is currently a member of the Progressive Policy
Institute's New Economy Task Force and is leading the health/technology forum
for the Vice President of the United States.
Stephen T. Zarrilli has served as Chief Executive Officer since March 1999
and as President since May 1999. Prior thereto Mr. Zarrilli served as acting
Chief Operating Officer from December 1998 until March 1999, as Senior
Executive Vice President and Chief Financial Officer from August 1998 through
December 1998, as Executive Vice President of Finance and Administration from
September 1996 until July 1998, and as Secretary, Treasurer and Chief Financial
Officer from January 1995 until September 1996. He served as our director from
August 1995 until July 1998, and began his current term as a director in April
1999. From May 1994 to December 1994, Mr. Zarrilli served as Director of
Finance for American Gaming Corporation, a publicly held development stage
gaming company. From July 1983 to April 1994, Mr. Zarrilli was employed by
Deloitte & Touche LLC, an international accounting and consulting firm, most
recently as a Senior Manager in the firm's emerging businesses practice group.
41
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Mohan Uttarwar has served as our director and as President of our
subsidiary U.S. Interactive Corp. (Delaware) since March 2000. Prior thereto,
he founded Soft Plus, Inc., a provider of e-CRM solutions, primarily to
Internet service providers, wireless communications providers and other
companies in the emerging communications industry which merged with U.S.
Interactive in March 2000. Mr. Uttarwar served as President of Soft Plus from
January 1994 to March 2000 and as CEO and Chairman of Soft Plus from January
1999 to March 2000. From October 1988 to March 1997, Mr. Uttarwar founded and
served as President of Digital Tools, Inc., a supplier of Unix based project
management software.
James J. Huser has served as Senior Vice President since May 1999 and as
Chief Operating Officer since December 1999. Prior thereto, he served as Vice
President and General Manager of U.S. Interactive's Los Angeles office since
May 1999. Prior to joining U.S. Interactive, Mr. Huser served as Senior Vice
President, Information Technology Strategy Practices, and member of the
Executive Management Committee for Cambridge Technology Partners
(Massachusetts), Inc. from May 1995 to May 1999. From February 1988 to May 1995
he served as Vice President, Information Services for The Walt Disney Company.
Philip L. Calamia has served as Senior Vice President since February 2000,
as Chief Financial Officer since April 1999, as Treasurer since August 1999 and
as Assistant Secretary since September 1999. Prior thereto he served as Vice
President from April 1999 to February 2000, as Vice President, Finance and
Accounting from July 1998 to March 1999, as Corporate Controller from December
1996 to July 1998, and as Secretary from April 1999 to September 1999. Prior to
joining U.S. Interactive, from March 1995 to December 1996, Mr. Calamia was
Manager of Financial Reporting at Mediq/PRN, a national medical services
company. Prior to Mediq/PRN, from January 1993 to March 1995, Mr. Calamia was
with the accounting firm Deloitte & Touche. Mr. Calamia is a Certified Public
Accountant.
Lawrence F. Shay has served as Senior Vice President, Legal and Corporate
Affairs and General Counsel since June 1999, and has been Secretary since
September 1999. Prior to that time, Mr. Shay was a partner in the law firm of
Dilworth Paxson LLP, where he practiced law since 1985.
Ajit M. Prabhu has served as Senior Vice President since February 2000,
and as Chief Technology Officer since May 1999. Prior thereto, Mr. Prabhu
served as a Vice President of Client Services from March 1999 to May 1999. From
August 1997 until March 1999, Mr. Prabhu served as a Managing Director of
InVenGen LLC, an Internet professional services company that he co-founded. Mr.
Prabhu was a Senior Manager with the Deloitte & Touche Consulting Group from
April 1993 to August 1997, and acting Chief Operating Officer of NetDox, Inc.
from February 1996 to August 1997. Mr. Prabhu was a senior engineer with AT&T
Bell Laboratories (now a part of Lucent Technologies) from 1984 to 1993.
Michael M. Carter has served as Senior Vice President and Chief Marketing
Officer since February 2000, as Vice President of Marketing from December 1998
to January 2000, and as Director, Corporate Marketing from April 1998 to
December 1998. Prior to joining U.S. Interactive, Mr. Carter served as
Worldwide Marketing Manager, Network Services Group for Cambridge Technology
Partners (Massachusetts) from December 1997 to April 1998, as
Marketing/Business Development Manager, Mid-Atlantic Region from January 1997
to December 1997, and consultant from July 1996 to December 1996, for Cambridge
Technology Partners (Massachusetts), Inc. Mr. Carter serves as an advisor to
the board of Investors Broadcast Network/V-Call, Inc. since May 1999, and
served on the advisory board of Soft Plus from September 1998 to March 2000.
Robert E. Keith, Jr. has been our director since June 1996. Mr. Keith
serves as Chairman of the Board of Internet Capital Group, Inc. and is Vice
Chairman of the Board of Safeguard Scientifics. Mr. Keith is also Managing
General Partner of Technology Leaders II, L.P., and has had principal operating
responsibility for Technology Leaders II, L.P. since 1988. Mr. Keith also serves
as a director of American Education Centers, Inc., Cambridge Technology Partners
(Massachusetts), Inc., Diablo Research Corporation, LLC, Masterpack
International, Inc., MultiGenParadigm, Inc., Naviant Technology Solutions, Inc.,
Sunsource, Inc., and Whisper Communications, Inc., all of which are
privately-held companies, except Cambridge Technology Partners, Inc., Sunsource,
Inc., Internet Capital Group, Inc. and Safeguard Scientifics.
John D. Shulman has been our director since July 1998. Mr. Shulman has
served as President and Chief Executive Officer of ONYX International, LLC, a
merchant banking and venture capital firm, since 1995. Prior to this, Mr.
Shulman was Director of Development for the Tower Companies, a diversified real
estate
42
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and investment firm from 1988 to 1994. Mr. Shulman also serves as Chairman of
Exist Corporation, Interactive Video Technologies, Inc., Phar-Mor, Inc.,
ChemLink Laboratories, LLC, Taiwan Mezzanine Fund I and Performance
Distribution, Inc., all of which are privately-held companies, except Phar-Mor,
Inc., which is publicly-held.
E. Michael Forgash has been our director since October 1998. Mr. Forgash
was Vice President, Operations of Safeguard Scientifics from January 1998 to
March 2000. Prior to joining Safeguard Scientifics, Mr. Forgash was President
and Chief Executive Officer of Creative Multimedia from August 1996 to October
1997. Prior to that, Mr. Forgash was President at Continental HealthCare
Systems from November 1994 to July 1996. Mr. Forgash serves as a director of
Internet Capital Group, Inc. and eMerge Interactive, Inc. He also serves as a
director of 4anything.com, Inc., Who? Vision Systems, Inc., XL Vision, Inc. and
Integrated Visions, Inc., all of which are privately-held companies.
John H. Klein has been our director since September 1999. Since mid-1998,
Mr. Klein has been Chairman and Chief Executive Officer of BiLogix, Inc., a
company providing business intelligence software solutions; Chairman and Chief
Executive Officer of Strategic Business and Technology Solutions LLC, a firm
specializing in business planning and strategy formulation; Chairman of CyBear,
a full Internet service provider which primarily offers business solutions over
the Internet; and Vice Chairman and director of Image Vision, a firm focused on
developing, marketing, installing and supporting vertical imaging business
solutions. From April 1996 to May 1998, he was Chairman and Chief Executive
Officer of MIM Corporation, a provider of pharmacy benefit services to medical
groups. Prior to that, he served as President of IVAX North American
Multi-Source Pharmaceutical Group from January 1995 to January 1996, and as
President and Chief Executive Officer of Zenith Laboratories, a generic
pharmaceutical manufacturer, from May 1989 to 1995. Mr. Klein has been a
director of Sunbeam Corporation, and has been a director and Chairman of the
Audit Committee of Coleman Company, Inc. since 1999.
William C. Jennings has been our director since August 1999. Mr. Jennings
is an independent consultant. He was a partner at Coopers & Lybrand (which
merged with Price Waterhouse to become PricewaterhouseCoopers in 1998) from
1992 to 1999. Prior to joining Coopers & Lybrand, he was Executive Vice
President and Chief Financial Officer at Bankers Trust New York Corp. from
October 1988 to January 1991. Prior thereto, Mr. Jennings served as Senior
Executive Vice President, Administration, at Shearson Lehman Brothers, an
investment banking and brokerage firm, from October 1985 to October 1988. Mr.
Jennings currently serves as Chairman of the Board of Intellisource, Inc., a
privately-held outsourcing company.
Robert V. Napier has been our director since October 1999. Mr. Napier has
been Senior Vice President, Information Management and Chief Information
Officer at Compaq Computer Corp., a computer manufacturer, since August 1999.
Prior to joining Compaq, he was Senior Vice President and Chief Information
Officer of Mariner Post-Acute Network, Inc., a health care provider, from
January 1998 to August 1999. From January 1997 to January 1998, he was Chief
Information Officer at Delphi Automotive Systems Corp., a supplier of
components, modules and integrated systems to the automotive industry. Prior
thereto, Mr. Napier was Vice President and Chief Information Officer of Lucent
Technologies, Inc., a designer, developer and manufacturer of communications
systems, software and products, from September 1995 to January 1997. Previous
to that, he held a similar position from March 1993 to September 1995, at AT&T
Global Business Communications Systems, which was one of the companies spun off
by AT&T Corp. to form Lucent. Mr. Napier has been a director of Extant, Inc., a
telecommunications service provider, since March 1999, and has been a member of
the technical advisory board of Safeguard Scientifics since October 1996.
The number of directors is presently fixed at nine. Five of the current
directors were elected to the board of directors pursuant to a stockholders'
agreement that terminated upon the consummation of our initial public offering.
The termination of the stockholders' agreement did not affect either the
current term of the five directors elected under the terms of the stockholders'
agreement or their ability to be re-elected as directors.
Mr. Pulier's employment agreement with us provides that he shall serve as
our Chairman of the Board. Mr. Zarrilli's employment agreement with us provides
that Mr. Zarrilli shall serve on our board of directors. Mr. Uttarwar was
appointed to the board of directors, pursuant to the terms of the Merger, to
serve until the 2001 annual meeting of stockholders.
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<PAGE>
Board Committees
Our board of directors has a compensation committee and an audit
committee. The compensation committee is comprised of John H. Klein, Chairman,
William C. Jennings and Robert E. Keith. The audit committee is comprised of
William C. Jennings, Chairman, John H. Klein and John D. Shulman. The
compensation committee is responsible for the administration of all salary and
incentive compensation plans for our officers, including bonuses and options
granted under our option plans. The audit committee is responsible for
reviewing with management our financial controls and accounting and reporting
activities. In addition, the audit committee will review the qualifications of
our independent auditors, make recommendations to the board of directors
regarding the selection of independent auditors, review the scope, fees and
results of any audit and review any non-audit services and related fees.
Compensation of Directors
U.S. Interactive does not pay fees to directors for serving on our board
of directors. Directors who are not employees of U.S. Interactive are
reimbursed for their reasonable out-of-pocket expenses incurred in attending
the meetings of the board of directors and committees thereof. In addition,
directors who are not employees of U.S. Interactive are eligible to receive
stock options under the 1998 Performance Incentive Plan.
During 1999, Mr. Shulman received an option to acquire 25,000 shares at an
exercise price of $9.25 as consideration for his service on the Board, and
Messr. Jennings, Klein and Napier each received an option to acquire 50,000
shares at a per share exercise price of $19.38, $21.38 and $18.125,
respectively, in connection with their joining the board of directors. Each
option granted to a director becomes exercisable in three equal annual
installments and has an exercise price equal to fair market value on the date
of grant. Eric Pulier, our Chairman of the Board, Stephen Zarrilli, our Chief
Executive Officer and President, and Mohan Uttarwar, the President of our
subsidiary U.S. Interactive Corp. (Delaware), each receive compensation for
services as an employee.
Executive Compensation
The following table sets forth certain information concerning compensation
paid or accrued by us for services during the fiscal year ended December 31,
1999, to our Chief Executive Officer and each of the four most highly
compensated executive officers other than the Chief Executive Officer whose
individual total salary and bonus on an annual basis exceeded $100,000 for that
fiscal year (the Named Executive Officers).
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
Awards
-------------
Annual Compensation
------------------------ Securities
Underlying All Other
Name and Principal Position(s) Salary Bonus Options Compensation(1)
- ------------------------------------------------ ----------- ---------- ------------- ----------------
<S> <C> <C> <C> <C>
Eric Pulier, Chairman of the Board ............. $235,000 $58,750 $ -- $ 7,058
Stephen T. Zarrilli, President and
Chief Executive Officer ....................... 228,077 $58,750 100,000 9,643
Larry W. Smith, former Chief
Executive Officer ............................. 39,038 -- -- 140,485(2)
Ajit M. Prabhu, Chief Technology Officer ....... 156,462 51,341 -- 3,747
James J. Huser, Chief Operating Officer ........ 138,461 33,750 200,000 2,250
Philip L. Calamia, Chief Financial Officer ..... 130,769 33,000 110,000 2,285
</TABLE>
- ------------
(1) Represents premiums paid for life insurance, automobiles and company
matching of 401(k) contributions.
(2) Includes severance payments in the amount of $131,250. Mr. Smith resigned
as Chief Executive Officer effective as of February 26, 1999.
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<PAGE>
The following table provides information on stock options granted by us in
1999 to Messrs. Zarrilli, Huser and Calamia, our executive officers during 1999
who received grants in 1999.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------------ Potential Realizable
Percent of Value at Assumed
Number of Total Annual Rate of
Shares Options Exercise Stock Price Appreciation
Underlying Granted to Price for Option Term(1)
Options Employees in (per Expiration ----------------------------
Name Granted Fiscal Year share) Date 5% 10%
- ---- ------------ -------------- ---------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stephen T. Zarrilli ....... 100,000 4.0% $ 5.00 3/1/09 $ 1,128,895 $ 2,093,742
James J. Huser ............ 200,000 8.1 9.25 5/24/09 1,407,789 3,337,485
Philip L. Calamia ......... 50,000 2.0 5.00 3/12/09 564,447 1,046,871
Philip L. Calamia ......... 60,000 2.4 9.25 5/24/09 422,337 1,001,245
</TABLE>
- ------------
(1) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date the respective options were granted to
their expiration date based upon an initial public offering price of
$10.00 per share. These assumptions are not intended to forecast future
appreciation of our stock price. The potential realizable value
computation does not take into account federal or state income tax
consequences of option exercises or sales of appreciated stock.
On January 31, 2000, options to purchase a total fo 875,000 shares were
granted to seven of our executive officers. These options have an exercise price
of $50.50 per share.
Employment Agreements
We have entered into an employment agreement, dated July 1998, with Mr.
Pulier, currently our Chairman of the Board. Mr. Pulier's agreement is for a
term of one year and automatically renews for additional one-year periods,
unless either party provides 30 days notice of non-renewal. Under the
agreement, Mr. Pulier currently receives a base salary of $275,000, a bonus at
the discretion of the board of directors and benefits which we offer our other
senior executives generally. The agreement also provides that Mr. Pulier shall
serve as Chairman of the Board. We can terminate the agreement for "cause" and
under certain other circumstances, including death or disability. In addition,
Mr. Pulier may resign by giving us notice. If the agreement is terminated other
than for "cause" or Mr. Pulier's voluntary resignation, we will make severance
payments to Mr. Pulier in the amount of his base salary and bonus, if any,
through the balance of the term of the agreement. In addition, any unvested
options which he holds at the time of such early termination would become
vested. The employment agreement contains certain restrictions on Mr. Pulier's
ability to compete with us.
We have also entered an employment agreement, dated as of July 30, 1999,
with Mr. Zarrilli, our President and Chief Executive Officer. The agreement is
for an initial term ending December 31, 2000, and automatically renews for
additional one-year periods, unless either party provides 30 days notice of
non-renewal. Under the agreement, Mr. Zarrilli currently receives a base salary
of $275,000, a bonus at the discretion of the board of directors and benefits
which we offer our other senior executive officers. The agreement also provides
that Mr. Zarrilli shall serve on our board of directors. We can terminate the
agreement for "cause" and under certain other circumstances, including the
death or disability of Mr. Zarrilli. In addition, Mr. Zarrilli may resign by
giving us notice. If the agreement is terminated other than for "cause" or Mr.
Zarrilli's voluntary resignation, we will make severance payments to Mr.
Zarrilli in the amount of his base salary and bonus, if any, through the
balance of the term of the agreement. In addition, any unvested options which
he holds at the time of such early termination would become vested. The
employment agreement contains certain restrictions on Mr. Zarrilli's ability to
compete with us.
We have entered into an employment agreement, dated March 8, 2000, with
Mr. Uttarwar, currently President of our subsidiary U.S. Interactive Corp.
(Delaware). The agreement has a one year term. Under the agreement, Mr.
Uttarwar, who reports directly to our Chief Executive Officer, Mr. Zarrilli,
receives a base salary of $200,000, a bonus at the discretion of the board of
directors, and benefits which we offer our other senior executives generally.
The agreement provides that Mr. Uttarwar shall serve as a member of our board
45
<PAGE>
of directors through the date of our 2001 annual meeting of stockholders. We
can terminate the agreement for "cause" and under certain other circumstances,
including death or disability. Mr. Uttarwar may resign by giving us notice. If
the agreement is terminated without "cause," we will make a severance payment
to Mr. Uttarwar in the amount of his base salary and benefits through the
balance of the term of the agreement and a pro rata portion of the bonus, if
any, to which he would have been entitled through the date of termination.
Termination "without cause" includes, for example, termination upon a change in
control. In addition, any of his unvested options which would have vested prior
to expiration of his term would become vested. If the agreement is terminated
due to Mr. Uttarwar's disability, we will continue Mr. Uttarwar's base salary
and benefits for three months following termination. Mr. Uttarwar is party to a
separate agreement dated March 8, 2000, which contains certain restrictions on
Mr. Uttarwar's ability to compete with us.
Severance Agreements
Larry W. Smith resigned as our Chief Executive Officer effective as of
February 26, 1999, and as a director in May 1999. We entered into a severance
agreement, effective as of February 26, 1999, in connection with his
resignation. Under the severance agreement Mr. Smith received from us a
severance payment of $131,250, paid in nine equal monthly installments, accrued
but unused vacation time of $12,115, and health, life and disability insurance
and other benefits for a nine-month period commencing February 26, 1999,
including automobile reimbursement expenses up to a maximum of $700 per month.
Mr. Smith also reaffirmed his non-disclosure and non-competition agreements
which expired in February 2000.
We have entered into a similar severance agreement with Richard Masterson
effective May 18, 1999. Mr. Masterson resigned as our President and as a
director on May 18, 1999.
Stock Option Plans
We have adopted:
o a 2000 Performance Incentive Plan
o a 1998 Performance Incentive Plan
o an amended and restated 1998 Stock Option Plan
o an amended and restated 1997 Stock Option Plan
o an amended and restated 1996 Stock Option Plan (assumed in the
acquisition of Digital Evolution)
o Soft Plus, Inc. 1999 Stock Plan
o Soft Plus, Inc. 1999 Stock Option Plan
o Soft Plus, Inc. 1997 Stock Plan
2000 Performance Incentive Plan. Under the 2000 Performance Incentive Plan,
employees may receive up to 4,000,000 shares of common stock pursuant to the
grant of incentive stock options, non-qualified stock options, stock
appreciation rights, restricted stock and performance units. Officers and
directors are presently not permitted to participate in this plan. The 2000
Performance incentive plan is administered by the compensation committee of the
board of directors, consisting of two or more "outside directors" as defined
under section 162(m) of the Internal Revenue Code of 1986, who are
"non-employee directors" as defined under Rule 19b-3 of the Securities Exchange
Act of 1934. The compensation committee presently consists of Messrs. Kline,
Jennings and Keith. The 2000 Performance Incentive Plan was adopted by the
board of directors in February 2000. The Company intends to seek approval of
the board to present an amendment to the 2000 Performance Incentive Plan to
include officers, non-employee directors and consultants for approval of our
stockholders at our next annual meeting.
The terms of options granted under the 2000 Performance Incentive Plan are
as follows:
o the option price per share for any non-qualified stock option or
incentive stock option shall not be less than the fair market value of the
common stock at the time of the grant
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<PAGE>
o if an incentive stock option is granted to a person who owns more than
10% of the total combined voting power of all our classes of stock, the
exercise price shall not be less than 110% of the fair market value on the
date of grant
o the term of each stock option may not exceed ten years, and in the case a
person who owns more than 10% of the total combined voting power of all
our classes of stock, the term of each stock option may not exceed five
years
o the issuance of incentive stock options is subject to stockholder
approval of the plan
o payment for the exercise of an option shall be made in cash, or, as shall
be otherwise approved in advance by the option plan committee, in shares
of common stock already owned by the option holder, valued at the fair
market value of the common stock on the date of exercise
o the option plan committee may also allow, in its sole discretion, a
"cashless exercise" for the exercise of stock options
Upon the occurrence of events constituting of a change in control within
the meaning of the 2000 Performance Incentive Plan, in the sole discretion of
the board of directors,
o all outstanding stock options and stock appreciation rights may become
fully exercisable
o all conditions and restrictions of all restricted stock grants may be
deemed satisfied
o all performance grants may be deemed fully earned
1998 Performance Incentive Plan. Under the 1998 Performance Incentive
Plan, officers, employees and non-employee directors may receive up to
3,000,000 shares of common stock pursuant to the grant of incentive stock
options, non-qualified stock options, stock appreciation rights, restricted
stock and performance units. Otherwise, the terms of the 1998 Performance
Incentive Plan are substantially similar to the 2000 Performance Incentive
Plan. The 1998 Performance Incentive Plan is administered by the compensation
committee of the board of directors. As of December 31, 1999, options issued
under the 1998 Performance Incentive Plan to purchase a total of 1,146,000
shares of common stock at a weighted average exercise price per share of $22.83
were outstanding, of which options to purchase 59,000 shares at a weighted
average exercise price of $12.56 were fully vested. As of December 31, 1999, we
had 1,854,000 shares of common stock available for future grant under this
plan.
1998 Stock Option Plan. The 1998 Stock Option Plan provides for the
issuance to key executives and other employees of incentive stock options and
non-qualified stock options to purchase up to a total of 1,397,236 shares of
common stock. The 1998 Stock Option Plan is administered by the compensation
committee of the board of directors. As of December 31, 1999, options issued
under the 1998 Stock Option Plan to purchase a total of 1,307,936 shares of
common stock at a weighted average exercise price per share of $9.20 were
outstanding, of which options to purchase 129,702 shares at a weighted average
exercise price of $7.92 were fully vested. As of this date, we had 58,028
shares of common stock available for future grant under this plan. No options
are issuable under the 1998 Stock Option Plan after September 2008.
The terms of options granted under the 1998 Stock Option Plan are as
determined by the option plan committee, subject to the following:
o the option price per share for any non-qualified stock option or
incentive stock option shall not be less than the fair market value of the
common stock at the time of the grant
o if an incentive stock option is granted to a person who owns more than
10% of the total combined voting power of all our classes of stock, the
exercise price shall not be less that 110% of the fair market value on the
date of grant
o the term of each stock option may not exceed ten years, and in the case a
person who owns more than 10% of the total combined voting power of all
our classes of stock, the term of each stock option may not exceed five
years
o payment for the exercise of an option shall be made in cash, or, as shall
be otherwise approved in advance by the option plan committee, in shares
of common stock already owned by the option holder, valued at the fair
market value of the common stock on the date of exercise
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<PAGE>
o the option plan committee may also allow, in its sole discretion, a
"cashless exercise" for the exercise of stock options
1997 Stock Option Plan. The 1997 Stock Option Plan provides for the
issuance to key executives and other employees of incentive stock options and
non-qualified stock options to purchase up to a total of 600,000 shares of
common stock. The terms of the 1997 Stock Option Plan are substantially similar
to the terms of the 1998 Stock Option Plan except that exercisability is not
subject to completion of this offering. This plan is presently administered by
the compensation committee of the board of directors. As of December 31, 1999,
options issued under the 1997 Stock Option Plan to purchase a total of 219,302
shares of common stock at a weighted average exercise price per share of $2.74
were outstanding, of which options to purchase 126,609 shares were fully vested
and exercisable at a weighted average exercise price of $2.26. As of that date,
we had 169,452 shares of common stock available for future grant under this
plan. No options are issuable under the 1997 Stock Option Plan after September
2008.
1996 Stock Option Plan. Digital Evolution had historically granted stock
options to its officers and key employees under a stock option plan. As part of
our merger with Digital Evolution, all of these options which were outstanding
at the time of the merger were converted into stock options to acquire common
stock at the ratio of .99 shares of U.S. Interactive for each share covered by
a Digital Evolution option. No further stock options will be granted under this
former Digital Evolution plan.
Soft Plus Plans. Soft Plus had historically granted stock options to its
officers and key employees under three stock option plans. As part of the
Merger, all of these options which were outstanding at the time of the Merger
were converted into stock options to acquire a total of 1,408,866 shares of our
common stock. No further stock options will be granted under any of the former
Soft Plus Plans.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Eric Pulier, our Chairman of the Board, and John D. Shulman, a director,
are stockholders of Exist Corporation and owned during part of 1999, in the
aggregate, 36% of the equity of Exist on a fully diluted basis. Their aggregate
ownership is currently 17% on a fully diluted basis. In addition, Mr. Pulier
and Mr. Shulman each hold currently exercisable options to acquire an
additional 6% of the equity ownership of Exist. Mr. Shulman is the Chairman of
the Board and Mr. Pulier is a director of Exist. Pursuant to a professional
services and consulting agreement dated January 6, 1999, U.S. Interactive is
providing professional services to Exist, including strategic design and
development, in connection with Exist's development of an Internet global
exchange platform. The agreement provides that Exist will pay a total of
approximately $3.8 million for the services provided by U.S. Interactive
through December 1999. The professional services and consulting agreement dated
January 6, 1999 replaces a prior agreement pursuant to which Exist paid a total
of approximately $700,000 for similar services provided by U.S. Interactive.
Exist represented more than 10% of our revenue for the twelve months ended
December 31, 1999.
Eric Pulier, Chairman of the Board of U.S. Interactive Inc., is the sole
general partner of and together with his wife, Heather Pulier owns 100% of
Digital Evolution, L.P. Digital Evolution owns 50% of Chromazone LLC. Mr.
Pulier is also a director of Chromazone.
Chromazone represented more than 13% of our revenue for the twelve months
ended December 31, 1999.
Chromazone owns a 50% equity interest in NetSmart, Inc. Mr. Pulier is a
director of NetSmart. Pursuant to a professional services and consulting
agreement dated September 1999 with Chromazone, U.S. Interactive is providing
professional services to NetSmart in connection with a customized dial up and
web browser application. The September 1999 agreement replaces the letter
agreement dated April 6, 1999, between Chromazone and U.S. Interactive.
The agreement provides that Chromazone will pay U.S. Interactive $3.2 million.
Through December 31, 1999, services totaling approximately $3.1 million have
been invoiced to Chromazone for the services provided to NetSmart under this
agreement, of which approximately $2.3 million had been paid as of that date.
Pursuant to the same professional services and consulting agreement dated
September 1999 with Chromazone, U.S. Interactive is providing professional
services to Citicorp Electronic Commerce, Inc. in connection with the
development of a small business portal and a business plan for new business
enterprises. The agreement provides that Chromazone will pay U.S. Interactive
$1.7 million. Through December 31, 1999, services totaling approximately $1.6
million have been invoiced to Chromazone under this agreement, of which
approximately $1.4 million had been paid as of that date.
Chromazone owns a 31% equity interest in Decision Support Systems, Inc.
(DSS). Pursuant to a professional services agreement dated July 20, 1999, with
DSS, U.S. Interactive provided professional services to DSS in connection with
the development of the health care portal. The agreement provides that DSS will
pay U.S. Interactive $30,000. Through December 30, 1999, services totaling
approximately $30,000 have been invoiced to DSS, all of which has been paid.
Digital Evolution owns a 35% equity interest in Interactive Video
Technology, Inc. (IVT). Pursuant to a professional services agreement dated
September 1998 between IVT and Toyota Motor Sales, U.S.A., Inc., U.S.
Interactive was engaged to assist in Application Development for Toyota Motor
Sales, U.S.A., Inc. The agreement provides that IVT will pay U.S. Interactive
$210,000. Through December 31, 1999, services totaling approximately $210,000
have been invoiced to IVT, of which IVT has paid a total of $164,000.
Michael M. Carter previously held options to purchase 50,000 shares of
common stock of Soft Plus, which he received as compensation for his service on
the Soft Plus advisory board, which options were converted into options to
purchase a total of 18,658 shares of common stock of U.S. Interactive upon
completion of the Soft Plus merger.
49
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of December 31, 1999 by:
o our Chairman of the Board and Chief Executive Officer and each director
o all of our directors and executive officers as a group
o each person known to us to own beneficially more than 5% of our
outstanding shares
o the selling stockholder
A person has beneficial ownership of shares if the individual has the
power to vote or dispose of the shares. This power can be exclusive or shared,
direct or indirect. In addition, a person beneficially owns shares underlying
options that are presently exercisable or will become exercisable within 60
days of the date of this prospectus.
The address for all directors and executives is 2012 Renaissance
Boulevard, King of Prussia, Pennsylvania 19406.
As of December 31, 1999, there were 19,488,483 shares of our common stock
outstanding.
To calculate a stockholder's percentage of beneficial ownership, we must
include in the numerator and denominator those shares underlying options
beneficially owned by that stockholder. Options held by other stockholders,
however, are disregarded in this calculation. Therefore, the denominator used
in calculating beneficial ownership among our stockholders may differ.
The table below assumes that the underwriters have not exercised their
over-allotment option. In addition, the symbol "*" means that the percentage is
less than one percent.
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
Prior to Offering After Offering
-------------------------- Shares -------------------------
Beneficial Owner Number Percentage Offered Hereby Shares Percentage
- ------------------------------------------- ----------- ------------ ---------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Named Executive Officers and Directors:
Eric Pulier (1) .......................... 3,462,569 17.6% 3,462,569 15.3%
Stephen T. Zarrilli (2) .................. 575,767 2.9 575,767 2.6
Ajit M. Prabhu (3) ....................... 28,658 * 28,658 *
James J. Huser (4) ....................... 20,000 * 20,000 *
Mohan Uttarwar(5) ........................ -- -- -- --
Philip L. Calamia (6) .................... 48,990 * 48,990 *
John D. Shulman (7) ...................... 308,429 1.6 308,429 1.4
E. Michael Forgash ....................... 11,778 * 11,778 *
Robert E. Keith, Jr. (8) ................. 2,111 * 2,111 *
John H. Klein ............................ 1,000 * 1,000 *
William C. Jennings ...................... -- -- -- --
Robert V. Napier ......................... 2,000 * 2,000 *
All directors, executive officers as a
group (14 persons) (9) ................... 4,516,177 22.8 4,516,177 19.8
Named Former Executive Officer:
Larry W. Smith (10) ...................... 795,701 4.1 795,701 3.5
Other Five Percent Holders:
Safeguard Scientifics, Inc. (11) ......... 2,506,868 12.9 2,506,868 11.2
Technology Leaders II (12) ............... 1,184,175 6.1 1,184,175 5.3
Additional Selling Stockholder (13):
Vulcan Ventures Inc. ..................... 692,355 3.6 200,000 492,355 2.2
</TABLE>
50
<PAGE>
- ------------
(1) Includes 189,093 shares issuable upon exercise of options and 1,069 shares
issuable upon exercise of options held by Heather Pulier, Mr. Pulier's
wife. Includes 50,000 shares held by Mr. Pulier, as trustee, under the
Eric Pulier 1999 Qualified Grantor Retained Annuity Trust.
(2) Includes 51,525 shares issuable upon exercise of options, 24,195 shares
held as Custodian under the Uniform Transfers to Minors Act for the
benefit of Mr. Zarrilli's three children, and 5,000 shares held as
Custodian under the California Uniform Transfers to Minors Act for the
benefit of Mr. Pulier's son. Includes 50,000 shares held by Mr. Zarrilli,
as trustee, under the Stephen T. Zarrilli 1999 Qualified Grantor Retained
Annuity Trust.
(3) Includes 27,658 shares which Mr. Ajit is entitled to receive from InVenGen
LLC under the terms of a confidential compensation agreement between Mr.
Ajit and InVenGen LLC upon the satisfaction of certain employment taxes by
Mr. Ajit. Excludes an additional 6,194 shares which Mr. Ajit is entitled
to receive on March 12, 2000 and an additional 34,571 shares which Mr.
Ajit is entitled to receive in three equal installments on March 12, June
12 and September 12, 2000, under the same agreement and subject to
satisfaction of the same condition. U.S. Interactive acquired all of the
assets of InVenGen LLC on March 12, 1999.
(4) Includes 20,000 shares issuable upon exercise of options.
(5) Mr. Uttarwar acquired 775,910 shares on March 8, 2000, and is entitled to
receive an additional 208,400 shares held by The Chase Manhattan Trust
Company, N.A., as escrow agent pursuant to the terms of an escrow
agreement as security for certain contingent liabilities of Soft Plus, in
connection with the Merger.
(6) Includes 46,150 shares issuable upon exercise of options.
(7) Includes 297,737 shares held jointly with Alison B. Shulman, Mr. Shulman's
wife, as tenants by the entireties. Includes 10,692 shares issuable upon
exercise of options.
(8) Includes 311 shares held through a self-directed account in the Safeguard
401(k) plan. Excludes 375 shares held indirectly as the general partner of
Technology Leaders II Management L.P., the general partner of Technology
Leaders II L.P. and the co-general partner of Technology Leaders II
Offshore C.V., the sole shareholder of TL Ventures Third Corp. See note 12
below.
(9) Includes 338,244 shares issuable upon exercise of options, including 1,069
shares issuable upon exercise of options held by Mr. Pulier's wife.
(10) Includes 200,000 shares held by Mr. Smith, as trustee, under the Larry W.
Smith 1999 Qualified Grantor Retained Annuity Trust. Mr. Smith is a
co-founder of U.S. Interactive and served as one of our directors from
1991 to May 1999, President from September 1991 to July 1998, and Chief
Executive Officer from September 1996, to December 1998. Mr. Smith is
party to a severance agreement with U.S. Interactive relating to his
resignation.
(11) Includes 2,114,787 shares issued to Safeguard 98 Capital L.P. and 392,081
shares issued to Safeguard Delaware, Inc. Safeguard Delaware, Inc., a
wholly-owned subsidiary of Safeguard Scientifics, Inc., is the sole
general partner of Safeguard 98 Capital L.P. and has sole authority and
responsibility for all investments, voting and disposition decisions
regarding such shares. Safeguard Delaware, Inc. holds approximately a
91.2% general partnership interest in Safeguard 98 Capital L.P. Excludes
1,184,175 shares of common stock owned by Technology Leaders II, held by
Venture Capital funds affiliated with Safeguard Scientifics, Inc.
Safeguard Scientifics, Inc. disclaims beneficial ownership of shares of
U.S. Interactive's common stock held by the various other entities
referred to in note 12, below. Robert E. Keith, a director of U.S.
Interactive, is a director of Safeguard. The address of Safeguard is
Safeguard Scientifics, Inc., 800 The Safeguard Building, 435 Devon Park
Drive, Wayne, Pennsylvania 19087.
51
<PAGE>
(12) Includes 93,445 shares of common stock issued to Technology Leaders II
Offshore C.V., 659,941 shares of common stock issued to Technology Leaders
II L.P., and 430,789 shares of common stock issued to TL Ventures Third
Corp. Technology Leaders II consists of Technology Leaders II L.P. and
Technology Leaders II Offshore C.V., TL Ventures Third Corp. is
wholly-owned by Technology Leaders II Offshore C.V., Technology Leaders II
Management, L.P., is the sole general partner of Technology Leaders II
L.P. and co-general partner of Technology Leaders II Offshore C.V.,
Technology Leaders II L.P. and Technology Leaders II Offshore C.V. are
venture capital funds that are required by their governing documents to
make all investment, voting and disposition actions in tandem. Technology
Leaders II Management L.P. has sole authority and responsibility for all
investments, voting and disposition decisions for Technology Leaders II.
The general partners of Technology Leaders II Management L.P. are: (i)
Technology Leaders Management, Inc., a wholly-owned subsidiary of
Safeguard, (ii) Robert E. Keith, a director of U. S. Interactive, Gary J.
Anderson, M.D., Robert Fabbio and Mark J. DeNino, and (iii) four other
corporations (the TLA Corporations) owned by natural persons, one of whom
is a director of Safeguard. Technology Leaders II Management L.P. is
managed by an executive committee, by whose decisions the general partners
have agreed to be bound, which consists of ten voting members including:
(i) Warren V. Musser, who is a designee of Technology Leaders Management,
Inc., (ii) Mr. Keith, Dr. Anderson, Mr. DeNino, and Christopher Moller,
Ph.D., individually, and (iii) one designee of each of the TLA
Corporations and (as a non-voting member) Clayton S. Rose. There is
currently one vacancy on the executive committee. Technology Leaders
Management, Inc. is the administrative manager of Technology Leaders II,
subject to the control and direction of the executive committee of
Technology Leaders II Management L.P. Mr. Keith is a director of
Safeguard. Technology Leaders Management, Inc. holds a 34.0% general
partnership interest in Technology Leaders II Management L.P. The address
of Technology Leaders II is Building 700, 435 Devon Park Drive, Wayne,
Pennsylvania 19087. On February 15 and 16, 2000 the Technology Leaders II
entities distributed all of the shares held by them to their respective
partners.
(13) The selling stockholder is party to an investors' rights agreement.
52
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our Authorized Capital Stock at December 31, 1999
o 90 million shares of common stock, par value $0.001 per share
o 15 million shares of preferred stock, par value $0.001 per share
o immediately after the sale of the shares of common stock in this
offering, we will have 25,879,589 shares of common stock outstanding,
including the shares issued in connection with the Merger
Common Stock
Voting:
o one vote for each share held of record on all matters submitted to a
vote of stockholders
o no cumulative voting rights
o election of directors by plurality of votes cast
o all other matters by majority of the votes cast
Dividends:
o subject to preferential dividend rights, if any, of outstanding shares of
preferred stock, common stockholders are entitled to receive ratably
declared dividends
o the board of directors may only declare dividends out of legally
available funds
Additional Rights:
o subject to the preferential liquidation rights, if any, of outstanding
shares of preferred stock, common stockholders are entitled to receive
ratably net assets, available after the payment of all debts and
liabilities, upon our liquidation, dissolution or winding up
o no preemptive rights
o no subscription rights
o no redemption rights
o no sinking fund rights
o no conversion rights
The rights and preferences of common stockholders are subject to the right
of any series of preferred stock we may issue in the future.
Preferred Stock
We may, by resolution of our board of directors, and without any further
vote or action by our stockholders, authorize and issue, subject to certain
limitations prescribed by law, up to an aggregate of 15 million shares of
preferred stock. The preferred stock may be issued in one or more classes or
series of shares of any class or series. With respect to any classes or series,
the board of directors may determine the designation and the number of shares,
preferences, limitations and special rights, including dividend rights,
conversion rights, voting rights, redemption rights and liquidation
preferences. Because of the rights that may be granted, the issuance of
preferred stock may delay, defer or prevent a change of control. No shares of
preferred stock are outstanding and we presently have no plans to issue shares
of preferred stock.
53
<PAGE>
Limitation on Liability
Our certificate of incorporation limits or eliminates the liability of our
directors to us or our stockholders for monetary damages to the fullest extent
permitted by the Delaware General Corporation Law. As permitted by the Delaware
General Corporation Law, our certificate of incorporation provides that our
directors shall not be personally liable to us or our stockholders for monetary
damages for a breach of fiduciary duty as a director, except for liability:
o for any breach of such person's duty of loyalty
o for acts or omissions not in good faith or involving intentional
misconduct or a knowing violation of law
o for the payment of unlawful dividends and certain other actions
prohibited by Delaware corporate law
o for any transaction resulting in receipt by such person of an improper
personal benefit
Our certificate of incorporation also contains provisions indemnifying our
directors and officers to the fullest extent permitted by the Delaware General
Corporation Law.
We have directors' and officers' liability insurance to provide our
directors and officers with insurance coverage for losses arising from claims
based on breaches of duty, negligence, errors and other wrongful acts.
Certain Anti-Takeover Provisions
Our certificate of incorporation provides for the division of our board of
directors into three classes. Each class must be as nearly equal in number as
possible. Additionally, each class must serve a three-year term. The terms of
each class are staggered so that each term ends in a different year over a
three-year period. Any director not elected by holders of preferred stock may
be removed only for cause and only by the vote of more than 50% of the shares
entitled to vote for the election of directors.
Our certificate of incorporation also provides that our board of directors
may establish the rights of, and cause us to issue, substantial amounts of
preferred stock without the need for stockholder approval. Further, our board
of directors may determine the terms, conditions, rights, privileges and
preferences of the preferred stock. Our board is required to exercise its
business judgment when making such determinations. Our board of directors' use
of the preferred stock may inhibit the ability of third parties to acquire U.S.
Interactive. Additionally, our board may use the preferred stock to dilute the
common stock of entities seeking to obtain control of U.S. Interactive. The
rights of the holders of common stock will be subject to, and may be adversely
affected by, any preferred stock that may be issued in the future. Our
preferred stock provides desirable flexibility in connection with possible
acquisitions, financings and other corporate transactions. However, it may have
the effect of discouraging, delaying or preventing a change in control of U.S.
Interactive. We have no present plans to issue any shares of preferred stock.
The existence of the foregoing provisions in our certificate of
incorporation could make it more difficult for third parties to acquire or
attempt to acquire control of us or substantial amounts of our common stock.
After this offering is completed, Section 203 of the Delaware General
Corporation Law will apply to U.S. Interactive. Section 203 of the Delaware
General Corporation Law generally prohibits certain "business combinations"
between a Delaware corporation and an "interested stockholder." An "interested
stockholder" is generally defined as a person who, together with any affiliates
or associates of such person, beneficially owns, or within three years did own,
directly or indirectly, 15% or more of the outstanding voting shares of a
Delaware corporation. The statute broadly defines business combinations to
include:
o mergers
o consolidations
o sales or other dispositions of assets having an aggregate value in excess
of 10% of the consolidated assets of the corporation or aggregate market
value of all outstanding stock of the corporation
54
<PAGE>
o certain transactions that would increase the "interested stockholder's"
proportionate share ownership in the corporation
The statute prohibits any such business combination for a period of three
years commencing on the date the "interested stockholder" becomes an
"interested stockholder," unless:
o the business combination is approved by the corporation's board of
directors prior to the date the "interested stockholder" becomes an
"interested stockholder"
o the "interested stockholder" acquired at least 85% of the voting stock of
the corporation (other than stock held by directors who are also officers
or by certain employee stock plans) in the transaction in which it becomes
an "interested stockholder" if the business combination is approved by a
majority of the board of directors and by the affirmative vote of at least
two-thirds of the outstanding voting stock that is not owned by the
"interested stockholder"
The Delaware General Corporation Law contains provisions enabling a
corporation to avoid Section 203's restrictions if stockholders holding a
majority of the corporation's voting stock approve an amendment to the
corporation's certificate of incorporation or by-laws to avoid the
restrictions. We have not and do not currently intend to "elect out" of the
application of Section 203 of the Delaware General Corporation Law.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services, LLC.
55
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, we will have outstanding an aggregate of
25,879,589 shares of our common stock, including the shares issued in
connection with the Merger, assuming no exercise of the underwriters'
over-allotment option and no exercise of options that were outstanding as of
December 31, 1999. Of these shares, all of the 3,200,000 shares sold in the
offering will be freely tradable without restriction or further registration
under the Securities Act, unless such shares are purchased by "affiliates" as
that term is defined in Rule 144 under the Securities Act. Approximately
16,179,579 of the remaining outstanding shares of common stock are "restricted
securities" as that term is defined in Rule 144 under the Securities Act.
Restricted securities may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rules 144 or 701
promulgated under the Securities Act, which rules are summarized below.
As of December 31, 1999 and on a over pro forma basis after giving effect
to the Merger, subject to the contractual restrictions described below,
additional shares may be sold without registration under the Securities Act as
follows:
o 3,400,972 shares of our common stock issuable upon exercise of
outstanding options are eligible for sale under a registration statement
on Form S-8 relating to such shares; 1,030,088 of such options were
exercisable. There were a total of approximately 2,081,480 shares of our
common stock reserved for issuance upon exercise of options which may be
granted in the future under our employee benefit plans
o 70,000 shares of our common stock issuable upon exercise of a warrant
o 11,869,353 shares of our common stock then outstanding will be eligible
for sale under Rule 144 or Rule 701
o the remainder of the restricted securities will be eligible for sale from
time to time thereafter upon expiration of their respective one-year
holding periods
Lock-Up Agreements
The underwriters have requested that the stockholder selling shares in
this offering enter into a lock-up agreement under which it would agree not to
transfer or otherwise dispose of, directly or indirectly, without the prior
written consent of Lehman Brothers Inc., any shares of our common stock or any
securities convertible into or exchangeable or exercisable for shares of our
common stock for a period of 90 days following the date of this prospectus.
Transfers or dispositions can be made during the lock-up period in the case of
gifts for estate planning purposes where the donee signs a lock-up agreement.
In connection with the Merger, certain shareholders of Soft Plus who
received 50,000 or more shares of our common stock in the Merger, holding a
total of approximately 2,880,351 unregistered shares of our common stock which
they received in the Merger, signed an agreement requiring them to hold their
shares for up to two years, with the restriction to lapse with respect to 25% of
the shares every six months beginning on a date six months following the closing
of the Merger.
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
o one percent of the number of shares of our common stock then outstanding,
which will equal approximately 258,796 shares immediately after this
offering
o the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale
56
<PAGE>
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.
Rule 144(k)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an affiliate, is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Therefore,
unless otherwise restricted, "144(k) shares" may be sold immediately upon the
completion of this offering.
Rule 701
In general, under Rule 701 of the Securities Act, any of our employees,
consultants or advisors who purchased shares from us in connection with a
compensatory stock or option plan or other written agreement prior to our
initial public offering are eligible to resell such shares subject to the
requirement that the shares are sold in brokers' transactions (as defined in
Rule 144(f) contained in Rule 144).
Registration Rights
Some holders of our common stock have been granted registration rights.
Registration of shares of our common stock pursuant to an exercise of demand
registration rights, piggyback registration rights or shelf registration rights
would result in such shares becoming freely tradable without restriction under
the Securities Act upon the effectiveness of such registration and may adversely
affect our stock price.
Other than shares being sold in this offering, under an investors' rights
agreement with U.S. Interactive, a total of 4,145,982 shares of our common stock
are covered by these registration rights. The shares of our common stock owned
or that can be acquired upon conversion are divided into two categories under
the investors' rights agreement -- registrable investors' securities and
registrable individuals' securities. In particular, the holders of 40% of the
registrable investors' securities can demand on two occasions that we register
their shares provided that the shares to be covered by each such demand have an
aggregate price to the public of not less than $5.0 million. The holders of 20%
of the registrable individuals' securities can demand on two occasions that we
register 20% of their shares provided that the shares to be covered by each such
demand have an aggregate price to the public of not less than $5.0 million. In
addition, all the holders are entitled under the investors' rights agreement to
piggyback registration rights, subject to reduction at the discretion of an
underwriter. Piggyback registration rights entitle stockholders to include
shares in a registered public offering that has been initiated by U.S.
Interactive. All holders are also entitled under the investors' rights agreement
to an aggregate of four shelf registrations on a registration statement on Form
S-3 provided that the number of shares to be covered by each shelf registration
has an aggregate price to the public of not less than $2.0 million.
In addition, in connection with the Soft Plus Merger, we granted the
following registration rights to former Soft Plus shareholders under a
registration rights agreement with respect to the shares of our common stock
issued to them in the Merger:
o stockholders who sign a lock up agreement and who were not employed by or
directors of Soft Plus within 30 days of the closing date of the Merger (or
controlled by an individual not a director or employed by Soft Plus within
30 days prior to such date) have been given the right to participate
(subject to underwriters' cutback) in this offering with respect to up to
30% of their shares. Approximately 120,000 of these shares are currently
eligible to be registered;
o all stockholders have been granted limited rights to participate in the
second firmly underwritten public offering, if any, by us of our common
stock within 24 months following closing of the Merger for not more than
35% of the shares of our common stock owned by them on the date of the
filing of the registration statement. The right of some of the principal
shareholders' of SoftPlus to participate in the offering is limited to not
more than 15% of the shares owned by them on the filing of the registration
statement. Approximately 690,277 of these shares are currently eligible to
be registered; and
o approximately 690,227 of these shares are currently eligible to be
registered.
57
<PAGE>
o we have agreed to file a Form S-3 registration statement to register 25% of
the shares issued in the Merger subject to receiving lock up agreements
once we are eligible to register our shares on Form S-3. Approximately
720,088 of these shares currently would be eligible for registration on
Form 3. (We anticipate that we will become eligible to utilize Form S-3 in
August 2000.)
Stock Options
On September 29, 1999, we filed a registration statement on Form S-8 under
the Securities Act covering shares of common stock reserved for issuance under
our three stock option plans and our 1998 Performance Incentive Plan. We
anticipate that we will file a registration statement on Form S-8 not later
than June 30, 2000, covering shares of our common stock reserved for issuance
under our 2000 Performance Incentive Plan. As of December 31, 1999, options to
purchase 3,400,972 shares of our common stock were issued and outstanding, of
which options to purchase a total of 1,030,088 shares of our common stock were
vested. Accordingly, shares registered under such registration statement are,
subject to lock-up agreements, vesting provisions and Rule 144 volume
limitations applicable to our affiliates, available for sale in the open
market.
The shares of our common stock issuable upon exercise of the Soft Plus
Options that in connection with the Merger gave the holder thereof a right to
purchase our common stock will be registered on a Registration Statement on
Form S-8 to be filed within 90 days following the closing of the this offering,
but in any event not later than 150 days following the closing date of the
Merger.
58
<PAGE>
UNDERWRITING
Under the underwriting agreement between the indentures, us and the
selling stockholders, which is filed as an exhibit to the registration
statement relating to this prospectus, the underwriters named below, for whom
Lehman Brothers Inc., Chase Securities Inc., Deutsche Bank Securities Inc.,
First Union Securities, Inc. and Adams, Harkness & Hill, Inc. are acting as
representatives, have each agreed to purchase from us the respective number of
shares of common stock shown opposite its name below:
Number of
Underwriters Shares
------------- ----------
Lehman Brothers Inc. ..................
Chase Securities Inc. .................
Deutsche Bank Securities Inc. .........
First Union Securities, Inc. ..........
Adams, Harkness & Hill, Inc. ..........
---------
Total ............................... 3,200,000
=========
Of the 3,200,000 shares to be purchased by the underwriters, 3,000,000
shares will be purchased from us and 200,000 shares will be purchased from the
selling stockholder.
The underwriting agreement provides that the underwriters' obligations to
purchase shares of common stock depend on the satisfaction of the conditions
contained in the underwriting agreement, and that if any of the shares of
common stock are purchased by the underwriters under the underwriting
agreement, then all of the shares of common stock which the underwriters have
agreed to purchase under the underwriting agreement, must be purchased. The
conditions contained in the underwriting agreement include the requirement that
the representations and warranties made by us to the underwriters are true,
that there is no material change in the financial markets and that we deliver
to the underwriters customary closing documents.
The representatives of the underwriters have advised us that the
underwriters propose to offer the shares of common stock directly to the public
at the public offering price set forth on the cover page of this prospectus,
and to dealers, who may include the underwriters, at such public offering price
less a selling concession not in excess of $ . per share. The underwriters
may allow, and the dealers may reallow, a concession not in excess of $ .
per share to brokers and dealers. After the offering, the underwriters may
change the offering price and other selling terms.
The following table shows the per share and total public offering price,
underwriting discount to be paid by us and the selling stockholders to the
underwriters and the proceeds before expenses to us and the selling
stockholders. The underwriting discount was determined through discussion with
our management and by reference to the underwriters' experience with
transactions of this type and companies in similar industries. This information
is presented assuming either no exercise or full exercise by the underwriters
of their overallotment option.
<TABLE>
<CAPTION>
Total
-----------------------
Without
Per share Option With Option
----------- -------- ------------
<S> <C> <C> <C>
Public offering price ................................ $ $ $
Underwriting discount ................................ $ $ $
Proceeds before expenses to U.S. Interactive ......... $ $ $
Proceeds before expenses to the selling stockholder . $ $ $
</TABLE>
The expenses of the underwritten offering, exclusive of the underwriting
discount, are estimated at $800,000 and are payable by us. The following table
details these expenses. All amounts shown are estimates, with the exception of
the Securities and Exchange Commission registration fee, the NASD filing fee
and the Nasdaq National Market listing fee.
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SEC registration fee ....................... $ 39,954
NASD filing fee ............................ 30,500
Transfer agent and registrar fees .......... 10,000
Printing and engraving ..................... 150,000
Legal fees ................................. 250,000
Nasdaq National Market listing fee ......... 17,500
Accounting fees ............................ 225,000
Miscellaneous .............................. 77,046
--------
Total .................................... $800,000
========
We have granted to the underwriters an option to purchase up to an
aggregate of 450,000 additional shares of common stock, exercisable solely to
cover over-allotments, if any, at the public offering price less the
underwriting discounts and commissions shown on the cover page of this
prospectus. The underwriters may exercise this option at any time until 30 days
after the date of the underwriting agreement. If this option is exercised, each
underwriter will be committed, so long as the conditions of the underwriting
agreement are satisfied, to purchase a number of additional shares of common
stock proportionate to the underwriter's initial commitment as indicated above
and we and the selling stockholder will be obligated, under the over-allotment
option, to sell the shares of common stock to the underwriters.
We have agreed that, without the prior consent of Lehman Brothers Inc., we
will not directly or indirectly, offer, sell or otherwise dispose of any shares
of common stock or any securities which may be converted into or exchanged for
any such shares of common stock for a period of 90 days from the date of this
prospectus.
The underwriters have requested that the stockholder selling shares in
this offering enter into a lock-up agreement under which it would agree not to
transfer or otherwise dispose of, directly or indirectly, without the prior
written consent of Lehman Brothers Inc., any shares of our common stock or any
securities convertible into or exchangeable or exercisable for shares of our
common stock for a period of 90 days following the date of this prospectus. See
"Shares Eligible for Future Sale."
Our common stock is quoted on the Nasdaq National Market under the symbol
"USIT."
We have agreed to indemnify the underwriters against liabilities,
including liabilities under the Securities Act and liabilities arising from
breaches of the representations and warranties contained in the underwriting
agreement, and to contribute to payments that the underwriters may be required
to make for these liabilities.
Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters
and selling group members to bid for and purchase shares of common stock. As an
exception to these rules, the representatives are permitted to engage in
transactions that stabilize the price of the common stock. These transactions
may consist of bids or purchases for the purposes of pegging, fixing or
maintaining the price of the common stock. The underwriters may create a short
position in the common stock in connection with the offering, which means that
they may sell more shares than are set forth on the cover page of this
prospectus. If the underwriters create a short position, then the
representatives may reduce that short position by purchasing common stock in
the open market. The representatives also may elect to reduce any short
position by exercising all or part of the over-allotment option.
The representatives also may impose a penalty bid on underwriters and
selling group members. This means that if the representatives purchase shares
of common stock in the open market to reduce the underwriters' short position
or to stabilize the price of the common stock, the representatives may reclaim
the amount of the selling concession from the underwriters and selling group
members who sold those shares as part of the offering. In addition, the
representatives reserve the right to reclaim selling concessions from the
underwriters and selling group members if the representatives receive a report
that clients of the underwriters and selling group members have sold the stock
they purchased in this offering generally within 30 days following this
offering. The representatives would reserve this right even if the
representatives do not purchase shares in the open market.
60
<PAGE>
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it might to discourage resales of the security by purchasers in
an offering.
Any offers in Canada will be made only under an exemption from the
requirements to file a prospectus in the relevant province of Canada in which
such sale is made.
Purchasers of the shares of common stock offered in this prospectus may be
required to pay stamp taxes and other charges under the laws and practices of
the country of purchase (outside of the United States), in addition to the
offering price listed on the cover of this prospectus.
Lehman Brothers Inc., Chase Securities Inc., Deutsche Bank Securities
Inc., First Union Securities, Inc. and Adams, Harkness & Hill, Inc. have
informed us that they do not intend to confirm sales of shares of common stock
offered by this prospectus to any accounts over which they exercise
discretionary authority. In addition, the other underwriters have informed us
that they do not intend to confirm sales to discretionary accounts that exceed
5% of the total number of shares of common stock offered by them.
LEGAL MATTERS
The validity of the shares of our common stock offered hereby will be
passed upon for us by Dilworth Paxson LLP, Philadelphia, Pennsylvania. As of
February 18, 2000, certain partners of Dilworth Paxson LLP owned a total of
approximately 41,047 shares of our common stock. Certain legal matters in
connection with this offering are being passed upon for the underwriters by
Brobeck, Phleger & Harrison LLP, Washington, D.C.
EXPERTS
Our consolidated financial statements and schedule as of December 31, 1998
and 1999, and for each of the years in the three-year period ended December 31,
1999, have been included herein and in the registration statement in reliance
upon the reports of KPMG LLP, independent certified public accountants,
appearing herein and elsewhere in the registration statement upon the authority
of said firm as experts in accounting and auditing.
The consolidated financial statements of Soft Plus as of December 31, 1998
and 1999, and for each of the years in the three-year period ended December 31,
1999, have been included herein and in the registration statement in reliance
upon the reports of KPMG LLP, independent certified public accountants,
appearing herein and elsewhere in the registration statement upon the authority
of said firm as experts in accounting and auditing.
The financial statements of Digital Evolution as of December 31, 1996 and
1997, and for each of the years in the two-year period ended December 31, 1997,
have been included herein and in the registration statement in reliance upon
the reports of BDO Seidman, LLP, independent certified public accountants,
appearing herein and elsewhere in the registration statement upon the authority
of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed a registration statement on Form S-1 with the Securities and
Exchange Commission. This prospectus, which forms a part of the registration
statement, does not contain all of the information included in the registration
statement. Certain information is omitted and you should refer to the
registration statement and our exhibits. With respect to references made in
this prospectus to any contract or other document of ours, such references are
not necessarily complete and you should refer to the exhibits attached to the
registration statement for copies of the actual contract or document. You may
review a copy of the registration statement at the Securities and Exchange
Commission's public reference room at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Securities and Exchange
Commission's regional offices in Chicago, Illinois and New York, New York.
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information on the operation of the public reference rooms. Our
Securities and Exchange Commission filings and the registration statement can
also be reviewed by accessing the Securities and Exchange Commission's Internet
site at http://www.sec.gov.
61
<PAGE>
U.S. INTERACTIVE, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Financial Statements Page
- -------------------- -----
<S> <C>
U.S. Interactive, Inc. and Subsidiaries
Independent Auditors' Report ............................................................ F-2
Consolidated Balance Sheets, December 31, 1998 and 1999 ................................. F-3
Consolidated Statements of Operations, Years ended December 31, 1997, 1998 and 1999 ..... F-4
Consolidated Statements of Stockholders' Equity (Deficit), Years ended December 31,
1997, 1998 and 1999 ..................................................................... F-5
Consolidated Statements of Cash Flows, Years ended December 31, 1997, 1998 and 1999 ..... F-6
Notes to Consolidated Financial Statements .............................................. F-7
Digital Evolution, Inc.
Report of Independent Accountants ....................................................... F-20
Balance Sheets, December 31, 1996 and 1997, and June 30, 1998 (unaudited) ............... F-21
Statements of Operations, Years ended December 31, 1996 and 1997, and the six months
ended June 30, 1997 and 1998 (unaudited) ............................................... F-22
Statements of Shareholders' Deficiency, Years ended December 31, 1996 and 1997, and the
six months ended June 30, 1998 (unaudited) ............................................. F-23
Statements of Cash Flows, Years ended December 31, 1996 and 1997, and the six months
ended June 30, 1997 and 1998 (unaudited) ............................................... F-24
Notes to Financial Statements ........................................................... F-25
Soft Plus, Inc. and Subsidiaries
Independent Auditors' Report ............................................................ F-34
Consolidated Balance Sheets, December 31, 1998 and 1999 ................................. F-35
Consolidated Statements of Operations, Years ended December 31, 1997, 1998 and 1999 ..... F-36
Consolidated Statements of Stockholders' Equity, Years ended December 31, 1997, 1998 and F-37
1999 Consolidated Statements of Cash Flows, Years ended December 31, 1997, 1998
and 1999 ............................................................................... F-38
Notes to Consolidated Financial Statements .............................................. F-39
Unaudited Pro Forma Financial Statements
Unaudited Pro Forma Financial Information ............................................... F-49
Unaudited Pro Forma Combined Balance Sheet, December 31, 1999 ........................... F-50
Unaudited Pro Forma Combined Statement of Operations, Year ended December 31, 1999 ...... F-51
Notes to Unaudited Pro Forma Combined Financial Statements .............................. F-52
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
U.S. Interactive, Inc.
We have audited the accompanying consolidated balance sheets of U.S.
Interactive, Inc. and subsidiaries as of December 31, 1998 and 1999 and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for each of the years in the three-year period ended December
31, 1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of U.S.
Interactive, Inc. and subsidiaries as of December 31, 1998 and 1999, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally
accepted accounting principles.
KPMG LLP
Philadelphia, Pennsylvania
February 9, 2000
F-2
<PAGE>
U.S. INTERACTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1999
----------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .......................................... $ 3,698 $ 34,130
Accounts receivable (net of allowance of $526 in 1998; and $75 in
1999) ............................................................ 3,388 12,274
Fees and expenditures in excess of billings ........................ 731 353
Prepaid expenses and other current assets .......................... 305 2,383
-------- ---------
Total current assets ............................................. 8,122 49,140
-------- ---------
Furniture and equipment, net ........................................ 1,375 5,451
Goodwill and other intangibles, net ................................. 12,542 5,988
Other assets ........................................................ 223 1,699
-------- ---------
Total Assets ........................................................ $ 22,262 $ 62,278
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable ................................................... $ 1,512 $ 2,641
Accrued expenses ................................................... 2,176 5,164
Notes payable -- bank .............................................. 1,706 --
Current portion of long-term debt .................................. 162 977
Billings in excess of fees and expenditures ........................ 650 1,854
-------- ---------
Total current liabilities ........................................ 6,206 10,636
LONG-TERM DEBT, net of current portion .............................. 583 1,666
-------- ---------
Total Liabilities ................................................... 6,789 12,302
Commitments (Notes 9, 16 and 17)
Mandatorily redeemable convertible preferred stock, $.001 par value,
15,000,000 shares authorized in 1998, 5,341,096 issued and
outstanding in 1998 including accreted dividends of $477 at
December 31, 1998 .................................................. 17,293 --
-------- ---------
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock $.001 par value 15,000,000 shares authorized in 1999,
none issued or outstanding in 1999 ................................. -- --
Common stock -- $.001 par value 90,000,000 shares authorized,
9,124,999 shares issued in 1998 and 20,551,192 shares issued in
1999 ............................................................... 9 21
Additional paid-in capital ......................................... 12,418 80,581
Deferred stock compensation ........................................ -- (831)
Treasury stock, 1,039,311 and 1,062,709 shares, at cost ............ (4,812) (5,055)
Accumulated deficit ................................................ (9,435) (24,740)
-------- ---------
Total Stockholders' Equity (Deficit) ............................... (1,820) 49,976
-------- ---------
Total Liabilities and Stockholders' Equity (Deficit) ................ $ 22,262 $ 62,278
======== =========
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE>
U.S. INTERACTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1997 1998 1999
---------- ------------- ------------
<S> <C> <C> <C>
REVENUE ......................................... $ 6,061 $ 13,636 $ 35,255
OPERATING COSTS AND EXPENSES:
Project personnel and related expenses ......... 2,841 7,405 18,687
Management and administrative .................. 2,196 7,876 17,370
Marketing and sales ............................ 1,013 2,054 3,531
Depreciation and amortization .................. 269 4,592 10,510
------- --------- ---------
Total operating expenses ..................... 6,319 21,927 50,098
------- --------- ---------
OPERATING LOSS .................................. (258) (8,291) (14,843)
OTHER INCOME (EXPENSE):
Interest expense ............................... (51) (223) (399)
Interest income ................................ 19 71 853
------- --------- ---------
NET LOSS ........................................ (290) (8,443) (14,389)
Accretion of mandatorily redeemable preferred
stock to redemption value ...................... -- (625) (916)
------- --------- ---------
NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS ................................... $ (290) $ (9,068) $ (15,305)
======= ========= =========
BASIC AND DILUTED LOSS PER COMMON
SHARE .......................................... $ (.06) $ (1.36) $ (1.19)
======= ========= =========
Weighted average shares outstanding used in the
loss per common share calculation:
Basic and diluted .............................. 4,737 6,670 12,826
======= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE>
U.S. INTERACTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Mandatorily
Redeemable
Convertible
Preferred Stock Preferred Stock Common Stock
------------------------- ------------------------ -------------------
Shares Amount Shares Amount Shares Amount
----------- ------------ ----------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER
31, 1996 .......................... -- $ -- 1,000 $ 966 4,736 $ 243
Issuance of Series B preferred
stock, net of $26 in costs ........ -- -- 595 974 -- --
Net loss ........................... -- -- -- -- -- --
-- ---------- ----- --------- ----- -------
BALANCES AT DECEMBER
31, 1997 .......................... -- -- 1,595 1,940 4,736 243
Merger with Digital Evolution ...... 1,573 4,490 -- -- 4,385 4
Conversion of no par common
stock to $.001 par value .......... -- -- -- -- -- (238)
Issuance of Series D preferred
stock, net of $25 in costs ........ 2,339 10,807 -- -- -- --
Repurchase of common stock ......... -- -- -- -- -- --
Repurchase of preferred stock ...... (220) (569) -- -- -- --
Issuance of warrants in
connection with debt financing -- -- -- -- -- --
Exercise of stock options .......... -- -- -- -- 4 --
Accretion of mandatorily
redeemable preferred stock to
redemption value .................. -- 477 -- -- -- --
Conversion of preferred stock to
mandatorily redeemable
preferred stock ................... 1,649 2,088 (1,595) (1,940) -- --
Net loss ........................... -- -- -- -- -- --
----- ---------- ------ --------- ----- -------
BALANCES AT DECEMBER
31, 1998 .......................... 5,341 17,293 -- -- 9,125 9
Issuance of common stock in
connection with acquisition ....... -- -- -- -- 585 1
Deferred stock compensation ........ -- -- -- -- 275 --
Repurchase of common stock ......... -- -- -- -- -- --
Accretion of mandatorily
redeemable preferred stock to
redemption value .................. -- 916 -- -- -- --
Conversion of mandatorily
redeemable preferred stock to
common stock ...................... (5,341) (18,209) -- -- 5,341 5
Issuance of common stock in
public offering (net) ............. -- -- -- -- 4,866 5
Amortization of deferred stock
compensation ...................... -- -- -- -- -- --
Exercise of stock options .......... -- -- -- -- 359 1
Net loss ........................... -- -- -- -- -- --
------ ---------- ------ --------- ----- -------
BALANCES AT DECEMBER
31, 1999 .......................... -- $ -- -- $ -- 20,551 $ 21
====== ========== ====== ========= ====== =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Deferred Additional Total
Stock Paid-in Treasury Accumulated Stockholders'
Compensation Capital Stock Deficit Equity (Deficit)
-------------- ------------ ------------ ------------- -----------------
<S> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER
31, 1996 .......................... $ -- $ (21) $ -- $ (77) $ 1,111
Issuance of Series B preferred
stock, net of $26 in costs ........ -- -- -- -- 974
Net loss ........................... -- -- -- (290) (290)
--------- ------- -------- --------- ----------
BALANCES AT DECEMBER
31, 1997 .......................... -- (21) -- (367) 1,795
Merger with Digital Evolution ...... -- 12,506 -- -- 12,510
Conversion of no par common
stock to $.001 par value .......... -- 238 -- -- --
Issuance of Series D preferred
stock, net of $25 in costs ........ -- -- -- -- --
Repurchase of common stock ......... -- -- (4,812) -- (4,812)
Repurchase of preferred stock ...... -- (451) -- -- (451)
Issuance of warrants in
connection with debt financing -- 140 -- -- 140
Exercise of stock options .......... -- 6 -- -- 6
Accretion of mandatorily
redeemable preferred stock to
redemption value .................. -- -- -- (477) (477)
Conversion of preferred stock to
mandatorily redeemable
preferred stock ................... -- -- -- (148) (2,088)
Net loss ........................... -- -- -- (8,443) (8,443)
--------- ------- -------- --------- ----------
BALANCES AT DECEMBER
31, 1998 .......................... -- 12,418 (4,812) (9,435) (1,820)
Issuance of common stock in
connection with acquisition ....... -- 2,923 -- -- 2,924
Deferred stock compensation ........ (1,376) 1,376 -- -- --
Repurchase of common stock ......... -- -- (243) -- (243)
Accretion of mandatorily
redeemable preferred stock to
redemption value .................. -- -- -- (916) (916)
Conversion of mandatorily
redeemable preferred stock to
common stock ...................... -- 18,205 -- -- 18,210
Issuance of common stock in
public offering (net) ............. -- 44,512 -- -- 44,517
Amortization of deferred stock
compensation ...................... 545 -- -- -- 545
Exercise of stock options .......... -- 1,147 -- -- 1,148
Net loss ........................... -- -- -- (14,389) (14,389)
--------- ------- -------- --------- ----------
BALANCES AT DECEMBER
31, 1999 .......................... $ (831) $80,581 $ (5,055) $ (24,740) $ 49,976
========= ======= ======== ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
U.S. INTERACTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------
1997 1998 1999
------------- --------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .................................................... $ (290) $ (8,443) $ (14,389)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ............................... 269 4,592 10,510
Amortization of deferred stock compensation and other
non-cash charges .......................................... -- 89 705
Changes in operating assets and liabilities, net of
effects of acquisitions:
Increase in accounts receivable ........................... (1,340) (113) (8,854)
Increase (decrease) in fees and expenditures in
excess of billings ....................................... (49) (630) 378
Increase in prepaid expenses and other assets ............. (9) (163) (3,478)
Increase in accounts payable and accrued expenses ......... 1,025 1,929 4,050
Increase (decrease) in billings in excess of fees and
expenditures ............................................. 371 (708) 1,204
--------- -------- ---------
Net cash used in operating activities ....................... (23) (3,447) (9,874)
--------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture and equipment ......................... (422) (573) (4,735)
Acquisitions, net of cash acquired .......................... (166) (4) (47)
Other ....................................................... (24) (72) (177)
--------- ---------- ---------
Net cash used in investing activities ....................... (612) (649) (4,959)
--------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings under bank line of credit . (45) 1,700 (1,700)
Net (repayments) proceeds from equipment financing .......... (79) (201) 1,620
Proceeds from term loan ..................................... -- 600 --
Repayment of stockholder loans .............................. (23) (24) (20)
Payment of deferred financing fees .......................... -- (48) --
Net proceeds from issuance of preferred stock ............... 974 10,807 --
Payments to acquire treasury stock .......................... -- (4,812) --
Net proceeds from issuance of common stock .................. -- -- 44,517
Payments to repurchase preferred stock ...................... -- (1,020) --
Proceeds from exercise of stock options ..................... -- 6 848
--------- ---------- ---------
Net cash provided by financing activities ................... 827 7,008 45,265
--------- ---------- ---------
Net increase in cash and cash equivalents ................... 192 2,912 30,432
Cash and cash equivalents, beginning of period .............. 594 786 3,698
--------- ---------- ---------
Cash and cash equivalents, end of period .................... $ 786 $ 3,698 $ 34,130
========= ========== =========
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE>
U.S. INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
U.S. Interactive, Inc. (the Company) is a leading Internet professional
services firm focused on providing e2e Solutions(SM) to Global 2000
organizations. e2e solutions utilize Internet, wireless and broadband
technologies to enable organizations to fully leverage their information
resources to effectively communicate, share knowledge and conduct business
transactions with key constituencies such as employees, customers, suppliers
and partners. When developing our solutions, we draw upon our expertise in
Internet strategy consulting, application development, digital brand creation,
security and enterprise application integration.
The Company has sustained significant net losses and negative cash flows
from operations since its inception. The Company's ability to meet its
obligations in the ordinary course of business is dependent upon its ability to
establish profitable operations or raise additional capital through public or
private equity financing, bank financing or other sources of capital.
Management believes that its current funds combined with other available
sources of funding will be sufficient to enable the Company to meet its planned
expenditures through at least December 31, 2000. The Company may require
additional capital to finance its future operations beyond 2000. Additional
financing may not be available when needed and, if such financing is available,
it may not be available on terms favorable to the Company.
As further described in note 8, in August 1999 the Company completed an
initial public offering of its common stock, and as described in note 18, in
February 2000 the Company entered into a definitive merger agreement to acquire
by merger Soft Plus, Inc.
Principles of Consolidation
The accompanying consolidated financial statements include the financial
statements of the Company and its wholly owned subsidiary, Web Access, Inc. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Cash Equivalents
Cash equivalents consist primarily of money market accounts. The Company
considers all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents.
Furniture and Equipment
Furniture, purchased software and equipment are recorded at cost and
depreciated on a straight-line basis over estimated useful lives of two to five
years. Leasehold improvements are recorded at cost and amortized over the
lesser of their useful lives or the remaining term of the related lease.
Goodwill and Other Intangibles
Goodwill and other intangibles are being amortized over two to five years.
Accumulated amortization was $4,287,000 and $13,760,000 as of December 31, 1998
and 1999, respectively. The Company assesses the recoverability of goodwill, as
well as other long-lived assets, in accordance with Statement of Financial
Accounting Standards (SFAS) No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, which requires
the Company to review for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset might not be
recoverable. When such an event occurs, the Company estimates the future cash
flows expected to result from the use of the asset and its eventual
disposition. If the undiscounted expected future cash flows is less than the
carrying amount of the asset, an impairment loss is recognized.
F-7
<PAGE>
U.S. INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Revenue Recognition
The Company derives its revenues primarily from consulting service
agreements (including retainer fees, fixed price and time and materials
agreements) and to a lesser extent advertising commissions.
Revenues are recognized on fixed price engagements over the period of each
engagement using primarily the percentage-of-completion method using labor
hours incurred as the measure of progress towards completion. Provisions for
contract adjustments and losses are recorded in the period such items are
identified. Fees and expenditures in excess of billings represent costs
incurred and estimated profits on projects in excess of amounts billed.
Billings in excess of fees and expenditures represent amounts billed in advance
of services being performed.
Commissions earned from advertising placed with media are generally
recorded as revenue at the time the advertising appears or is broadcast.
Commissions earned for production expenditures and fees derived from other
services are recognized as revenue upon performance of the service.
Income Taxes
The Company utilizes the asset and liability method of accounting for
income taxes in accordance with SFAS No. 109. Under this method, deferred
income tax liabilities and assets are determined based on the difference
between the financial statement and the tax bases of assets and liabilities
using enacted tax rates in effect for the period in which the differences are
expected to reverse. Valuation allowances are established, when necessary, to
reduce deferred tax assets to the amount expected to be realized.
Financial Instruments
The Company's financial instruments principally consist of cash and cash
equivalents, accounts receivable, accounts payable and debt. Cash and cash
equivalents, accounts receivable and accounts payable are carried at cost which
approximates fair value because of the short maturity of these instruments. The
Company's debt is carried at cost, which approximates fair value, as the debt
bears interest at rates approximating current market rates.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of any potential contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Stock-Based Compensation
SFAS No. 123 "Accounting for Stock-Based Compensation" (SFAS No. 123)
gives companies the option to adopt the fair value method for expense
recognition of employee stock options and stock based awards or to continue to
account for such items using the intrinsic value method as outlined under
Accounting Principles Board Opinion No. 25 "Accounting for Stock issued to
Employees" (APB No. 25) with pro forma disclosures of net income as if the fair
value method had been applied. The Company applies APB No. 25 for stock options
and stock based awards.
Long-Lived Assets
In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," the Company
periodically evaluates the carrying value of long-lived
F-8
<PAGE>
U.S. INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
assets when events and circumstances warrant such review. The carrying value of
a long-lived asset is considered impaired when the anticipated undiscounted
cash flow from such asset is separately identifiable and is less than the
carrying value. In that event a loss is recognized based on the amount by which
the carrying value exceeds the fair market value of the long-lived asset. Fair
market value is determined by using the anticipated cash flows discounted at a
rate commensurate with the risk involved. Measurement of the impairment, if
any, will be based upon the difference between carrying value and the fair
value of the asset. The Company has identified no such impairment losses.
Historical Net Loss Per Share and Pro Forma Net Loss Per Share
The Company computes earnings per share in accordance with SFAS No. 128,
"Earnings per Share" (SFAS No. 128). Basic earnings per share is computed using
the weighted average number of common shares outstanding during the period.
Diluted earnings per share is computed using the weighted-average number of
common and common equivalent shares outstanding during the period. Common
equivalent shares are excluded from the computation if their effect is
anti-dilutive. For all loss periods, the effect of common equivalent shares is
anti-dilutive.
The pro forma net loss per share is computed by dividing the net loss by
the sum of the weighted average number of shares of common stock and including
the shares issued as a result of the assumed conversion of all outstanding
shares of convertible preferred stock as if they had been outstanding from the
date of their issuance even if the effect is anti-dilutive. Net loss per share
amounts for all periods have been presented to conform to SFAS No. 128
requirements and the accounting rules set forth in Staff Accounting Bulletin
No. 98 issued by the SEC in February 1998.
The following table sets forth the computation of loss per share (in
thousands, except per share amounts).
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1997 1998 1999
---------- ------------ -------------
<S> <C> <C> <C>
Numerator: Net loss attributable to common stockholders ......... $ (290) $ (9,068) $ (15,305)
Denominator:
Historical weighted-average shares outstanding for basic and
diluted loss per common share ................................ 4,737 6,670 12,826
Basic and diluted loss per common share ........................ $ (.06) $ (1.36) $ (1.19)
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1997 1998 1999
---------- ------------ -------------
<S> <C> <C> <C>
Numerator: Net loss attributable to common stockholders ......... $ (290) $ (9,068) $ (15,305)
Pro forma denominator:
Historical weighted-average shares outstanding for basic and
diluted loss per common share ................................ 6,074 9,634 18,167
Pro forma basic and diluted loss per common share ............... $ (.05) $ (.94) $ (.84)
</TABLE>
Recent Accounting Pronouncements
The Company does not expect the adoption of recently issued accounting
pronouncements to have a significant impact on the Company's results of
operations, financial position or cash flows.
Reclassifications
Certain amounts previously reported have been reclassified to conform to
the current year presentation.
F-9
<PAGE>
U.S. INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
2. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1997 1998 1999
------ ---------- --------
<S> <C> <C> <C>
Cash paid during the year for (in thousands):
Interest ..................................................... $ 46 $ 213 $ 419
Supplemental non-cash investing and financing activities:
Acquisition (in thousands):
Fair value of assets acquired (including cash of $332 in
1998 and $135 in 1999) ...................................... $ 8 $ 2,064 $ 544
Liabilities assumed .......................................... 485 1,192 359
Fair value of stock issued in connection with acquisitions
(note 3) .................................................... -- 17,000 2,924
Issuance of warrants in connection with bank financing ......... -- 140 --
</TABLE>
3. ACQUISITIONS
On May 1, 1997, the Company acquired certain assets and assumed certain
liabilities of Mixed Media Works, Inc. (MMW), a regional Internet professional
services firm. The purchase price was approximately $485,000 and was allocated
to the assets acquired and liabilities assumed based on fair values as of the
date of acquisition. The fair value of the assets acquired and liabilities
assumed was $8,000 and $485,000, respectively. The acquisition was accounted
for using the purchase method of accounting and, as such, the excess of the
purchase price over the fair values of the assets acquired of $477,000 was
recorded as goodwill and is being amortized over five years. The results of
operations of MMW were not material to the Company.
On July 2, 1998, the Company completed a merger (the DE Merger) with
Digital Evolution, Inc. (DE), an Internet professional services firm that
provided development services for Internet, intranet and extranet applications.
The shareholders of DE agreed to exchange their common and preferred shares for
common and preferred shares of the Company.
This resulted in the Company issuing 4,383,954 shares of common stock,
1,573,533 shares of Series A mandatorily redeemable convertible preferred stock
and 1,043,945 options to purchase Company common stock. The aggregate purchase
price was approximately $17 million. In connection with the DE Merger, the
holders of the Company's original Series A and B convertible preferred stock
exchanged their shares for Series B and C mandatorily redeemable convertible
preferred stock.
The DE Merger was accounted for under the purchase method of accounting.
The results of operations of DE have been included in the Company's
consolidated financial statements since July 1, 1998.
The excess of the purchase price over the fair value of the net
identifiable assets acquired of $16,128,000 has been recorded as goodwill and
other intangible assets and is amortized on a straight-line basis over its
estimated life of two years.
The purchase price was allocated as follows (in thousands):
<TABLE>
<S> <C>
Fair value of assets acquired
(Primarily accounts receivable and fixed assets) ......... $ 2,064
Goodwill and related intangible assets .................... 15,283
Assembled workforce ....................................... 845
Fair value of liabilities acquired ........................ (1,192)
--------
$ 17,000
========
</TABLE>
In March 1999, the Company acquired certain assets and assumed certain
liabilities of InVenGen LLC, a Internet professional services firm, in exchange
for 584,800 shares of the Company's common stock having an
F-10
<PAGE>
U.S. INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
estimated fair market value of $2,924,000 at the time of the transaction. The
acquisition was accounted for using the purchase method of accounting.
Accordingly, a portion of the purchase price was allocated to the fair value of
the assets acquired and liabilities assumed. The balance of the purchase price
was recorded as goodwill and is being amortized over two years.
The Company also issued 275,200 shares of restricted common stock in
connection with the transaction. The former employees of InVenGen LLC who
became employees of the Company are required to be employed by the Company
during the next two-year period in order for the restricted shares to be
released. If an employee leaves the Company during the next two-year period all
unvested shares for such employees are forfeited. As of December 31, 1999, no
shares have been forfeited. The Company recorded $1,376,000 of deferred stock
compensation in connection with these restricted shares that will be amortized
over the two-year period. The historical results of operations of InVenGen LLC
are not material to the Company.
The following table reflects unaudited pro forma combined results of
operations of the Company, DE and InVenGen on the basis that the acquisitions
had taken place at the beginning of 1998 (in thousands, except per share data).
<TABLE>
<CAPTION>
December 31,
---------------------------
1998 1999
------------ ------------
<S> <C> <C>
Revenue .............................................. $ 18,405 $ 35,321
Net loss attributable to common stockholders ......... (17,390) (15,960)
Basic and diluted loss per common share .............. $ (1.94) $ (1.23)
</TABLE>
In management's opinion, the unaudited pro forma combined results of
operations are not indicative of the actual results that would have occurred
had the acquisitions been consummated at the beginning of 1998 or of future
operations of the combined companies under the ownership and management of the
Company.
4. FURNITURE AND EQUIPMENT
Furniture and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------
1998 1999
--------- ---------
<S> <C> <C>
Equipment ............................................... $1,520 $4,984
Purchased software ...................................... 201 1,156
Furniture and fixtures .................................. 329 540
Leasehold improvements .................................. 331 757
------ ------
$2,381 $7,437
Less: accumulated depreciation and amortization ......... 1,006 1,986
------ ------
Furniture and equipment -- net .......................... $1,375 $5,451
====== ======
</TABLE>
<PAGE>
5. ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
December 31,
---------------------
1998 1999
--------- ---------
Accrued personnel related costs ......... $1,016 $1,538
Legal and professional fees ............. 370 765
Accrued media ........................... 50 1,945
Other ................................... 740 916
------ ------
$2,176 $5,164
====== ======
F-11
<PAGE>
U.S. INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
6. NOTES PAYABLE
Bank Loan Agreement
In July 1998, the Company executed a Loan and Security Agreement (the Loan
Agreement) with a commercial bank that provides (i) a Line of Credit (the Line)
in the amount of the lesser of $3,250,000 or the Borrowing Base (principally
limited to 80% of eligible accounts receivable) and (ii) a Term Loan (the Loan)
in the aggregate amount of $1,200,000. The Line matured on June 30, 1999, and
bears interest at the prime rate plus 1.25%. In June 1999, as further amended
in September 1999, the commercial bank extended the expiration date of the Line
to June 30, 2000, and amended the financial covenants. The Loan was payable in
48 consecutive monthly installments of $25,000 beginning August 1, 1999, and
bears interest at the prime rate plus 1.75%. The Loan was repaid in full and
cancelled in September 1999. The Line is collateralized by substantially all of
the Company's assets. The Company is required to comply with certain financial
covenants, as defined in the Loan Agreement, which include cash flow and
leverage ratios, working capital and tangible net worth levels. There was
$1,700,000 outstanding under the Line and $600,000 outstanding under the Loan
as of December 31, 1998. There was no balance outstanding under the Line or the
Loan as of December 31, 1999.
In connection with the Loan Agreement, the Company issued a warrant to the
bank to purchase an aggregate of 70,000 shares of the Company's common stock at
an exercise price of $3.50 per share which was the estimated fair market value
of a share of the Company's common stock. The warrant may be exercised at any
time until the tenth anniversary of the date of issuance of the warrant. The
estimated fair value of the warrant was $140,000, which the Company recorded as
debt issuance costs in July 1998. The debt issuance costs were amortized over
the term of the Loan Agreement.
Demand Notes -- Equipment
During 1996, the Company entered into two demand notes with a bank to
finance the purchase of certain equipment. Absent any demand by the lender, the
Company was required to make monthly installments including interest through
April 1998, as further described herein. Note No. 1 (original amount $15,000)
required monthly installments of $500 with interest at the prime rate plus 1%
(9.25% at December 31, 1998) on outstanding balances. Note No. 2 (original
amount $59,000) required monthly installments of $2,200 with interest at 8.75%.
Amounts outstanding under these notes at December 31, 1998 was $6,000, which
was repaid in full during 1999.
7. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------
1998 1999
--------- --------
<S> <C> <C>
Unsecured stockholder loan with interest rate of 8.00% .......... $ 20 --
Term loan with interest rate of 9.00% ........................... 12 --
Capital lease obligations with interest rates of 5.00% to 19.00%
maturing through 2003 .......................................... 79 2,643
Term loan with interest rate of 9.50% ........................... 600 --
Term loan with interest rate of 9.34% ........................... 34 --
------ -----
745 2,643
Less current portion ............................................ 162 977
------ -----
$ 583 $1,666
====== ======
</TABLE>
Maturities of long-term debt are as follows (in thousands): 2000 -- $977;
2001 -- $861; 2002 -- $731 and 2003 -- $74.
F-12
<PAGE>
U.S. INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
8. STOCKHOLDERS' EQUITY
Issuance of Preferred Stock
In June 1996, the Company authorized, issued and sold 1,000,000 shares of
Series A convertible preferred stock at a sale price of $1.00 per share. During
1997 the Company authorized, issued and sold 595,706 shares of Series B
convertible preferred stock at a sale price of $1.68 per share. Proceeds from
the sale of such shares were designated for the use of general working capital,
with the exception that no part of such proceeds could be used to reduce any
outstanding indebtedness. In connection with the Merger discussed in Note 3,
the holders of the Company's original Series A and B convertible preferred
stock exchanged their shares for Series B and C mandatorily redeemable
convertible preferred stock.
The holders of the Company's Series A, B, C and D mandatorily redeemable
convertible preferred stock (the Preferred Stock) were entitled to a per annum
return of 5.65% for the Series A and 10.0% for the Series B, C and D of the
original purchase price only in the event of a redemption of the Preferred
Stock. The holders of the Preferred Stock had demand and piggy back
registration rights, as defined.
Holders of Preferred Stock had the option to convert such shares into
shares of common stock on a 1:1 ratio. The conversion rate on a particular
series of Preferred Stock was subject to an adjustment in the event that any
additional common stock, or other shares convertible into common stock, are
issued for a per share price less than the particular series conversion price.
On the fifth anniversary of the issue date of each respective Series of
Preferred Stock and, upon the one-time election of each of the holders of the
shares of each respective Series of Preferred Stock, the Company was required
to redeem all shares of each respective Series of Preferred Stock.
The Preferred Stock voted on an as if converted basis.
Issuance of Series D Mandatorily Redeemable Convertible Preferred Stock
In September 1998, the Company sold 2,339,628 shares of Series D
mandatorily redeemable convertible preferred stock, with the same preferences
described above, to Safeguard Scientifics, Inc. (Safeguard) for $10,832,478. As
part of Safeguard's investment, Safeguard also has the right, under certain
conditions and with the Company's consent, to conduct an offering of the
Company's common stock to Safeguard stockholders.
Preferred Stock consisted of the following at December 31, 1997 and 1998
(in thousands, except per share data):
Issued and
Per Share Outstanding
December 31,
Liquidation -------------------
Value Authorized 1997 1998
Preferred Series ------------- ------------ -------- --------
Series A ......... $ 2.83 1,574 -- 1,385
Series B ......... $ 0.95 1,053 1,000 1,021
Series C ......... $ 1.68 596 596 596
Series D ......... $ 4.63 2,339 -- 2,339
----- ----- -----
5,562 1,596 5,341
===== ===== =====
Upon the closing of the Company's initial public offering in August 1999,
all of the outstanding shares of mandatorily redeemable preferred stock were
converted to shares of common stock on a one for one basis.
Reincorporation of the Company
In connection with the DE Merger in July 1998, the Company amended its
Articles of Incorporation to authorize 20,000,000 shares of Class A Common
Stock ($.001 par value), 2,000,000 shares of Class B
F-13
<PAGE>
U.S. INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Common Stock ($.001 par value), 5,000,000 shares of Preferred Stock ($.001 par
value) of which 2,000,000 shares were designated Series A Preferred Stock,
2,000,000 shares were designated Series B Preferred Stock, and 1,000,000 shares
were designated Series C Preferred Stock. The Class B Common Stock was
identical to the Class A Common Stock in all respects except that the Class B
Common Stock was non-voting.
In September 1998, the Company was reincorporated in Delaware. In
connection with the reincorporation, the Company is authorized to issue
90,000,000 shares, $.001 par value, of common stock and 15,000,000 shares,
$.001 par value, of preferred stock of which 5,561,499 shares had been
designated as Series A, B, C and D as of December 31, 1998.
Sale of Common Stock by Stockholders
On July 1, 1998, certain officers and principal stockholders of the
Company sold an aggregate of 300,000 shares of their holdings of Company common
stock for $1,050,000, or $3.50 per share, to certain holders of the Company's
mandatorily redeemable convertible preferred stock.
Purchase of Common Stock (Treasury Stock) and Preferred Stock from Stockholders
In September 1998, contemporaneous with the Safeguard investment as
described above, the Company purchased 1,039,311 shares of common stock for
$4,811,994, or $4.63 per share and 188,824 shares of Series A mandatorily
redeemable convertible preferred stock and 31,579 shares of Series B
mandatorily redeemable convertible preferred stock for $1,020,466, or $4.63 per
share from certain officers and principal stockholders of the Company.
Initial Public Offering
In August 1999, the Company completed its Initial Public Offering of
securities and issued a total of 4,865,848 shares of common stock at $10.00 per
share (including a total of 692,250 shares issued to the underwriters upon
exercise of the option which the Company had granted to them solely to cover
overallotments). An additional 441,402 shares were sold by existing
stockholders at $10.00 per share. Upon the initial closing of the public
offering, all 5,341,096 of the outstanding shares of manditorily redeemable
convertible preferred stock were converted to 5,341,096 shares of common stock.
Proceeds to the Company from its Initial Public Offering net of underwriting
discounts and costs of the offering were approximately $44.5 million. The
Company used a total of $2.9 million of the net proceeds to repay all
outstanding debt under its line of credit and term loan.
9. LEASES
The Company maintains operating and administrative offices in California,
New York, New Jersey, Pennsylvania and Washington D.C. The Company also leases
certain equipment under operating and capital leases. Total rent expense under
operating leases amounted to $213,000, $1,239,000 and $2,513,000 for the years
ended December 31, 1997, 1998 and 1999, respectively.
F-14
<PAGE>
U.S. INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Future minimum payments under non-cancelable leases are as follows (in
thousands):
Capital Operating
Year Ending December 31, Leases Leases
- ------------------------------------------------- --------- ----------
2000 .......................................... $1,275 $ 3,956
2001 .......................................... 1,040 5,159
2002 .......................................... 789 5,150
2003 .......................................... 77 5,027
2004 .......................................... -- 4,203
Thereafter ...................................... -- 31,039
------ -------
Total minimum lease payments .................... 3,181 $54,534
=======
Amount representing interest .................... 538
------
Present value of minimum lease payments ......... $2,643
======
At December 31, 1999, equipment included assets under capitalized lease
obligations of $2,717,000 less accumulated amortization of $293,000.
10. INCOME TAXES
The Company utilizes the asset and liability method of accounting for
income taxes as set forth in SFAS No. 109, "Accounting for Income Taxes." Under
the asset and liability method, deferred taxes are determined based on the
differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes. Significant components of the Company's deferred taxes are as follows
(in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------
1998 1999
Deferred Tax Assets: ----------- -----------
<S> <C> <C>
Book depreciation in excess of tax depreciation ........................ $ 2 $ 53
Net operation loss carryforwards ....................................... 2,758 3,880
Reserves and accruals not currently deductible for tax purposes ........ 143 697
Amortization ........................................................... 42 512
Other .................................................................. 5 308
-------- --------
2,950 5,450
Valuation allowance .................................................... (2,950) (5,450)
-------- --------
Net deferred tax assets .................................................. $ -- $ --
======== ========
</TABLE>
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. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which temporary
differences representing net future deductible amounts become deductible. Due
to the uncertainty of the Company's ability to realize the benefit of the
deferred tax asset, the deferred tax assets are fully offset by a valuation
allowance at December 31, 1998 and 1999.
At December 31, 1999, the Company had approximately $9.9 million of
Federal net operating loss carryforwards available to offset future Federal
taxable income. These Federal net operating loss carryforwards will expire
between 2010 and 2019, if not utilized. The Company also has state tax net
operating losses in various states of approximately $8.3 million. These state
net operating losses will expire through the year 2019 if not utilized.
F-15
<PAGE>
U.S. INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Under the Tax Reform Act of 1986, the utilization of a corporation's net
operating loss carryforward is limited following a greater than 50% change in
ownership. Due to the Company's prior and current equity transactions, the
Company's net operating loss carryforwards may be subject to an annual
limitation. Any unused annual limitation may be carried forward to future years
for the balance of the net operating loss carryforward period.
11. OTHER INVESTMENTS
During 1997 and 1999, the Company obtained common stock of two separate
and unrelated early stage companies, as part of the consideration received for
services rendered by the Company. The Company accounts for these investments
under the cost method of accounting with no carrying value.
12. EMPLOYEE BENEFIT PLANS
The Company has an employee savings plan, which permits participants to
make contributions by salary reduction pursuant to section 401(k) of the
Internal Revenue Code. The plan provides for discretionary employer
contributions to eligible employees. The Company's contribution to the plan was
$29,000, $50,000 and $244,000 for the years ended December 31, 1997, 1998 and
1999 respectively.
The Company also maintains an employee profit sharing plan pursuant to
section 401(k) of the Internal Revenue Code, under which most full-time
employees may participate after completing one full year of employment. Annual
contributions are based on (in part but not limited to) the profitability of
the Company and are made at the sole discretion of the Board of Directors of
the Company. There were no contributions in the years ended December 31, 1997,
1998 and 1999.
13. STOCK OPTION PLANS
The Company has four stock option plans currently in effect under which
future grants may be issued: the 1998 Performance Incentive Stock Option Plan
(the 1998 Incentive plan), the 1998 Stock Option Plan (the 1998 Plan), the 1997
Stock Option Plan (the 1997 Plan) and the 1996 Stock Option Plan (the 1996
Plan, collectively the Plans).
The Company adopted the 1998 Incentive Plan effective September 21, 1998.
The 1998 Incentive Plan authorizes the grants of options to purchase up to
3,000,000 shares of authorized but unissued common shares. At December 31,
1999, 1,241,500 options under the 1998 Incentive Plan have been granted to
employees of the Company at prices ranging between $9.25 and $46.31, the
estimated fair value of the Company's common stock at the date of grant. Of
these options, 95,500 have been cancelled and 59,000 are currently exercisable.
These options will become exercisable in 2000 through 2003.
The Company adopted the 1998 Plan effective July 2, 1998 and amended
September 22, 1998. The 1998 Plan authorizes the grants of options to purchase
up to 1,397,236 shares of authorized but unissued common shares. At December
31, 1998 and 1999, 156,850 and 1,544,633 options respectively, under the 1998
Plan have been granted to employees of the Company at prices ranging between
$3.50 and $41.28, the estimated fair value of the Company's common stock at the
date of grant. Of these options, 31,272 were exercised, 205,425 have been
cancelled and 129,702 are currently exercisable. The options will become
exercisable in 2000 through 2002.
The Company adopted the 1997 Plan effective January 1, 1997 and amended on
September 22, 1998. The 1997 Plan authorizes the grants of option to purchase
up to 600,000 shares of authorized but unissued common shares. At both December
31, 1998 and 1999, 581,757 options have been granted to employees of the
Company at prices ranging between $1.50 and $4.63, the estimated fair value of
the Company's common stock at the date of grant. Of these options, 211,246 were
exercised, 151,209 have expired and been cancelled, 126,609 are currently
exercisable and the remaining options will become exercisable in 2000 through
2001.
F-16
<PAGE>
U.S. INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
As a result of the Company's merger with Digital Evolution, Inc. as
discussed in Note 3, the Company adopted the 1996 Plan effective July 2, 1998,
and amended September 22, 1998. Outstanding Digital Evolution stock options
were converted into options to acquire approximately 1,043,945 Company shares
at price of $2.50 to $3.24 per share. The 1996 Plan authorized the grants of
options to purchase up to 1,054,688 shares of authorized but unissued common
shares. At both December 31, 1998 and 1999, 1,043,945 options under the 1996
Plan have been granted to employees of the Company, of which 120,766 have been
exercised and 195,445 have expired and have been cancelled. Of these options,
714,777 are currently exercisable and the remaining options will become
exercisable in 2000. No additional options may be granted under the 1996 Plan.
Stock options are to be granted with an exercise price at least equal to
the stock's fair market value at the date of grant. The Plans permit the
granting of options with exercise periods of no more than 10 years from the
date of grant, with further stipulations that no options may be granted after
the tenth anniversary of the adoption of the Plans. Options granted vest and
become exercisable equally over four years from the date of grant unless such
vesting period is accelerated by the approval of the Compensation Committee of
the Board of Directors. Information with respect to options granted under the
Plans is as follows:
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
------------- -----------------
<S> <C> <C>
Outstanding at January 1, 1997 ....................... -- --
Options granted ................................... 224,275 $ 1.50
Options exercised . ............................... -- --
Options cancelled ................................. (2,425) 1.50
------- -------
Outstanding at December 31, 1997 ..................... 221,850 $ 1.50
Options granted ................................... 514,332 3.78
Options exercised ................................. (4,203) 1.50
Options cancelled ................................. (171,940) 1.99
Converted Digital Evolution Stock Options ......... 1,043,945 2.47
--------- -------
Outstanding at December 31, 1998 ..................... 1,603,984 $ 2.81
--------- -------
Options granted ................................... 2,629,283 15.31
Options exercised ................................. (359,081) 3.04
Options cancelled ................................. (473,214) 6.50
--------- -------
Outstanding at December 31, 1999 ..................... 3,400,972 $ 11.94
========= =======
</TABLE>
The following summarizes information about the Company's stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------------- -------------------------------------
Weighted Average
Remaining Weighted Number Outstanding Weighted
Exercise Price Number Outstanding Contractual Average at December 31, Average
Range at December 31, 1999 Life (in years) Exercise Price 1999 Exercise Price
- --------------------- ---------------------- ----------------- ---------------- -------------------- ---------------
<S> <C> <C> <C> <C> <C>
$1.50 to 3.50 ....... 909,698 7.6 $ 2.47 808,362 $ 2.43
$3.85 to 5.00 ....... 667,574 9.1 $ 4.89 113,726 $ 4.60
$9.25 to 11.00 ...... 944,350 9.4 $ 9.64 87,500 $ 9.45
$18.13 to 26.69 ..... 550,500 9.7 $ 22.37 13,000 $ 22.94
$33.47 to 46.31 ..... 328,850 9.9 $ 41.56 7,500 $ 33.47
------- --- ------- ------- -------
3,400,972 9.0 $ 11.94 1,030,088 $ 3.75
========= === ======= ========= =======
</TABLE>
F-17
<PAGE>
U.S. INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The Company applies APB No. 25 and related interpretations in accounting
for its stock option plans. Had compensation cost been recognized pursuant to
SFAS No. 123, the Company's net loss would have been increased to the pro forma
amounts indicated below (in thousands, except per share data):
<TABLE>
<CAPTION>
1997 1998 1999
---------- ------------ -------------
<S> <C> <C> <C> <C>
Net loss attributable to common
stockholders ................. As reported $ (290) $ (9,068) $ (15,305)
Pro forma (363) (9,507) (18,234)
Basic and diluted loss per
common share ................. As reported $ (.06) $ (1.36) $ (1.19)
Pro forma (.08) (1.43) (1.42)
</TABLE>
The per share weighted-average fair value of stock options issued by the
Company during 1997, 1998 and 1999 was $.56, $.85 and $15.31, respectively.
The following range of assumptions were used by the Company to determine
the fair value of stock options granted using the Black-Scholes option-price
model:
1997 1998 1999
--------- --------- ----------
Dividend yield ........................ 0% 0% 0%
Expected volatility ................... 0% 0% 100%
Average expected option life .......... 5 years 5 years 4 years
Risk-free interest rate ............... 6.00% 5.25% 5.49%
14. SEGMENT AND MAJOR CUSTOMER INFORMATION
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information", which established standards for
reporting information about operating segments in annual financial statements.
The Company operates in a single industry segment, Internet professional
services.
The Company had seven customers representing 53% of accounts receivable at
December 31, 1998 and five customers representing 54% of accounts receivable at
December 31, 1999.
For the years ended December 31, 1997, 1998 and 1999, 40%, 36% and 48%
respectively, of the Company's revenue was generated from its top five
customers.
The Company performs its services primarily in North America, Asia-Pacific
and Europe as follows (in thousands):
Years Ended December 31,
-----------------------------------
1997 1998 1999
--------- ---------- ----------
North America ......... $6,061 $12,535 $32,788
Asia-Pacific .......... -- 1,001 2,150
Europe ................ -- 100 317
------ ------- -------
$6,061 $13,636 $35,255
====== ======= =======
15. RELATED PARTY TRANSACTIONS
The Company and Exist Corporation (formerly known as Juggernaut Partners,
LLC), Interactive Video Technologies, Inc. (IVT), and Chromazone, LLC
(Chromozone) are related parties because a common shareholder holds a material
ownership interest in the Company, Exist, IVT and Chromozone. The Company
provided professional services to all of these entities during the years ended
December 31, 1998 and 1999.
F-18
<PAGE>
U.S. INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The price of these services were negotiated on an arm's length basis and
amounted to $703,000 for the year ended December 31, 1998, and $8.9 million for
December 31, 1999. Accounts receivable from these services was $691,000 at
December 31, 1998, and $3.5 million at December 31, 1999.
In connection with the Safeguard investment in 1998, the Company and
Safeguard entered into an administrative services agreement which requires the
Company to pay Safeguard $50,000 per year. Such services will include
consultation in regard to general management, investor relations, legal
services and tax research and planning.
16. COMMITMENTS
The Company has an employment agreement with its Chairman which provides
for a yearly base salary of $235,000 through July 2, 2000, which will renew for
a period of one year unless notice is given by the non-renewing party within 30
days. Additionally, the Company has an employment agreement with its President
and Chief Executive Officer which provides for a yearly base salary of $235,000
through July 30, 2000, which will renew for a period of one year unless notice
is given by the non-renewing party within 30 days. There are no severance
provisions for these employment agreements, and the Company may terminate the
employees for cause as defined in the agreements.
17. LITIGATION
The Company is a party to legal proceedings and claims, which arise in the
ordinary course of business. In the opinion of management, the amount of the
ultimate liability with respect to these actions will not materially affect the
Company's financial position, results of operations or cash flows.
18. SUBSEQUENT EVENTS
Acquisition (unaudited)
In February 2000, the Company entered into a definitive merger agreement
to acquire by merger (the Merger) Soft Plus, Inc. (Soft Plus), a privately-held
e-solutions company. The merger closed on March 8, 2000, and the Company issued
and paid to the Soft Plus shareholders 3.4 million shares of the Company's
common stock and 1.4 million options to acquire shares of the Company's common
stock with an estimated combined fair value of $262 million, $20 million in
cash paid at closing and a one year $80 million note bearing interest at 6.2%
due to the selling shareholders. The Merger will be accounted for using the
purchase method of accounting. Accordingly, the purchase price will be
allocated to the fair value of the net assets acquired and liabilities assumed.
The balance of the purchase price will be allocated to goodwill and other
intangible assets and amortized over their estimated useful lives of
approximately five years.
Public Offering (unaudited)
In February 2000, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission with respect
to an offering of its common stock.
F-19
<PAGE>
Report of Independent Accountants
Board of Directors
Digital Evolution, Inc.
Brentwood, California
We have audited the accompanying balance sheets of Digital Evolution, Inc. as
of December 31, 1996 and 1997, and the related statements of operations,
shareholders' equity and cash flows for each of 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. 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 provides 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 Digital Evolution, Inc. as of
December 31, 1996 and 1997 and the results of its operations and cash flows for
each of the years then ended in conformity with generally accepted accounting
principles.
BDO SEIDMAN, LLP
Los Angeles, California
August 28, 1998
F-20
<PAGE>
Digital Evolution, Inc.
Balance Sheets
<TABLE>
<CAPTION>
December 31, June 30,
----------------------------- ---------------
1996 1997 1998
------------- ------------- ---------------
(unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ........................... $1,414,827 $1,528,301 $ 332,123
Accounts receivable, net of allowance for
doubtful accounts of $0, $165,400, and
$150,000 (unaudited) .............................. 159,676 1,827,501 1,388,549
Prepaid expenses and other current assets ........... 21,864 58,738 91,673
---------- ---------- ----------
Total current assets ................................. 1,596,367 3,414,540 1,812,345
PROPERTY AND EQUIPMENT, NET (Note 2) ................. 327,064 698,894 665,234
OTHER ASSETS ......................................... 21,699 42,939 44,456
---------- ---------- ----------
$1,945,130 $4,156,373 $2,522,035
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable and accrued expenses ............... $ 608,093 $ 585,496 $ 372,670
Deferred revenue .................................... 700,000 160,220 728,000
Loan from shareholders .............................. 174,729 -- --
Current portion of long-term debt (Note 3) .......... 9,750 9,053 10,307
Current portion of obligations under capital leases
(Note 7) .......................................... 24,174 30,418 25,674
---------- ---------- ----------
Total current liabilities ............................ 1,516,746 785,187 1,136,651
Obligations under capital leases (Note 7) ............ 11,968 28,699 20,221
LONG-TERM DEBT (Note 3) .............................. 43,248 34,195 28,921
---------- ---------- ----------
Total liabilities .................................... 1,571,962 848,081 1,185,793
---------- ---------- ----------
Series A Redeemable Preferred stock-no par value,
1,366,666 shares authorized; issued and
outstanding 250,000 in 1996 and 1,366,666 in
1997 and 1998 (unaudited), and (liquidation value
of $4,100,000) (Note 8) ............................. 694,761 4,044,759 4,044,759
---------- ---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes
7, 8, 9, 10, and 11)
SHAREHOLDERS' DEFICIENCY (Note 8)
Class A -- no par value, common stock,
38,466,665 shares authorized; 20,299,985
shares issued and outstanding ..................... 2,000 2,000 2,000
Class B -- no par value, common stock,
6,096,000 shares authorized; none issued and
outstanding ....................................... -- -- --
Accumulated deficit ................................. (323,593) (738,467) (2,710,517)
------------ ------------ -----------
Total shareholders' deficiency ...................... (321,593) (736,467) (2,708,517)
------------ ------------ -----------
$1,945,130 $4,156,373 $2,522,035
=========== ========== ===========
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE>
Digital Evolution, Inc.
Statements of Operations
<TABLE>
<CAPTION>
Years Ending December 31, Six Months Ending June 30,
------------------------- ------------------------------
1996 1997 1997 1998
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues ....................................... $ 2,504,774 $ 7,034,693 $ 3,662,182 $ 2,809,866
----------- ----------- ----------- -----------
OPERATING EXPENSES
Project personnel and related expenses ......... 1,378,214 4,330,710 1,720,430 2,560,528
Marketing and sales ............................ 8,845 268,083 110,299 372,167
Management and administration .................. 1,337,140 2,794,925 980,279 1,807,666
Depreciation ................................... 48,628 138,591 61,352 80,120
----------- ----------- ---------- -----------
Operating income (loss) ........................ (268,053) (497,616) 789,822 (2,010,615)
----------- ------------ ----------- -----------
Interest expense ............................... (34,120) (33,335) (13,919) (8,209)
Interest income ................................ 3,410 154,748 83,829 19,884
Assumed loan balance of related party (Note 5) (101,299) -- -- --
Other (expenses) income, net ................... (20,191) (38,671) (16,018) 26,890
----------- ------------ ----------- ------------
Net income (loss) .............................. $ (420,253) $ (414,874) $ 843,714 $(1,972,050)
=========== ============ =========== ============
Weighted average number of shares
outstanding:
Basic ......................................... 20,299,985 20,299,985 20,299,985 20,299,985
Diluted ....................................... 20,299,985 20,299,985 23,567,873 20,299,985
NET INCOME (LOSS) PER SHARE:
Basic ......................................... $ (.02) $ (.02) $ .04 $ (.10)
=========== ============ =========== ===========
Diluted ....................................... $ (.02) $ (.02) $ .03 $ (.10)
=========== ============ =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE>
Digital Evolution, Inc.
Statements of Shareholders' Deficiency
<TABLE>
<CAPTION>
Class A Class B Retained
Common Stock Common Stock Earnings/
----------------------- ------------------- Accumulated
Shares Amount Shares Amount (Deficit) Total
------------ -------- -------- -------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1996 ......... 1,033,078 $2,000 -- $ -- $ 96,660 $ 98,660
Issuance of preferred stock
(Note 8) .......................... -- -- -- -- -- --
Net loss for the year .............. -- -- -- -- (420,253) (420,253)
--------- ------ -- ---- ------------ ------------
BALANCE AT JANUARY 1, 1997 ......... 1,033,078 $2,000 -- $ -- $ (323,593) $ (321,593)
Stock split 3.93 for 1 ............. 3,026,919 -- -- -- -- --
Stock split 5.00 for 1 ............. 16,239,988 -- -- -- -- --
Net loss for the year .............. -- -- -- -- (414,874) (414,874)
---------- ------ -- ---- ------------ ------------
BALANCE AT DECEMBER 31, 1997 20,299,985 $2,000 -- $ -- $ (738,467) $ (736,467)
---------- ------ -- ---- ------------ ------------
Net loss for the six months
(unaudited) ....................... -- -- -- -- (1,972,050) (1,972,050)
---------- ------ -- ---- ------------ ------------
BALANCE AT JUNE 30, 1998
(unaudited) ....................... 20,299,985 $2,000 -- $ -- $ (2,710,517) $ (2,708,517)
========== ====== == ==== ============ ============
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE>
Digital Evolution, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ending December 31, Six Months Ending June 30,
------------------------------- ----------------------------------
1996 1997 1997 1998
-------------- -------------- --------------- ----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) .................................... $ (420,253) $ (414,874) $ 843,714 $ (1,972,050)
Adjustments to reconcile net income (loss) to
net cash (used in) provided by operating
activities:
Depreciation ...................................... 48,628 138,591 61,352 80,120
Bad debt expense .................................. 71,180 166,314 -- --
Assumed loan from related party ................... 101,299 -- -- --
Changes in assets and liabilities:
Accounts receivable ............................ (113,880) (1,834,139) (1,343,502) 438,952
Prepaid assets and other ....................... (12,165) (36,874) (76,329) (32,540)
Accounts payable and accrued
expenses ...................................... 535,381 (22,676) (304,526) (201,538)
Deferred revenue ............................... 700,000 (539,780) (390,000) 567,780
Other assets and liabilities ................... (14,666) (21,240) (11,083) (1,912)
---------- ------------ ------------ ------------
Net cash (used in) provided by operating activities ..... 895,524 (2,564,678) (1,220,374) (1,121,188)
---------- ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment .................. (236,356) (515,035) (121,508) (57,748)
Disposition of property and equipment ................ -- 4,692 -- --
---------- ------------ ------------ ------------
Net cash used in investing activities ................... (236,356) (510,343) (121,508) (57,748)
---------- ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loans payable and capital leases........ 53,707 65,605 -- --
Payments on loans payable and capital leases ......... (50,372) (227,108) (196,046) (17,242)
Proceeds from redeemable preferred stock
issuance ............................................ 694,761 3,349,998 3,349,998 --
---------- ------------ ------------ ------------
Net cash (used in) provided by financing activities ..... 698,096 3,188,495 3,153,952 (17,242)
---------- ------------ ------------ ------------
Net (decrease) increase in cash and cash
equivalents ............................................ 1,357,264 113,474 1,812,070 (1,196,178)
Cash and cash equivalents, beginning of year ............ 57,563 1,414,827 1,414,827 1,528,301
---------- ------------ ------------ ------------
Cash and cash equivalents, end of year .................. $1,414,827 $ 1,528,301 $ 3,226,897 $ 332,123
========== ============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Income taxes ........................................ $ 800 $ 7,280 $ -- $ 3,156
Interest ............................................ 26,832 40,623 22,901 8,209
========== ============ ============ ============
NON CASH INVESTING AND FINANCING
ACTIVITIES
Purchases of equipment by capital leases ............. $ 23,979 $ 65,604 $ 65,604 $ --
Assumed loan from related party ...................... 101,299 -- -- --
========== ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-24
<PAGE>
DIGITAL EVOLUTION, INC.
NOTES TO FINANCIAL STATEMENTS
(Information with respect to June 30, 1997 and 1998 is unaudited)
NOTE 1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES BUSINESS
Digital Evolution, Inc. (the Company) was incorporated in California on
May 10, 1994. The Company is a developer of proprietary technologies, with its
principal expertise in large scale inter-and intranet solutions, database and
electronic commerce applications, CD-Rom and interactive kiosk-based networks.
The Company's principal markets are the United States.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with initial
maturities of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method and includes the amortization of capital lease assets.
Equipment is depreciated over a five to seven year useful life. Leasehold
improvements are amortized over the term of the lease or the useful life, if
shorter.
Betterments and major renewals are capitalized and included in property,
plant, and equipment accounts while expenditures for maintenance and repairs
and minor renewals are charged to expense. When assets are retired or otherwise
disposed of, the assets and related allowances for depreciation and
amortization are eliminated from the accounts and any resulting gain or loss is
reflected in income.
Long-Lived Assets
Long-lived assets, such as property and equipment, are evaluated for
impairment when events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable through the estimated undiscounted
future cash flows from the use of these assets. When any such impairment
exists, the related assets will be written down to fair value. No impairment
losses have been recorded through December 31, 1997.
Software Development Costs
Development costs incurred in the research and development of new software
products and enhancements to existing software products are expensed as
incurred until technological feasibility has been established. After
technological feasibility is established, any additional development costs are
capitalized in accordance with Statement of Financial Accounting Standards
(SFAS) No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed." Such costs are amortized over the lesser of five
years or the economic life of the related product. No development costs were
capitalized in 1996 and 1997.
Revenue Recognition
Revenues are derived principally from either (a) contracts permitting the
billing of services at amounts equal to actual time and material costs
incurred, or (b) under fixed fee arrangements. Revenues under fixed fee
arrangements are recognized on the percentage of completion method based on the
ratio of costs incurred to total estimated costs. Fees and expenditures in
excess of billings represent the costs incurred on projects and anticipated
profits earned on projects in excess of amounts billed. Billings in excess of
fees and expenditures represent amounts billed in excess of costs incurred and
estimated profit earned and have been classified as current liabilities under
the caption "deferred revenue."
F-25
<PAGE>
DIGITAL EVOLUTION, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
(Information with respect to June 30, 1997 and 1998 is unaudited)
Taxes on Income
The Company accounts for income taxes in accordance with the provisions of
SFAS No. 109, "Accounting for Income Taxes." SFAS 109 requires the recognition
of deferred tax assets and liabilities for the expected future income tax
consequences of events that have been recognized in a Company's financial
statements or tax return. 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 for income tax purposes using
enacted tax rates in effect in the years in which the temporary differences are
expected to reverse.
The Company currently files its federal and state income tax returns as a
cash basis entity.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
Fair Values of Financial Instruments
The carrying amounts reported in the balance sheet for cash equivalents,
accounts receivables, and accounts payable approximate fair value because of
the immediate or short-term maturity of these financial instruments. The fair
value of long-term debt is estimated based on the current borrowing rates for
similar debt which approximates fair value.
Concentrations of Credit Risk and Major Customer
Financial instruments which potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents and accounts
receivables. Cash and cash equivalents consist of deposits and investments in
short-term government securities placed with various high credit quality
financial institutions. The Company generates revenue principally from
customers located in North America, many of which are large multi-national
organizations. During 1996 and 1997, one customer accounted for 27% and 53%,
respectively, of total revenues. This same customer accounted for 0% and 55%,
respectively, of accounts receivables, in 1996 and 1997, respectively.
Concentrations of credit risk with respect to receivables are limited due to
the Company's geographically diverse customer base. The Company maintains an
allowance for uncollectible receivables based upon the collectibility of such
receivables.
Computation of Earnings Per Shares
For the year ended December 31, 1997, the Company adopted SFAS No. 128,
which requires the presentation of Basic and Dilutive earnings per share, which
replaces primary and fully diluted earnings per share. Basic net loss per share
is computed using the weighted average number of common shares outstanding
during the period. Dilutive net loss per share is computed using the weighted
average number of common shares outstanding during the period, plus the
dilutive effect of common stock equivalents. Shares outstanding for dilutive
earnings per share include preferred stock and stock options. The dilutive
computations do not include preferred stock and stock options for the years
ended December 31, 1996 and 1997 as their inclusion would be antidilutive.
Stock-Based Compensation
The Company accounts for its stock option awards under the intrinsic value
method of accounting, prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees."
F-26
<PAGE>
DIGITAL EVOLUTION, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
(Information with respect to June 30, 1997 and 1998 is unaudited)
Under the intrinsic value based method, compensation cost is the excess, if
any, of the quoted market price of the stock at grant date or other measurement
date over the amount an employee must pay to acquire the stock. The Company
makes pro forma disclosures of net income and earnings per share as if the fair
value based method of accounting had been applied as required by SFAS No. 123,
"Accounting for Stock-based Compensation."
Unaudited Interim Financial Information
The interim financial statements of the Company for the six months ended
June 30, 1997 and 1998, included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission (SEC). Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations relating to interim financial statements. In the opinion
of management, the accompanying unaudited interim financial statements reflect
all adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position of the Company at June 30, 1998, and the
results of its operations and its cash flows for the six months ended June 30,
1997 and 1998.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income", which establishes standards for
reporting and display of comprehensive income, its components and accumulated
balances. Comprehensive income is defined to include all changes in equity
except those resulting from investments by owners and distributions to owners.
Among other disclosures, SFAS 130 requires that all items that are required to
be recognized under current accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements.
Also, in June 1997, FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information" which supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise." SFAS No. 131
establishes standards for the way that public companies report information
about operating segments in annual financial statements and requires reporting
of selected information about operating segments in interim financial
statements issued to the public. It also establishes standards for disclosures
regarding products and services, geographic areas and major customers. SFAS No.
131 defines operating segments as components of a company about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance.
SFAS No. 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997 and requires comparative information for
earlier years to be restated. Because of the recent issuance of the standards,
management has been unable to fully evaluate the impact, if any, the standards
may have on future financial statement disclosures. Results of operations and
financial position, however, will be unaffected by implementation of these
standards.
In October 1997, Statement of Position 97-2, Software Revenue Recognition
(SOP 97-2), was issued. The SOP provides guidance on when revenue should be
recognized and in what amounts licensing, selling, leasing, or otherwise
marketing computer software. SOP 97-2 is effective for transactions entered
into in fiscal years after December 15, 1997. Because of the recent issuance of
the SOP, management has been unable to fully evaluate the impact, if any, the
SOP may have on future financial statement disclosure.
In February 1998, the FASB issued SFAS No. 132, "Employer's Disclosures
about Pensions and Other Postretirement Benefits" which standardizes the
disclosure requirements for pensions and other postretirement
F-27
<PAGE>
DIGITAL EVOLUTION, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
(Information with respect to June 30, 1997 and 1998 is unaudited)
benefits and requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis, SFAS No. 132 is effective for years beginning after December 15, 1997
and requires comparative information for earlier years to be restated, unless
such information is not readily available. Management believes the adoption of
this statement will have no material impact on the Company's financial
statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities. The
statement requires companies to recognize all derivatives as either assets or
liabilities, with the instruments measured at fair value. The accounting for
changes in fair value, gains or losses, depends on the intended use of the
derivative and its resulting designation. The statement is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. The Company will
adopt SFAS No. 133 by January 1, 2000 and does not expect SFAS No. 133 to have
a material impact on its financial statements.
NOTE 2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
------------------------ ---------
1996 1997 1998
-------- -------- ---------
(unaudited)
<S> <C> <C> <C>
Equipment ......................................... $364,053 $849,455 $907,203
Furniture and fixtures ............................ 60,164 71,834 71,834
Leasehold improvements ............................ 16,186 29,457 29,457
-------- -------- ---------
440,403 950,746 1,008,494
Accumulated depreciation and amortization ......... (113,339) (251,852) (343,260)
-------- -------- ---------
Property and equipment, net ....................... $327,064 $698,894 $ 665,234
======== ======== =========
</TABLE>
As of December 31, 1996 and 1997, included in equipment is $39,489 and
$105,093 respectively, of equipment with accumulated amortization of $10,600
and $30,024, respectively, under capital leases.
NOTE 3. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
----------------------- ------------
1996 1997 1998
---------- ---------- ------------
(unaudited)
<S> <C> <C> <C>
Note payable to bank, secured by certain equipment,
monthly payments of $1,128, interest at 9.34%, matures
November 2001 ........................................ $52,998 $43,248 $39,228
------- ------- -------
52,998 43,248 39,228
Less current maturities ............................... 9,750 9,053 10,307
------- ------- -------
$43,248 $34,195 $28,921
======= ======= =======
</TABLE>
F-28
<PAGE>
DIGITAL EVOLUTION, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
(Information with respect to June 30, 1997 and 1998 is unaudited)
NOTE 4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
------------------------- ------------
1996 1997 1998
----------- ----------- ------------
(unaudited)
<S> <C> <C> <C>
Accounts payable .................. $ 85,954 $162,699 $180,010
Accrued payroll ................... 79,242 214,672 --
Incentive bonus ................... 300,000 -- 75,000
Accrued vacation .................. 16,371 81,062 117,660
Other -- accrued expenses ......... 126,526 127,063 --
-------- -------- --------
$608,093 $585,496 $372,670
======== ======== ========
</TABLE>
NOTE 5. LOAN FROM STOCKHOLDER
During 1994, the Company and a related company obtained joint financing
from an affiliated company. The Company granted shares of Class A Common Stock
as compensation, which had no fair market value at the date of grant. The
Company was also a guarantor of the related company financing included in this
agreement. This related company defaulted in 1996 and the Company assumed their
loan in the amount of $101,299. This loan was fully paid down in 1997.
NOTE 6. INCOME TAXES
The components of the income tax benefit are as follows:
December 31,
---------------------------
1996 1997
------------ ------------
Deferred:
Federal .............................. $ 305,000 $ 141,000
State ................................ 54,000 25,000
---------- ----------
359,000 166,000
---------- ----------
Increase in valuation allowance ......... (359,000) (166,000)
---------- ----------
$ -- $ --
========== ==========
The difference between the Federal statutory tax rate and the effective
tax rate resulted from the following:
December 31,
--------------
1996 1997
---- ----
Federal statutory tax benefit rate .................. (34%) (34%)
State income taxes (net of federal benefit) ......... ( 6%) ( 6%)
Increase in valuation allowance ..................... 40% 40%
---- ----
0% 0%
==== ====
F-29
<PAGE>
DIGITAL EVOLUTION, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
(Information with respect to June 30, 1997 and 1998 is unaudited)
Deferred taxes are recorded based on differences between the financial
statement and tax basis of assets and liabilities. Temporary differences which
give rise to a significant portion of deferred tax assets and liabilities
consist of the following:
December 31,
-------------------------
1996 1997
--------- ---------
Current:
Net operating loss carryforwards ............... $ 470,000 $ 800,000
Cash to accrual conversion differences ......... ( 87,000) (251,000)
--------- ---------
383,000 549,000
Deferred tax asset valuation allowance ............ ( 383,000) (549,000)
--------- ---------
Net deferred tax asset ............................ $ -- $ --
========= =========
Management believes that, based on a number of factors, the available
objective evidence creates sufficient uncertainty regarding the realizability
of the deferred tax assets such that a full valuation allowance has been
recorded. These factors include the lack of significant history of profits and
that the market in which the Company competes is intensely competitive and
characterized by rapidly changing technology.
At December 31, 1997, the Company has available net operating loss
carryforwards of approximately $2,000,000 for Federal income tax purposes,
which expire in varying amounts through 2012.
NOTE 7. LEASES
As of December 31, 1997, future minimum lease payments related to the
rental of office facilities and equipment are as follows:
Operating Capital
Leases Leases
--------- ---------
1998 .......................................... $455,130 $ 40,348
1999 .......................................... 62,443 30,796
2000 .......................................... -- 1,282
-------- --------
Total minimum lease payment ................... $517,573 72,426
========
Amount repreenting interest ................... (13,309)
--------
Present value of net minimum lease payments ... 59,117
Less: current portion ......................... (30,418)
--------
$ 28,699
========
Total rent expense under operating leases amounted to $114,641 and
$275,717 for the year ended December 31, 1996 and 1997, respectively.
NOTE 8. SHAREHOLDERS' EQUITY AND REDEEMABLE PREFERRED STOCK
In January 1997, the Company effected a 3.93-for-one stock split. In
December 1997, the Company effected a five-for-one stock split. All applicable
share data have been retroactively restated to reflect the stock splits.
In November 1996 and February 1997, the Company sold Series A Preferred
Stock (Preferred Stock) in a private placement. The Company issued an aggregate
of 1,366,666 shares of its preferred stock in exchange for net proceeds of
$4,044,759. The holders of the preferred stock are entitled to cumulative
dividends at a rate of 6% of the original per share price of $3 (as adjusted
for January 1997 stock split). There are $238,687
F-30
<PAGE>
DIGITAL EVOLUTION, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
(Information with respect to June 30, 1997 and 1998 is unaudited)
in cumulative unpaid dividends as of December 31, 1997. Upon an one-time
election of the holders of the preferred stock, the Company shall redeem (as
defined in the Preferred Stock Agreement) all of the outstanding shares on the
fifth anniversary date of the original issue at the original purchase price
plus any dividends in arrears at the election of the preferred stockholders.
Each share of Preferred Stock has a liquidation preference of $3. In addition,
the preferred shares can be converted into shares of common stock upon the
earlier of (1) agreement of the holders of two-thirds of the then outstanding
shares of preferred stock and (2) simultaneously with the closing of the
Company's public offering registered under the Securities Act of 1933. The
preferred shares shall be converted into common shares at a per share common
stock price equal to $3 (as adjusted for any stock dividends, combinations or
splits with respect to such shares).
NOTE 9. EARNINGS PER SHARE
Basic and diluted net loss per share were computed by dividing income
available to common stockholders by the weighted average number of shares of
common stock outstanding during the year.
<TABLE>
<CAPTION>
Years Ending December 31, Six Months Ending June 30,
-------------------------- -----------------------------
1996 1997 1997 1998
---------- ---------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net (loss) income .................................. $ (420,252) $ (414,874) $ 843,714 $(1,972,050)
Less: Preferred dividends .......................... (45,000) (193,687) (110,000) (123,000)
---------- ---------- ----------- -----------
Income (loss) available to common stockholder ...... $ (465,252) $ (608,561) $ 733,714 $(2,095,050)
========== ========== =========== ===========
Weighted average shares of common stock
outstanding ....................................... 20,299,985 20,299,985 20,299,985 20,299,985
Shares of common stock issuable upon the assumed
conversion of preferred stock and the assumed
exercise of options ............................... -- -- 3,267,888 --
---------- ---------- ---------- -----------
Additional shares of common stock and common
stock equivalents for computation ................. 20,299,985 20,299,985 23,567,873 20,299,985
========== ========== ========== ===========
Diluted net income (loss) per common share ......... $ (0.02) $ (.02) $ .03 $ (.10)
========== ========== ========== ===========
</TABLE>
NOTE 10. EMPLOYEE RETIREMENT PLANS
The Company has sponsored a defined contribution retirement plan (the
Plan) which covers all employees meeting minimum service requirements. The Plan
qualifies as a deferred salary arrangement under Section 401(k) of the Internal
Revenue Code. Employee's make contributions from 1% -- 20% of their eligible
compensation. The Company may elect to make matching contributions, but as of
December 31, 1997 has not elected to do so.
NOTE 11. STOCK OPTION PLAN
In November 1996, the Board of Directors adopted and the Company's
shareholders approved the 1996 Stock Option Plan (the 1996 Plan). The 1996 Plan
provides for the grant of options which qualify as incentive stock options
(Incentive Options) under Section 422 of the Internal Revenue Code of 1986, as
amended (the Code), to officers and employees of the Company and options which
do not so qualify (Non-Qualified Options) to officers, directors, employees and
consultants of the Company. Under the 1996 Plan, the Company may grant options
to purchase up to 6,096,000 shares of Class B common stock. Options to purchase
5,642,785 shares of common stock at an exercise price per share of $.54-$.70
(the estimated fair value of the shares on the date of grant) were granted to
certain employees in 1997. The options granted vest incrementally from one to
five years and are exercisable over a period of five years.
F-31
<PAGE>
DIGITAL EVOLUTION, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
(Information with respect to June 30, 1997 and 1998 is unaudited)
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its employee stock options. Under APB 25, because the
exercise price of the Company's employee stock options equals the fair value of
the underlying stock on the date of grant, no compensation expense is
recognized.
Pro forma information regarding net income is required by SFAS No. 123,
and has been determined as if the Company had accounted for its employee stock
options under the fair value method of SFAS No. 123. The fair value of these
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted average assumption for 1997; risk-free
interest rates of 6.57%; with no volatility factor; and a weighted average
expected life of the option of 5 years. The absence of a volatility factor in
the pricing model is permitted by SFAS No. 123, for non-public companies.
Under the accounting provisions of SFAS No. 123, the Company's net loss
and basic and diluted net loss per share would have been increased to the pro
forma amounts indicated below:
Year ended
December 31,
1997
-------------
Net loss as reported .................... $ (414,874)
Net loss pro forma ...................... (929,107)
Net loss per share as reported .......... (.02)
Net loss per share as pro forma ......... (.06)
A summary of the Company's stock option plan as of and for the year ended
December 31, 1997 is presented below:
<TABLE>
<CAPTION>
Weighted
Average
Shares Exercise Price
------------ ---------------
<S> <C> <C>
Outstanding at beginning of year ....................................... -- --
Granted ................................................................ 5,642,785 $ 0.54
Forfeited/canceled ..................................................... (74,620) $ 0.54
--------- ------
Outstanding at end of year ............................................. 5,568,165 $ 0.54
========= ======
Options exercisable at year-end ........................................ 1,733,030 $ 0.54
Weighted average fair value of options granted during the year ......... $ 0.15
======
</TABLE>
<PAGE>
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------ -------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life Price Exercisable Price
- ---------- ------------- ------------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C>
$0.54 5,417,200 4.3 Yrs. $ 0.54 1,733,030 $ 0.54
$0.70 150,965 4.8 Yrs. $ 0.70 -- $ 0.70
--------- ---------
5,568,165 1,733,030
========= =========
</TABLE>
NOTE 12. EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with certain members of
senior management. The agreements have terms from one to three years and
include, among other things, noncompete agreements and salary and benefits
continuation. In some cases, these agreements grant employees equity interest
in ventures
F-32
<PAGE>
DIGITAL EVOLUTION, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
(Information with respect to June 30, 1997 and 1998 is unaudited)
which they have largely developed and made viable. In addition, these
agreements generally can be terminated by notice given by the employee or the
Company. Salaries for these employees range from $75,000 to $200,000 per year.
Salary expense for the years ending December 31, 1996 and 1997, respectively,
was $29,444 and $356,140.
NOTE 13. SUBSEQUENT EVENTS
During July 1998, the Company merged with U.S. Interactive Inc.
F-33
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Soft Plus, Inc.:
We have audited the accompanying consolidated balance sheets of Soft Plus, Inc.
(the Company) and subsidiaries as of December 31, 1998 and 1999, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1999.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Soft Plus, Inc. and
subsidiaries as of December 31, 1998 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
KPMG LLP
Mountain View, California
February 11, 2000, except as to Note 7(d), which is as of March 1, 2000
F-34
<PAGE>
SOFT PLUS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
December 31,
--------------------
1998 1999
Assets -------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................................. $ 336 $ 1,673
Trade accounts receivable, less allowance for doubtful accounts of $40 in
1998 and $307 in 1999 .................................................... 3,973 6,363
Income tax receivable ...................................................... -- 135
Costs and estimated earnings in excess of billings on contracts in progress 289 40
Other current assets ....................................................... 57 354
------ -------
Total current assets .................................................... 4,655 8,565
------ -------
Property and equipment, net ................................................. 253 1,233
Deferred financing costs .................................................... -- 1,658
Deferred tax assets ......................................................... -- 500
Other assets ................................................................ 74 195
------ -------
Total assets ................................................................ $4,982 $12,151
====== =======
</TABLE>
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity
<S> <C> <C>
Current liabilities:
Line of credit ............................................................. $ 350 $ 270
Trade accounts payable ..................................................... 394 1,176
Billings in excess of costs and estimated earnings on contracts in progress 24 --
Accrued expenses ........................................................... 1,351 3,351
Current portion of long-term debt .......................................... -- 491
Current portion of capital leases .......................................... -- 60
Income taxes payable ....................................................... 74 --
Deferred tax liabilities ................................................... 979 123
Deferred revenue ........................................................... 54 268
------ ---------
Total current liabilities ............................................... 3,226 5,739
------ ---------
Long-term debt, noncurrent portion .......................................... -- 1,577
Capital leases, noncurrent portion .......................................... -- 123
------ ---------
Total liabilities ........................................................... 3,226 7,439
------ ---------
Minority interest ........................................................... -- 17
------ ---------
Commitments (Note 5)
Stockholders' equity:
Convertible preferred stock:
Series A, no par value; 2,000,000 shares authorized; 1,250,000 shares
issued and outstanding in 1998 and 1999, respectively (liquidation
preference of $500 in 1998 and 1999, respectively) ...................... 500 500
Series B, no par value; 1,000,000 shares authorized; -0- and 844,514
shares issued and outstanding in 1998 and 1999, respectively,
(liquidation preference of $-0- and $1,385 in 1998 and 1999,
respectively) ........................................................... -- 3,055
Common stock, no par value; 20,000,000 shares authorized; 10,228,334
and 13,180,384 shares issued and outstanding in 1998 and 1999,
respectively ............................................................ 264 56,885
Notes receivable ......................................................... (549) (1,391)
Deferred compensation expense ............................................ -- (52,698)
Retained earnings (accumulated deficit) .................................. 1,541 (1,656)
------ ---------
Total stockholders' equity .............................................. 1,756 4,695
------ ---------
Total liabilities and stockholders' equity .................................. $4,982 $ 12,151
====== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-35
<PAGE>
SOFT PLUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1997 1998 1999
------ ------- --------
<S> <C> <C> <C>
Consulting and development services, software licenses, and
software maintenance revenue ............................... $5,643 $15,334 $ 24,285
Cost of services and goods sold (excluding depreciation
expense of $-0-, $26 and $118 in 1997, 1998 and 1999,
respectively) .............................................. 3,513 7,713 13,364
------ ------- --------
Gross profit ............................................ 2,130 7,621 10,921
------ ------- --------
Operating expenses:
Research and development (excluding depreciation expense
of $0, $20 and $52 in 1997, 1998 and 1999, respectively).. 584 1,661 2,764
Selling, general and administrative (excluding depreciation
expense of $37, $8 and $39 in 1997, 1998 and 1999,
respectively) ............................................ 1,261 4,172 12,239
Depreciation ............................................... 37 55 209
------ ------- --------
Total operating expenses ................................ 1,882 5,888 15,212
------ ------- --------
Operating income (loss) ................................. 248 1,733 (4,291)
Interest income ............................................. 14 15 22
Interest expense ............................................ -- (3) (130)
------ ------- --------
Income (loss) before income taxes ....................... 262 1,745 (4,399)
Income tax expense (benefit) ................................ 109 708 (1,202)
------ ------ --------
Net income (loss) ....................................... $ 153 $ 1,037 $ (3,197)
====== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-36
<PAGE>
SOFT PLUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
<TABLE>
<CAPTION>
Convertible Preferred Stock
----------------------------------------------
Series A Series B Common Stock
---------------------- ---------------------- -------------------------
Shares Amount Shares Amount Shares Amount
------------ -------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balances as of December 31,
1996 ......................... 500,000 $ 200 -- $ -- 5,000,000 $ 2
Net income .................... -- -- -- -- -- --
------- ----- -- ------- --------- --------
Balances as of December 31,
1997 ......................... 500,000 200 -- -- 5,000,000 2
Issuance of preferred stock
and common stock in
exchange for notes
receivable ................... 750,000 300 -- -- 4,975,000 249
Issuance of common stock
for cash ..................... -- -- -- -- 253,334 13
Net income .................... -- -- -- -- -- --
------- ----- -- ------- --------- --------
Balances as of December 31,
1998 ......................... 1,250,000 500 -- -- 10,228,334 264
Stock options exercised ....... -- -- -- -- 902,050 45
Issuance of common stock in
exchange for notes
receivable ................... -- -- -- -- 1,730,000 842
Issuance of preferred stock
for cash ..................... -- -- 844,514 1,376 -- --
Issuance of warrant ........... -- -- -- 1,679 -- --
Issuance of common stock
for cash ..................... -- -- -- -- 130,000 65
Issuance of common stock
for services ................. -- -- -- -- 190,000 125
Compensation expense for
options ...................... -- -- -- -- -- 55,544
Amortization of deferred
compensation expense ......... -- -- -- -- -- --
Net loss ...................... -- -- -- -- -- --
--------- ----- ------- ------- ---------- --------
Balances as of December 31,
1999 ......................... 1,250,000 $ 500 844,514 $ 3,055 13,180,384 $ 56,885
========= ===== ======= ======= ========== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Retained
Deferred Earnings Total
Notes Compensation (Accumulated Stockholders'
Receivable Expense Deficit) Equity
------------ -------------- -------------- --------------
<S> <C> <C> <C> <C>
Balances as of December 31,
1996 ......................... $ -- $ -- $ 351 $ 553
Net income .................... -- -- 153 153
-------- --------- -------- ---------
Balances as of December 31,
1997 ......................... -- -- 504 706
Issuance of preferred stock
and common stock in
exchange for notes
receivable ................... (549) -- -- --
Issuance of common stock
for cash ..................... -- -- -- 13
Net income .................... -- -- 1,037 1,037
-------- --------- -------- ---------
Balances as of December 31,
1998 ......................... (549) -- 1,541 1,756
Stock options exercised ....... -- -- -- 45
Issuance of common stock in
exchange for notes
receivable ................... (842) -- -- --
Issuance of preferred stock
for cash ..................... -- -- -- 1,376
Issuance of warrant ........... -- -- -- 1,679
Issuance of common stock
for cash ..................... -- -- -- 65
Issuance of common stock
for services ................. -- -- -- 125
Compensation expense for
options ...................... -- (55,544) -- --
Amortization of deferred
compensation expense ......... -- 2,846 -- 2,846
Net loss ...................... -- -- (3,197) (3,197)
-------- --------- -------- ---------
Balances as of December 31,
1999 ......................... $ (1,391) $ (52,698) $ (1,656) $ 4,695
======== ========= ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-37
<PAGE>
SOFT PLUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1997 1998 1999
--------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ............................................................... $ 153 $ 1,037 $ (3,197)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation ................................................................... 37 55 209
Amortization of deferred compensation expense .................................. -- -- 2,846
Issuance of common stock for services .......................................... -- -- 125
Amortization of discount on long term debt ..................................... -- -- 21
Changes in operating assets and liabilities:
Trade accounts receivable ..................................................... (470) (2,810) (2,390)
Income taxes receivable ....................................................... -- -- (135)
Deferred tax assets ........................................................... -- -- (500)
Costs and estimated earnings in excess of billings on contracts in progress ... -- (289) 249
Other current assets .......................................................... (26) (31) (297)
Other assets .................................................................. 49 (70) (121)
Deferred tax liabilities ...................................................... 98 635 (856)
Trade accounts payable ........................................................ 13 381 782
Billings in excess of costs and estimated earnings on contracts in progress ... 52 (29) (24)
Accrued expenses .............................................................. 137 1,087 2,000
Income taxes payable .......................................................... 10 73 (74)
Deferred revenue .............................................................. -- 54 214
------ -------- --------
Net cash provided by (used in) operating activities ........................ 53 93 (1,148)
------ -------- --------
Cash flows used in investing activities-- purchases of property and equipment .... (90) (226) (830)
------ -------- --------
Cash flows from financing activities:
Minority interest ............................................................... -- -- 17
Net proceeds from issuance of common stock ...................................... 2 13 65
Proceeds from notes receivable .................................................. 13 -- --
Proceeds from exercise of stock options ......................................... -- -- 45
Net proceeds from issuance of preferred stock ................................... -- -- 1,376
Proceeds from debt line ......................................................... -- -- 2,000
Repayment of debt line .......................................................... -- -- (81)
Payment of capital lease ........................................................ -- -- (27)
Proceeds from line of credit .................................................... -- 350 --
Repayment of line of credit ..................................................... -- -- (80)
------ -------- --------
Net cash provided by financing activities .................................. 15 363 3,315
------ -------- --------
Net (decrease) increase in cash and cash equivalents ............................. (22) 230 1,337
Cash and cash equivalents, beginning of year ..................................... 128 106 336
------ -------- --------
Cash and cash equivalents, end of year ........................................... $ 106 $ 336 $ 1,673
====== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year:
Income taxes ................................................................... $ -- $ -- $ 88
====== ======== ========
Interest ....................................................................... $ -- $ 3 $ 23
====== ======== ========
Noncash investing and financing activities:
Deferred compensation expense .................................................. $ -- $ -- $ 52,698
====== ======== ========
Warrant for Series B preferred stock issued in conjunction with debt line ...... $ -- $ -- $ 1,679
====== ======== ========
Issuance of common stock in exchange for notes receivable ...................... $ -- $ 249 $ 842
====== ======== ========
Issuance of preferred stock in exchange for notes receivable ................... $ -- $ 300 $ --
====== ======== ========
Property and equipment acquired under capital leases ........................... $ -- $ -- $ 210
====== ======== ========
Property and equipment acquired with debt ...................................... $ -- $ -- $ 150
====== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-38
<PAGE>
SOFT PLUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies and Practices
(a) Description of Business
Soft Plus (the Company) is a provider of e-solutions for the global
communications industry. Its e2e solution transforms enterprises into
eBusinesses by providing a unified Web-based view of all interactions to
agents, partners and customers. These views are seamlessly integrated with
back-end customer relationship management, billing and order management
applications. Soft Plus' technology, methodology and domain expertise
rapidly deliver end-to-end eBusiness Solutions (e2e Solutions(SM)). Founded
in Cupertino, California, in 1994, the Company has international offices
with more than 100 customers on five continents.
(b) Principles of Consolidation
The accompanying consolidated financial statements include the financial
statements of the Company and its wholly and majority owned subsidiaries.
All significant intercompany balances and transactions have been
eliminated in consolidation.
(c) Contract Accounting
Revenue from fixed fee contracts for services is recognized on the
percentage-of-completion method, measured by the percentage of costs
incurred to date to estimated total costs for each contract. Contract
costs include all direct material, labor, and subcontracting costs, and
those indirect costs related to contract performance such as indirect
labor and supply costs. General and administrative costs are charged to
expense as incurred.
Revenue from time and materials contracts for services is recognized based
on contract costs incurred during the year. Contract costs include all
direct material, labor, and subcontracting costs, and those indirect costs
related to contract performance such as indirect labor and supply costs.
General and administrative costs are charged to expense as incurred.
Provisions for estimated losses on contracts in progress are made in the
period in which such losses are determined. Changes in contract
requirements, estimated profitability, and final contract settlements may
result in revisions to costs and revenues and are recognized in the period
in which the revisions are determined. Claims are included in contract
revenue when realization is probable and the amount of cash to be received
can be reliably estimated.
The asset "costs and estimated earnings in excess of billings on contracts
in progress" represents revenue recognized in advance of billings. The
liability "billings in excess of costs and estimated earnings on contracts
in progress" represents billings in excess of revenue recognized.
(d) Software License Revenue Recognition
The Company recognizes revenue from software licenses in accordance with
the American Institute of Certified Public Accountants' Statement of
Position (SOP) 97-2, Software Revenue Recognition. Software license
revenue is recognized upon delivery and when persuasive evidence of an
arrangement exists, the fee is fixed and determinable, acceptance is
certain, collection is probable, and the arrangement does not involve
significant production, customization, or modification of the software.
Deferred revenue represents maintenance revenues from customer support
that has been deferred and is being recognized ratably over the term of
the maintenance agreement, typically 13 months.
(e) Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that effect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the consolidated financial statement and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
F-39
<PAGE>
SOFT PLUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(f) Cash and Cash Equivalents
Cash and cash equivalents of $336,000 and $1,673,000 as of December 31,
1998 and 1999, respectively, consist of checking and money market accounts
with a bank. The Company considers all highly liquid debt instruments with
remaining maturities of three months or less when acquired to be cash
equivalents.
(g) Property and Equipment
Property and equipment are stated at cost. Depreciation on property and
equipment is calculated using the straight-line method over the estimated
useful lives of the assets. Computer equipment is depreciated over three
years and furniture and fixtures are depreciated over five years.
(h) Other Assets
Other assets consist principally of deposits under operating leases and
advances to employees for travel expenses.
(i) Research and Development, and Advertising
Research and development, and advertising costs are expensed as incurred.
Advertising costs amounted to $167,000 and $262,000 in 1998 and 1999,
respectively.
(j) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. A valuation allowance is
established when necessary to reduce deferred tax assets to the amounts
expected to be realized.
(k) Foreign Currency
The Company considers the functional currency of its foreign subsidiaries
to be the U.S. dollar. Accordingly, the foreign subsidiaries' financial
statements are remeasured into U.S. dollars using the historical exchange
rate for nonmonetary items and the current exchange rate for monetary
items. Remeasurement gains and losses, as well as transaction gains and
losses, are included in the determination of net income and have been
immaterial to date.
(l) Comprehensive Income
Effective January 1, 1998, the Company adopted the provisions of the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards (SFAS) No. 130, Reporting of Comprehensive Income. SFAS No. 130
established standards for the display of comprehensive income and its
components in a full set of financial statements. Comprehensive income
includes all changes in equity during a period except those resulting from
the issuance of shares of stock and distributions to shareholders. There
were no differences between net income and comprehensive income during the
years ended December 31, 1997, 1998 and 1999.
(m) Stock-Based Compensation
SFAS No. 123, Accounting for Stock-Based Compensation, sets forth
accounting and reporting standards for stock-based employee compensation.
As permitted by SFAS No. 123, the Company accounts for stock option grants
using the intrinsic value method in accordance with Accounting
F-40
<PAGE>
SOFT PLUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. Deferred compensation expense
associated with stock-based compensation is being amortized on a
straight-line basis over the vesting period of the individual award.
(n) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of. SFAS requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying
amount of an asset to future net cash flows expected to be generated by
the asset. If such assets are considered to be impaired, the impairment to
be recognized is measured by the amount by which the carrying amount of
the assets exceeds the fair value of the assets. Assets to be disposed of
are reported at the lower of the carrying amount or fair value less costs
to sell.
(o) Software Development Costs
In compliance with SFAS No. 86, Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed, costs incurred in the
development of new software products and enhancements to existing software
products are expensed as incurred until technological feasibility has been
established. Development costs incurred after technology feasibility is
established have not been capitalized to date as such amounts have not
been material.
(2) Credit Facilities
In 1998, the Company secured a line of credit in the amount of $1,000,000,
bearing interest at prime plus 1% (9.5% as of December 31, 1999). As of
December 31, 1999, $270,000 was outstanding under the line of credit. The
line of credit expires July 10, 2000 and is secured by substantially all
of the Company's assets. In addition, the line of credit is guaranteed by
the officers of the Company. On January 31, 2000, the Company repaid all
amounts outstanding under the line of credit and terminated the line of
credit.
In 1999, the Company entered into a loan and security agreement with Venture
Lending and Leasing II, Inc. (Lendor). Lendor agreed to make term loans to
the Company up to a maximum of $5,000,000 bearing interest at 7.70%. The
loan and security agreement can be drawn down upon through December 31,
2000, and is secured by all assets of the Company. As of December 31, 1999,
$2,000,000 has been drawn under this agreement. Principal and interest is
due monthly with a lump sum payment of $180,000 due June 1, 2003.
As part of the loan and security agreement, the Company gave the Lendor a
warrant for 90,000 shares of Series B preferred stock, exercisable at $1.64
per share. The warrant, which expires on December 31, 2007, was valued at
$1,679,000 using the Black-Scholes options pricing model with the following
assumptions: risk-free interest rate of 6.66%; expected life of eight years;
expected volatility of 70%; and no dividends. The warrant is accounted for
as a discount to the term loans and is being amortized as interest expense
over the term of the loans.
F-41
<PAGE>
SOFT PLUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(3) Contracts in Progress
Information with respect to the billing status of services contracts in
progress as of December 31, 1998 and 1999, is as follows (in thousands):
1998 1999
------ ------
Costs incurred on contracts in progress $ 484 $ 776
Estimated earnings 615 745
------ ------
1,099 1,521
Less: billings to date 834 1,481
------ ------
$ 265 $ 40
====== ======
Included in the accompanying consolidated
balance sheets under the following captions:
Costs and estimated earnings in excess of
billings on contracts in progress $ 289 $ 40
Billings in excess of costs and estimated
earnings on contracts in progress (24) --
------ ------
$ 265 $ 40
====== ======
(4) Property and Equipment
Property and equipment as of December 31, 1998 and 1999, was comprised of the
following (in thousands):
1998 1999
-------- ---------
Computer equipment $ 287 $1,172
Furniture and fixtures 88 392
------ ------
375 1,564
Accumulated depreciation (122) (331)
------ ------
$ 253 $1,233
====== ======
(5) Leases
The Company has several noncancelable operating leases, primarily for office
space and apartments. These leases generally contain renewal options for
varying periods. The Company also entered into several capital leases in
fiscal 1999.
Future minimum lease payments under noncancelable operating leases with
initial or remaining lease terms in excess of one year as of December 31,
1999, are as follows (in thousand):
<TABLE>
<CAPTION>
Year Ending Operating Capital
December 31, Leases Leases
------------ ----------- --------
<S> <C> <C>
2000 $ 1,326 $ 93
2001 1,306 93
2002 1,210 90
2003 1,052 --
2004 1,049 --
Thereafter 80 --
------- -----
Total minimum lease payments $ 6,023 276
=======
Less interest related to capital lease payments (93)
-----
183
Less current portion of capital lease (60)
-----
Capital lease, noncurrent portion $ 123
=====
</TABLE>
F-42
<PAGE>
SOFT PLUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Total rent expense for 1997, 1998 and 1999 was $75,000, $328,000 and
$592,000, respectively.
(6) Preferred Stock
The rights and preferences of Series A preferred stock are as follows:
o Each share of preferred stock is convertible into one share of common
stock, at the option of the stockholder, subject to adjustments to prevent
dilution in the event of a stock split, stock dividend, combination, or
recapitalization.
o Each share will automatically convert into common stock in the event of the
closing of an underwritten public offering of the Company's common stock
resulting in proceeds of more than $7,500,000 for an offering price not
less than $4.00 per share.
o Consent of the holders of at least a majority of the shares of all
preferred stock shall be required for any action which alters or changes
the rights, preferences, or privileges; creates a new class of preferred
stock having preference over or parity with the shares of Series A
preferred stock; or which effects a merger, reorganization, or sale of
assets of the Company.
o In the event of any liquidation, dissolution, or winding up of the Company,
holders of Series A preferred stock are entitled to receive, in
preference to holders of common stock, the amount of $0.40 per share,
plus all declared but unpaid dividends prior to any distribution to the
holders of common stock. If funds are not available to sufficiently
satisfy the full preferential amount, the entire assets of the Company
will be distributed to the holders of preferred stock ratably based on
the total preferential amount of preferred stock held.
The rights and preferences of Series B preferred stock are as follows:
o Each share of preferred stock is convertible into one share of common
stock, at the option of the stockholder, subject to adjustments to
prevent dilution in the event of a stock split, stock dividend,
combination, or recapitalization.
o Each share will automatically convert into common stock in the event of the
closing of an underwritten public offering of the Company's common stock
resulting in proceeds of more than $7,500,000 for an offering price not
less than $5.00 per share.
o Consent of the holders of at least a majority of the shares of all
preferred stock shall be required for any action which alters or changes
the rights, preferences, or privileges; creates a new class of preferred
stock having preference over or parity with the shares of Series B
preferred stock; or which effects a merger, reorganization, or sale of
assets of the Company.
o In the event of any liquidation, dissolution, or winding up of the Company,
holders of Series B preferred stock are entitled to receive, in
preference to holders of Series A preferred stock and common stock, the
amount of $1.64 per share, plus all declared but unpaid dividends prior
to any distribution to the holders of Series A preferred stock and
common stock. If funds are not available to sufficiently satisfy the
full preferential amount, the entire assets of the Company will be
distributed to the holders of preferred stock ratably based on the total
preferential amount of Series B preferred stock held.
(7) Common Stock and Stock Option Plan
(a) Restricted Common Stock
In 1999, the Company granted 1,860,000 shares of restricted common stock
to employees, directors
F-43
<PAGE>
SOFT PLUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
and consultants in exchange for an average purchase price of approximately
$0.45 per share. The restrictions give the Company the right to repurchase
the stock for the original consideration received and expire ratably over
a four-year vesting period. In general, vesting is accelerated after the
Company is acquired or undergoes an initial public offering.
(b) Stock and Stock Option Plan
In 1997, the Company adopted a stock option plan (the 1997 Plan) pursuant
to which the Company's Board of Directors may grant stock options to
employees, directors and consultants. The 1997 Plan authorizes grants of
options to purchase up to 3,000,000 shares of authorized but unissued
common stock.
In 1999, the Company adopted a stock option plan (the 1999 Plan) pursuant to
which the Company's Board of Directors may grant stock options and stock
purchase rights to employees, directors and consultants. The 1999 Plan
authorizes grants of options to purchase up to 4,000,000 shares of
authorized but unissued common stock.
In 1999, the Company adopted a stock plan (the 1999 Stock Plan) which
replaces the 1997 Plan and 1999 Plan. Under the 1999 Stock Plan the
Company's Board of Directors may grant stock options and stock purchase
rights to employees, directors and consultants. The 1999 Stock Plan
authorizes grants of options and rights to purchase up to 1,815,646 shares
of authorized but unissued common stock.
Options generally have 10-year terms, vest ratably and become fully
exercisable after four years from the date of grant.
As of December 31, 1999, there were 208,646 additional shares available
for grant under the Plans. The per share weighted-average fair value of
stock options granted during 1997, 1998 and 1999 was $0.011, $0.014 and
$11.304, respectively, on the date of grant using the Black-Scholes
option-pricing model (excluding a volatility assumption) with the
following weighted-average assumptions: 1997 - expected dividend yield 0%,
risk-free interest rate of 6.06%, and an expected life of 5 years; 1998 -
expected dividend yield 0%, risk-free interest rate of 4.88%, and an
expected life of 4 years; and 1999 - expected dividend yield 0%, risk-free
interest rate of 6.03%, and an expected life of 4 years.
Stock option activity is summarized as follows:
Weighted-
Average
Number of Exercise
Shares Price
------------- ----------
Balances as of December 31, 1996 -- $ --
Granted 1,063,500 0.05
Exercised --
Forfeited (184,000) 0.05
--------- -----
Balances as of December 31, 1997 879,500 0.05
Granted 2,171,000 0.05
Exercised (3,334) 0.05
Forfeited (281,666) 0.05
--------- -----
Balances as of December 31, 1998 2,765,500 0.05
Granted 2,761,000 0.60
Exercised (902,050) 0.05
Forfeited (894,487) 0.14
--------- -----
Balances as of December 31, 1999 3,729,963 $ 0.43
========= ======
F-44
<PAGE>
SOFT PLUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
<TABLE>
<CAPTION>
Options Outstanding
--------------------------------------------
Options Exercisable
Weighted- ----------------------
average Weighted- Weighted-
Range of Number of remaining average Number average
exercise options contractual exercise of exercise
prices outstanding life (years) price options price
- ----------------- ------------- -------------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
$ .05 - .60 3,729,963 9.3 $ 0.43 830,837 $ 0.19
</TABLE>
(c) Stock Compensation
The Company uses the intrinsic value method prescribed by APB Opinion No. 25
in accounting for its stock-based compensation arrangements for employees.
Compensation cost has been recognized for certain fixed stock options
issuances in 1999 in the accompanying financial statements because the
fair value of the underlying common stock exceeds the exercise price of
the stock options at the date of grant. No compensation cost has been
recognized for stock options granted at an exercise price equal to the
fair market value of the stock on the date of grant.
The Company has recorded deferred stock compensation expense of $55,544,000
for the difference at the grant date between the exercise price and the fair
value of the common stock underlying the restricted stock and options
granted for the year ended December 31, 1999. These amounts are being
amortized on a straight-line basis over the vesting period, generally four
years. Amortization of deferred compensation of approximately $2,846,000 was
recognized for the year ended December 31, 1999. The amortization of the
deferred compensation expense was allocated to the functional expense
categories based upon the employee's job classification.
Had compensation cost for the Company's stock-based compensation plan been
determined consistent with the fair value approach set forth in SFAS No.
123, the Company's net income (loss) for the three years ended December 31,
1999, would have been as follows (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
1997 1998 1999
-------- --------- ------------
<S> <C> <C> <C>
Net income (loss) as reported $ 153 $1,037 $ (3,197)
Addtional stock-based compensation under SFAS No. 123 -- -- (2,921)
APB No. 25 compensation expense recorded -- -- 2,846
----- ------ --------
Net income (loss) pro forma $ 153 $1,037 $ (3,272)
===== ====== ========
</TABLE>
<PAGE>
The fair value of each option was estimated on the date of grant using the
minimum value method with the following weighted-average assumptions: no
dividends, risk-free interest rate of 6.03% and expected life of four years
for the year ended December 31, 1999.
(d) Stock and Stock Option Recission
During 1999, the Company discovered that securities issued under the 1997
stock option plan and the 1999 stock option plan were issued in reliance on
the exemption from qualification in California provided by Section 25102(o) of
the California General Corporations Law. However, the notice required to be
filed in order to qualify for the exemption was not timely filed and
consequently, the exemption is not available to securities issued under the
Plans. The Company is in the process of granting a rescission offer to all of
the holders of the options issued under these Plans and all holders of stock
which was purchased pursuant to exercise of options issued under these Plans.
Each common stockholder will have the right to sell the common stock to the
Company at the exercise price per share plus 7% interest per annum. Each
option holder will have the right to sell his option to
F-45
<PAGE>
SOFT PLUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
the Company at 20% of the exercise price per share. At the conclusion of the
rescission offer process, outstanding options and stock issued pursuant to the
Plans will be deemed to comply with California General Corporations Law.
As of December 31, 1999, 905,384 shares of common stock outstanding and
options to purchase 2,116,963 shares of common stock were subject to
recession. As of March 1, 2000, 425,787 shares of common stock and options
to purchase 1,704,213 shares of common stock were deemed to comply with
California General Corporations law and are no longer subject to recession.
The process has not yet been completed with respect to the remaining shares
and options. As of March 1, 2000, no optionholder or common stockholder had
accepted the Company's offer to rescind.
(8) Income Taxes
Income tax expense for the years ended December 31, 1997, 1998 and 1999,
consisted of (in thousands):
Current Deferred Total
--------- ------------ ------------
1997:
U.S. federal $ 8 $ 77 $ 85
State and local 2 22 24
----- -------- --------
$ 10 $ 99 $ 109
===== ======== ========
1998:
U.S. federal $ 58 $ 493 $ 551
State and local 15 142 157
----- -------- --------
$ 73 $ 635 $ 708
===== ======== ========
1999:
U.S. federal $ 16 $ (1,039) $ (1,023)
State and local 10 (350) (340)
Foreign 161 -- 161
----- -------- --------
$ 187 $ (1,389) $ (1,202)
===== ======== ========
The types of temporary differences that give rise to significant portions of
the Company's deferred tax assets and liabilities are set out below (in
thousands):
<TABLE>
<CAPTION>
1998 1999
----------- ---------
<S> <C> <C>
Deferred tax assets:
Accruals and reserves $ -- $ 834
State income taxes -- (42)
Other -- --
Net operating loss and credit carryforwards -- 398
Plant and equipment -- 3
------- ------
Gross deferred tax assets -- 1,193
Valuation allowance -- --
------- ------
Total deferred tax assets -- 1,193
Deferred tax liabilities:
Cash to accrual adjustments (979) (816)
------- ------
Cash to accrual adjustments (979) (816)
------- ------
Net deferred tax (liabilities) assets $ (979) $ 377
======= ======
</TABLE>
The Company was using cash basis accounting for the purposes of disclosing the
federal and state income tax for the years ended December 31, 1997 and 1998.
As of January 1, 1999, the Company is disclosing its federal and state income
tax using the accrual method.
F-46
<PAGE>
SOFT PLUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The difference between the statutory income tax rate of 34% and the
Company's effective tax rate is primarily due to state taxes, tax credits
and non-deductible stock compensation.
As of December 31, 1999, the Company had no federal operating loss
carryforwards for income tax reporting purposes and California operating
loss carryforwards of approximately $212,000. The California net operating
loss carryforwards expire in 2004.
The Company also has research and experimental tax credit aggregating
approximately $143,000 and $109,000 for federal and California purposes,
respectively. The federal credit carryforwards expire beginning in 2013
through 2019. The California credits carry over indefinitely until utilized.
There are also foreign tax credit carryforwards of approximately $161,000;
these credits expire in 2004.
(9) Related Party Transactions
The Company outsources a portion of its research and development to Digitools
International Pvt. Ltd. (Digitools). Family members of the Company's
stockholders are directors of Digitools. The total amount of research and
development payments to Digitools for the years ended December 31, 1997, 1998
and 1999, was $250,000, $929,000 and $360,000, respectively.
The Company has notes receivable in the amount of $549,000 as of December 31,
1998 and 1999, from three of its officers in consideration for common and
preferred stock issued to those officers in December 1998. The notes related
to common stock and notes related to preferred stock are due in April 2007 and
December 2008, respectively, and bear interest at a rate of 8% per annum.
Amounts loaned by the Company are secured by personal assets of the officers.
The Company has notes receivable in the amount of $843,000 as of December 31,
1999, from ten of its officers and employees in consideration for common stock
issued to those individuals in 1999. The notes have various terms and bear
interest at various rates. Amounts loaned by the Company are secured by
personal assets of the individuals.
Notes receivables totaling $639,000 from certain officers are to be forgiven
by the Company upon a change in control of the Company. (See note 12.)
(10) Business and Credit Concentration
Financial instruments, which potentially subject the Company to concentrations
of credit risk, consist primarily of trade accounts receivable. The Company
has not experienced significant credit losses in the past.
Two and three customers each accounted for more than 10% and in total
accounted for approximately 60% in 1998 and 33% in 1999, of the Company's
total revenues and comprised 59% and 24% of accounts receivable, as of
December 31, 1998 and 1999, respectively.
(11) Pension and Other Benefit Plans
The Company has a 401(k) retirement plan covering substantially all of its
employees. An employee is eligible to participate as of their date of hire.
The administrative costs of this plan are paid by the Company. Effective in
1999 the Company agreed to match 20% of the first $3,000 of employee
contributions. During 1999 the Company contributed $20,000 to the plan.
The Company also sponsors a cafeteria plan which provide pretax benefits for
child care and unreimbursed medical expenses to substantially all employees.
The administrative costs are paid by the Company. The Company made no
contributions to this plan in 1997, 1998 or 1999.
F-47
<PAGE>
SOFT PLUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(12) Subsequent Event (unaudited)
On February 1, 2000, the Company signed an agreement to merge (the Merger)
with U.S. Interactive, Inc. (USIT). The Merger closed on March 8, 2000. The
consideration received by the shareholders of the Company in exchange for all
of the outstanding shares and options of the Company was $20,000,000 in cash,
$80,000,000 in a promissory note from USIT, 3.4 million shares of USIT common
stock and 1.4 million options to acquire shares of USIT common stock.
F-48
<PAGE>
U.S. INTERACTIVE INC.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
On March 8, 2000, the Company acquired by Merger (the Merger) Soft Plus,
Inc. (Soft Plus), a California corporation with headquarters in Cupertino,
California, which provides e-CRM solutions, primarily to wireless
communications providers, other companies in the emerging communications
industry and Internet service providers. The Company paid to the Soft Plus
shareholders: (i) 3.4 million shares of the Company's common stock and 1.4
million options to acquire shares of the Company's common stock with an
estimated combined fair value of $262 million, (ii) $20 million in cash, and
(iii) a one year unsecured $80 million note payable, with interest of 6.2%,
which is due and payable on the earlier of one year from the closing of the
Merger or the closing of an equity offering by the Company. As a result of the
Merger, Soft Plus became the Company's wholly owned Delaware subsidiary with
the name U.S. Interactive Corp. (Delaware). The Merger will be accounted for
using the purchase method of accounting. Accordingly, the purchase price will
be allocated to the fair value of the net assets acquired and liabilities
assumed. The balance of the purchase price will be allocated to goodwill and
other intangible assets and amortized over their estimated useful lives of
approximately five years.
The unaudited combined pro forma balance sheet as of December 31, 1999,
reflects the Merger as if it occurred on December 31, 1999. The pro forma
statement of operations for the year ended December 31, 1999, reflects the
Merger as if it occurred on January 1, 1999. Since the following pro forma
financial statements are based upon the operating results of Soft Plus during a
period when it was not under the control or management of the Company, the
information presented may not be indicative of the results which would have
actually been obtained had the Merger been completed on January 1, 1999, nor
are they indicative of future financial or operating results. The unaudited pro
forma financial information does not give effect to any synergies that may
occur due to the integration of the Company and Soft Plus. The combined pro
forma financial statements should be read in conjunction with the historical
audited consolidated financial statements and the notes thereto of the Company,
as well as the historical audited consolidated financial statements and the
notes thereto of Soft Plus included elsewhere in this Prospectus.
F-49
<PAGE>
U.S. INTERACTIVE, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
December 31, 1999
------------------------- Pro Forma Pro Forma
Company Soft Plus Adjustments Combined
----------- ----------- ------------------- ------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................. $ 34,130 $ 1,673 $ (25,850)(a) $ 9,953
Accounts receivable ........................ 12,274 6,363 18,637
Fees and expenditures in excess of
billings ................................. 353 40 393
Prepaid expenses and other current
assets ................................... 2,383 489 -- 2,872
--------- --------- ---------- ---------
Total current assets .................... 49,140 8,565 (25,850) 31,855
--------- --------- ---------- ---------
Furniture and equipment, net ................ 5,451 1,233 6,684
Goodwill and other intangibles, net ......... 5,988 -- 363,175 (b) 369,163
Other assets ................................ 1,699 2,353 -- 4,052
--------- --------- ---------- ---------
Total Assets ................................ $ 62,278 $ 12,151 $ 337,325 $ 411,754
========= ========= ========== =========
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ........................... $ 2,641 $ 1,176 $ 3,817
Accrued expenses ........................... 5,164 3,351 8,515
Notes payable .............................. -- 270 80,000 (a) 80,270
Current portion of long-term debt .......... 977 551 1,528
Deferred income taxes ...................... -- 123 123
Deferred revenue ........................... -- 268 268
Billings in excess of fees and
expenditures ............................. 1,854 -- 1,854
--------- --------- ---------- ---------
Total current liabilities ............... 10,636 5,739 80,000 96,375
LONG-TERM DEBT, net of current
portion .................................... 1,666 1,700 3,366
--------- --------- ---------- ---------
Total Liabilities ........................... 12,302 7,439 80,000 99,741
Minority interest ........................... -- 17 17
STOCKHOLDERS' EQUITY:
Preferred stock ............................. -- 3,555 (3,555)(b) --
Common stock ................................ 21 56,885 (56,885)(b) 24
3 (a)
Additional paid-in capital ................. 80,581 -- 262,017 (a) 342,598
Notes receivable ........................... -- (1,391) 1,391 (b) --
Deferred stock compensation ................ (831) (52,698) 52,698 (b) (831)
Treasury stock, at cost .................... (5,055) -- -- (5,055)
Accumulated deficit ........................ (24,740) (1,656) 1,656 (b) (24,740)
--------- --------- ---------- ---------
Total Stockholders' Equity ................. 49,976 4,695 257,325 311,996
--------- --------- ---------- ---------
Total Liabilities and Stockholders'
Equity ..................................... $ 62,278 $ 12,151 $ 337,325 $ 411,754
========= ========= ========== =========
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Financial Statements
F-50
<PAGE>
U.S. INTERACTIVE, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the Year ended December 31, 1999
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31, 1999
----------------------------------------------------------------
Pro Forma Pro Forma
Company(1) Soft Plus Adjustments Combined
------------ ----------- ----------------- ---------------
<S> <C> <C> <C> <C>
Revenue ............................ $ 35,255 $ 24,285 $ 59,540
Operating costs and expenses:
Project personnel and related
expense ......................... 18,687 13,364 32,051
Management and administrative 17,370 8,583 25,953
Research and development .......... -- 2,764 2,764
Selling and marketing ............. 3,531 3,656 7,187
Depreciation and amortization ..... 10,510 209 72,600 (c) 83,319
--------- -------- ------ ---------
Total operating expenses ........ 50,098 28,576 72,600 151,274
--------- -------- ------ ---------
Operating loss ..................... (14,843) (4,291) (72,600) (91,734)
Other income (expense) net ......... 454 (108) (5,000)(d) (4,654)
--------- -------- ------- ---------
Net loss before tax benefit ........ (14,389) (4,399) (77,600) (96,388)
Income tax benefit ................ -- 1,202 (1,202)(f) --
--------- -------- ------- ---------
Net loss ........................... (14,389) (3,197) (78,802) (96,388)
Accretion of mandatorily
redeemable preferred stock to
redemption value .................. (916) -- -- (916)
--------- -------- ------- ---------
Net loss attributable to common
stockholders ...................... $ (15,305) $ (3,197) $ (78,802) $ (97,304)
========= ======== ========= =========
Pro forma net loss per common
share:
Basic and diluted ................. $ (1.19) $ (6.00)
========= =========
Weighted average shares
outstanding ....................... 12,826 16,217(e)
========= =========
</TABLE>
(1) Actual for the year ended December 31, 1999 (which includes a full year of
Digital Evolution's results of operations)
See accompanying notes to Unaudited Pro Forma Combined Financial Statements
F-51
<PAGE>
U.S. INTERACTIVE, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. Basis of Presentation
The unaudited pro forma combined balance sheet as of December 31, 1999, gives
effect to the Merger as if it occurred on December 31, 1999. The unaudited
pro forma combined statement of operations for the year ended December 31,
1999, gives effect to the Merger as if it occurred on January 1, 1999.
The effects of the Merger have been presented using the purchase method of
accounting and accordingly the purchase price was allocated to the assets
acquired and liabilities assumed based upon management's best preliminary
estimate of their fair value. The preliminary allocation of the purchase
price will be subject to further adjustments, which are not anticipated to
be material, as the Company finalizes its allocation of its purchase price
in accordance with generally accepted accounting principles. The pro forma
adjustments related to the purchase price allocation of the Merger represent
management's best estimate of the effects of the Merger.
2. The pro forma balance sheet adjustments as of December 31, 1999, consist of:
(a) To record the consideration issued and paid by the Company in connection
with the Merger. Merger consideration consisted of the following (in
thousands):
Fair value of common stock and options issued $262,020
Cash paid at closing of the Merger 20,000
Note payable 80,000
Merger expenses 5,850
--------
Total consideration $367,870
========
(b) To eliminate the historical equity of Soft Plus and record the estimated
excess of the purchase price over the estimated fair value of the acquired
assets and assumed liabilities of $363 million which is recorded as
goodwill and other intangible assets. Such amount will be amortized over
its estimated useful life of approximately five years.
3. The pro forma statement of operations adjustments for the year ended
December 31, 1999, consist of:
(c) depreciation and amortization expense has been adjusted to reflect the
amortization of goodwill and other intangibles associated with the Merger,
which have an estimated useful life of five years ($363 million divided by
five years equals approximately $72.6 million per year).
(d) adjustment to reflect the interest expense on the $80 million note payable
issued in the Merger. Interest rate of 6.20% equals $5 million in interest
expense per year.
(e) basic and diluted weighted average common shares outstanding and net loss
per share amounts have been adjusted to reflect the issuance of the 3.4
million shares of the Company's common stock in connection with the
Merger, as if the shares had been outstanding from January 1, 1999.
(f) no income tax provision is required due to the Company's current tax loss
and the inability of the Company to currently use the benefits of its tax
loss carryforward.
F-52
<PAGE>
3,200,000 Shares
[GRAPHIC OMITTED]
Common Stock
-------------------------
PROSPECTUS
, 2000
-------------------------
LEHMAN BROTHERS
CHASE H&Q
DEUTSCHE BANC ALEX. BROWN
FIRST UNION SECURITIES, INC.
ADAMS, HARKNESS & HILL, INC.
<PAGE>
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses, other than
underwriting discounts and commissions, in connection with the issuance and
distribution of the securities being registered. All amounts shown are
estimated except the Securities and Exchange Commission registration fee, the
NASD filing fee and the Nasdaq National Market listing fee.
SEC registration fee ....................... $ 39,954
NASD filing fee ............................ 30,500
Transfer agent and registrar fees .......... 10,000
Printing and engraving ..................... 150,000
Legal fees ................................. 250,000
Nasdaq National Market listing fee ......... 17,500
Accounting fees ............................ 225,000
Miscellaneous .............................. 77,046
--------
Total .................................... $800,000
========
Item 14. Indemnification of Directors and Officers.
Under Section 145 of the Delaware General Corporation Law, as amended (the
"DGCL"), a corporation has the power to indemnify directors and officers under
certain prescribed circumstances and subject to certain limitations against
certain costs and expenses, including attorney's fees actually and reasonably
incurred in connection with any action, suit or proceeding, whether civil,
criminal, administrative or investigative, to which any of them is a party by
reason of being a director or officer of the corporation if it is determined
that the director or officer acted in accordance with the applicable standard
of conduct set forth in such statutory provision. Article IX of U.S.
Interactive's Amended and Restated Certificate of Incorporation provides that
U.S. Interactive will indemnify any person who was or is a party or is
threatened to be made a party to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he, or a
person for whom he is the legal representative is or was a director or officer
of U.S. Interactive, or is or was serving at the request of U.S. Interactive as
a director, officer, employee or agent of another entity, against certain
liabilities, costs and expenses.
Item 15. Recent Sales of Unregistered Securities.
During the past three years, U.S. Interactive has issued securities, as
set forth below, which were not registered for sale under the Securities Act:
Preferred Stock
On July 3, 1997, U.S. Interactive issued and sold a total of 446,779
shares of its Series B preferred stock (now the Series C preferred stock) to
three venture capital entities, Internet Capital Group, L.L.C., Technology
Leaders II L.P., and Technology Leaders II Offshore C.V. The total purchase
price for such shares was $750,000 in cash.
On October 6, 1997, U.S. Interactive issued and sold a total of 148,927
additional shares of its Series B preferred stock (now the Series C preferred
stock) to two venture capital entities, Technology Leaders II L.P., and
Technology Leaders II Offshore C.V. The total purchase price for such shares
was $250,000 in cash.
On September 22, 1998, U.S. Interactive issued and sold a total of
2,339,628 shares of its Series D preferred stock to a venture capital
partnership, Safeguard 98 Capital, L.P. The total purchase price for such
shares was $10,832,478 in cash.
II-1
<PAGE>
Each of these sales of preferred stock was made in reliance on the
exemption provided by Section 4(2) of the Securities Act, as a transaction not
involving a public offering of securities. No underwriting or selling fees or
commissions were paid by U.S. Interactive to any person in connection with the
sale of any of the preferred stock.
Option Exercises
Commencing in October 1998, U.S. Interactive issued a total of 93,903
shares of its common stock upon the exercise of options granted to employees
under its 1997 Stock Option Plan at exercise prices ranging from $1.50 to $3.50
per share for an aggregate exercise price of $161,854.50.
Acquisitions
In connection with three acquisitions, U.S. Interactive issued shares of
its common stock, shares of its preferred stock and stock options which were
not registered under the Securities Act in reliance upon the exemption provided
by Section 4(2) of the Securities Act. In each acquisition, the resale or other
transfer of the securities issued was restricted as necessary for the
availability of the Section 4(2) exemption. No underwriters or placement agents
were involved in connection with the issuance and sale of U.S. Interactive's
securities in the acquisitions.
a. Digital Evolution, Inc.
U.S. Interactive merged with Digital Evolution pursuant to an Agreement
and Plan of Merger dated as of July 2, 1998 which was privately negotiated
among the parties thereto. In connection with the merger, which became
effective as of July 2, 1998, U.S. Interactive issued to the three holders of
Digital Evolution common stock an aggregate of 4,383,954 shares of U.S.
Interactive common stock and to the three holders of Digital Evolution
preferred stock an aggregate of 1,573,533 shares of U.S. Interactive Series A
preferred stock. In addition, U.S. Interactive assumed the then outstanding
options to purchase Class B common stock of Digital Evolution which were held
by a total of approximately 118 persons, which options became options to
purchase a total of 1,044,247 shares of U.S. Interactive common stock.
U.S. Interactive intends to file a registration statement on Form S-8
under the Securities Act after the completion of its initial public offering of
common stock with respect to the shares of common stock issuable upon exercise
of the options which U.S. Interactive assumed in the merger with Digital
Evolution.
b. InVenGen LLC
On March 12, 1999, U.S. Interactive acquired the assets of InVenGen LLC,
an Internet professional services firm, pursuant to an Asset Purchase
Agreement. We issued 584,800 shares of our common stock in this acquisition,
which was accounted for using the purchase method of accounting. Under an
escrow agreement, 86,000 shares are being held to satisfy InVenGen's
indemnification obligations under the asset purchase agreement during the
one-year period following the closing.
In addition to the foregoing shares, 275,200 shares are being held in
escrow pending satisfaction of certain conditions relating to the continued
employment of the former InVenGen employees with U.S. Interactive during the
two-year period following the closing. Twenty-five percent of the shares are to
be released every six months if the conditions under the agreement are met.
c. Soft Plus
On March 8, 2000, we acquired by merger Soft Plus, with headquarters in
Cupertino, California, which provides e-CRM solutions, primarily to wireless
communications providers and other companies in the emerging communications
industry. We paid to the Soft Plus shareholders: (i) 3,391,106 unregistered
shares of our common stock, (ii) $20 million in cash, and (iii) an unsecured
$80 million note due to the former shareholders of Soft Plus. In addition, we
assumed the stock options which were outstanding under Soft Plus' stock option
plans, which became options to purchase a total of 1,408,866 shares of our
common stock in the Merger.
II-2
<PAGE>
Shareholders of Soft Plus holding a total of approximately 2,880,351
unregistered shares of our common stock which they received in the Merger
signed an agreement requiring them to hold their shares for up to two years,
with the restriction to lapse with respect to 25% of the shares every six
months beginning on a date six months following the closing of the Merger.
Under a registration rights agreement, we agreed to register for resale up to
25% of the shares of our stock which are subject to the lock-up restrictions
when we are eligible to register shares of our common stock on Form S-3. We
granted additional limited registration rights under a registration rights
agreement covering the shares of our common stock issued in the Merger.
Other
In July 1998, U.S. Interactive issued a warrant to purchase 70,000 shares
of its common stock at a price of $3.50 per share to a commercial bank in
connection with two credit facilities extended by the bank to U.S. Interactive.
The bank effected a cashless exercise of the warrant on March 6, 2000, as a
result of which U.S. Interactive issued 64,502 shares of its common stock to the
bank. U.S. Interactive issued the warrant, and subsequently issued the shares of
its common stock upon exercise of the warrant, in reliance on the exemption
provided by Section 4(2) of the Securities Act as a transaction not involving a
public offering of securities. No underwriting or selling fees or commissions
were paid by U.S. Interactive to any person in connection with the issuance or
exercise of the warrant.
II-3
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits.
Exhibits marked by an (*) are filed herewith. (Exhibits marked by a (+)
are to be filed by amendment. Unless otherwise indicated, all other exhibits are
incorporated herein by reference to the Registration Statement on Form S-1 filed
by U.S. Interactive, Inc. (Reg. No. 333-_______)
<TABLE>
<CAPTION>
Exhibit
Number Description
- -------- --------------------------------------------------------------------------------------------------------
<S> <C>
+ 1.1 Form of Underwriting Agreement
1.2 Standby Stock Purchase Agreement, by and between U.S. Interactive and Safeguard Scientifics,
dated August 9, 1999
3.1 Amended and Restated Certificate of Incorporation
3.2 Amended and Restated Bylaws
4.1 See exhibits 3.1 and 3.2 for provisions of the Certificate of Incorporation and Bylaws defining rights
of holders of Common Stock
4.3 Second Amended and Restated Investors' Rights Agreement dated as of July 2, 1998
5.1 Form (undated) of Opinion of Dilworth Paxson LLP
*10.1 2000 Performance Incentive Plan
10.2 1998 Performance Incentive Plan and form of Stock Option Agreement
10.3 1998 Stock Option Plan and forms of Stock Option Agreement and Stock Purchase Agreement
10.4 1997 Stock Option Plan and forms of Stock Option Agreement and Stock Purchase Agreement
10.5 1996 Stock Option Plan and forms of Stock Option Agreement and Stock Purchase Agreement
*10.6 1999 Stock Plan of Soft Plus
*10.7 1999 Stock Option Plan of Soft Plus
*10.8 1997 Stock Option Plan of Soft Plus
10.9 Lease Agreement, dated May 14, 1998, between U.S. Interactive and BET Investments II, L.P.
10.10 Employment Agreement, dated July 2, 1998, between U.S. Interactive and Eric Pulier
10.11 Employment Agreement, dated July 30, 1999, between U.S. Interactive and Stephen T. Zarrilli
10.12 Severance Agreement, dated May 18, 1999, between U.S. Interactive and Richard J. Masterson
10.13 Severance Agreement, dated February 26, 1999, between U.S. Interactive and Larry W. Smith
10.14 Lease Agreement, dated March 30, 1999, between U.S. Interactive and Norton Plaza Associates
10.15 Professional Services and Consulting Agreement, dated as of January 6, 1999, by and between U.S.
Interactive and Juggernaut Partners LLC (now Exist Corporation), certain portions of which have
been omitted based upon a request for confidential treatment. The omitted portions have been
separately filed with the Commission
10.16a Letter agreement between U.S. Interactive and Chromazone, dated April 6, 1999.
+10.16b Professional Services and Consulting Agreement dated September 1, 1999, by and between
U.S. Interactive and Chromazone
*10.17a Agreement and Plan of Merger dated February 1, 2000, by and among U.S. Interactive, Inc., First
Acquisition Co., Soft Plus, Inc., Mohan Uttarwar, Vijay Uttarwar, Vinay Deshpande and O.P.
Srinivasan
*10.17b Non-Negotiable Note, dated March 8, 2000, in the original principal amount of $80,000,000 by U.S.
Interactive, Inc., in favor of Mohan Uttarwar, as agent for the former Soft Plus Shareholders
*10.17c Registration Rights Agreement dated March 8, 2000, by and between U.S. Interactive, Inc., and a
certain stockholders of U.S. Interactive, Inc. owning more than 50,000 shares of the common stock
of U.S. Interactive acquired in the merger with the subsidiary of U.S. Interactive, Inc., First
Acquisition Co. (now known as U.S. Interactive Corp. (Delaware)) who delivered Lock-up and Mark-out
Agreements to U.S. Interactive, Inc., in connection with the merger
*10.17d Escrow Agreement, dated March 8, 2000, by and among Soft Plus, Inc., U.S. Interactive, Inc., First
Acquisition Co., Mohan Uttarwar, on behalf of the Soft Plus Shareholders, and The Chase Manhattan
Trust Company, National Association
*10.17e Form of Lock-up and Market-out Letter Agreement delivered by each former Soft Plus, Inc. share-
holder who received 50,000 or more shares of common stock in the triangular merger among Soft
Plus, Inc., First Acquisition Co. (now known as U.S. Interactive Corp. (Delaware)), and U.S. Inter-
active and desired to enter a Registration Rights Agreement with U.S. Interactive, Inc. in connection
with the merger.
*10.17f Employment Agreement, dated March 8, 2000, by and between U.S. Interactive, Inc. and Mohan
Uttarwar
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
*23.1 Consent of KPMG LLP, independent public accountants
*23.2 Consent of KPMG LLP, independent public accountants
*23.3 Consent of Dilworth Paxson LLP (contained in its opinion in exhibit 5.1)
*23.4 Consent of BDO Seidman, LLP, independent public accountants
24.1 Power of Attorney (included in signature pages hereof)
27.1 Financial Data Schedule
</TABLE>
(b) Financial Statement Schedule.
<TABLE>
<CAPTION>
Accounts Receivable Balance at Charged to
- Allowance for Beginning Costs and Writeoffs/ Balance at
doubtful accounts of Year Expenses Deductions End of Year
- ---------------------------------------------- ------------ ----------- --------------- ------------
<S> <C> <C> <C> <C>
For the year ended December 31, 1996 ......... $ -- $ 47,000 $ (7,000) $ 40,000
For the year ended December 31, 1997 ......... 40,000 157,539 (45,264) 152,275
For the year ended December 31, 1998 ......... 152,275 606,894 (233,133) 526,036
For the year ended December 31, 1999 ......... 526,036 588,320 (1,039,356) 75,000
</TABLE>
Item 17. Undertakings.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of U.S.
Interactive pursuant to the foregoing provisions, or otherwise, U.S.
Interactive has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by U.S. Interactive of
expenses incurred or paid by a director, officer or controlling person of U.S.
Interactive in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, U.S. Interactive will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
U.S. Interactive hereby undertakes to provide to the underwriters at the
closing specified in the underwriting agreement, certificates in such
denomination and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
U.S. Interactive hereby undertakes that:
(i) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by U.S. Interactive pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(ii) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
U.S. Interactive has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in King of Prussia,
Upper Merion Township, Commonwealth of Pennsylvania on this 10th day of March,
2000.
U.S. INTERACTIVE, INC.
By: /s/ Stephen T. Zarrilli
--------------------------
Stephen T. Zarrilli
Chief Executive Officer and
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
EACH PERSON IN SO SIGNING ALSO MAKES, CONSTITUTES AND APPOINTS STEPHEN T.
ZARRILLI AND PHILIP L. CALAMIA, AND EACH OF THEM ACTING ALONE, HIS OR HER TRUE
AND LAWFUL ATTORNEY-IN-FACT, WITH FULL POWER OF SUBSTITUTION, TO EXECUTE AND
CAUSE TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO THE
REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, ANY AND ALL AMENDMENTS
AND POST- EFFECTIVE AMENDMENTS TO THIS REGISTRATION STATEMENT, AND INCLUDING
ANY REGISTRATION STATEMENT FOR THE SAME OFFERING THAT IS TO BE EFFECTIVE UPON
FILING PURSUANT TO RULE 462(b) UNDER THE SECURITIES ACT, WITH EXHIBITS THERETO
AND OTHER DOCUMENTS IN CONNECTION THEREWITH, AND HEREBY RATIFIES AND CONFIRMS
ALL THAT SAID ATTORNEY-IN-FACT OR HIS OR HER SUBSTITUTE OR SUBSTITUTES MAY DO
OR CAUSE TO BE DONE BY VIRTUE HEREOF.
<TABLE>
<CAPTION>
Name Capacity Date
- ---------------------------------------------- ----------------------------------------------------- ---------------
<S> <C> <C>
/s/ Eric Pulier
- ------------------------- Director, Chairman of the Board March 10, 2000
Eric Pulier
/s/ Stephen T. Zarrilli
- ------------------------- Director, Chief Executive Officer and President March 10, 2000
Stephen T. Zarrilli (principal executive officer)
/s/ Philip L. Calamia
- ------------------------- Senior Vice President and Chief Financial Officer March 10, 2000
Philip L. Calamia (principal financial and accounting officer)
/s/ Mohan Uttarwar
- ------------------------- Director, President of subsidiary U.S. Interactive, March 10, 2000
Mohan Uttarwar Corp. (Delaware)
/s/ Robert E. Keith, Jr.
- ------------------------- Director March 10, 2000
Robert E. Keith, Jr.
/s/ John D. Shulman
- ------------------------- Director March 10, 2000
John D. Shulman
/s/ E. Michael Forgash
- ------------------------- Director March 10, 2000
E. Michael Forgash
/s/ John H. Klein
- ------------------------- Director March 10, 2000
John H. Klein
/s/ William C. Jennings
- ------------------------- Director March 10, 2000
William C. Jennings
/s/ Robert V. Napier
- ------------------------- Director March 10, 2000
Robert V. Napier
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
Exhibits marked by an (*) are filed herewith. (Exhibits marked by a (+)
are to be filed by amendment. Unless otherwise indicated, all other exhibits are
incorporated herein by reference to the Registration Statement on Form S-1 filed
by U.S. Interactive, Inc. (Reg. No. 333-78751)
<TABLE>
<CAPTION>
Exhibit
Number Description
- -------- --------------------------------------------------------------------------------------------------------
<S> <C>
+ 1.1 Form of Underwriting Agreement
1.2 Standby Stock Purchase Agreement, by and between U.S. Interactive and Safeguard Scientifics,
dated August 9, 1999
3.1 Amended and Restated Certificate of Incorporation
3.2 Amended and Restated Bylaws
4.1 See exhibits 3.1 and 3.2 for provisions of the Certificate of Incorporation and Bylaws defining rights
of holders of Common Stock
4.3 Second Amended and Restated Investors' Rights Agreement dated as of July 2, 1998
5.1 Form (undated) of Opinion of Dilworth Paxson LLP
*10.1 2000 Performance Incentive Plan and form of Stock Option Agreement
10.2 1998 Performance Incentive Plan and form of Stock Option Agreement
10.3 1998 Stock Option Plan and forms of Stock Option Agreement and Stock Purchase Agreement
10.4 1997 Stock Option Plan and forms of Stock Option Agreement and Stock Purchase Agreement
10.5 1996 Stock Option Plan and forms of Stock Option Agreement and Stock Purchase Agreement
*10.6 1999 Stock Plan of Soft Plus and form of Stock Option Agreement
*10.7 1999 Stock Option Plan of Soft Plus and form of Stock Option Agreement
*10.8 1997 Stock Option Plan of Soft Plus and form of Stock Option Agreement
10.9 Lease Agreement, dated May 14, 1998, between U.S. Interactive and BET Investments II, L.P.
10.10 Employment Agreement, dated July 2, 1998, between U.S. Interactive and Eric Pulier
10.11 Employment Agreement, dated July 30, 1999, between U.S. Interactive and Stephen T. Zarrilli
10.12 Severance Agreement, dated May 18, 1999, between U.S. Interactive and Richard J. Masterson
10.13 Severance Agreement, dated February 26, 1999, between U.S. Interactive and Larry W. Smith
10.14 Lease Agreement, dated March 30, 1999, between U.S. Interactive and Norton Plaza Associates
10.15 Professional Services and Consulting Agreement, dated as of January 6, 1999, by and between U.S.
Interactive and Juggernaut Partners LLC (now Exist Corporation), certain portions of which have
been omitted based upon a request for confidential treatment. The omitted portions have been
separately filed with the Commission
10.16a Letter agreement between U.S. Interactive and Chromazone, dated April 6, 1999.
+10.16b Professional Services and Consulting Agreement dated September 1, 1999, by and between
U.S. Interactive and Chromazone
*10.17a Agreement and Plan of Merger dated February 1, 2000, by and among U.S. Interactive, Inc., First
Acquisition Co., Soft Plus, Inc., Mohan Uttarwar, Vijay Uttarwar, Vinay Deshpande and O.P.
Srinivasan
*10.17b Non-Negotiable Note, dated March 8, 2000, in the original principal amount of $80,000,000 by U.S.
Interactive, Inc., in favor of Mohan Uttarwar, as agent for the former Soft Plus Shareholders
*10.17c Registration Rights Agreement dated March 8, 2000, by and between U.S. Interactive, Inc., and a
certain stockholders of U.S. Interactive, Inc. owning more than 50,000 shares of the common stock
of U.S. Interactive acquired in the merger with the subsidiary of U.S. Interactive, Inc., First
Acquisition Co. (now known as U.S. Interactive Corp. (Delaware)) who delivered Lock-up and Mark-out
Agreements to U.S. Interactive, Inc., in connection with the merger
*10.17d Escrow Agreement, dated March 8, 2000, by and among Soft Plus, Inc., U.S. Interactive, Inc., First
Acquisition Co., Mohan Uttarwar, on behalf of the Soft Plus Shareholders, and The Chase Manhattan
Trust Company, National Association
*10.17e Form of Lock-up and Market-out Letter Agreement delivered by each former Soft Plus, Inc. share-
holder who received 50,000 or more shares of common stock in the triangular merger among Soft
Plus, Inc., First Acquisition Co. (now known as U.S. Interactive Corp. (Delaware)), and U.S. Inter-
active and desired to enter a Registration Rights Agreement with U.S. Interactive, Inc. in connection
with the merger.
*10.17f Employment Agreement, dated March 8, 2000, by and between U.S. Interactive, Inc. and Mohan
Uttarwar
*23.1 Consent of KPMG LLP, independent public accountants
*23.2 Consent of KPMG LLP, independent public accountants
*23.3 Consent of Dilworth Paxson LLP (contained in its opinion in exhibit 5.1)
*23.4 Consent of BDO Seidman, LLP, independent public accountants
24.1 Power of Attorney (included in signature pages hereof)
27.1 Financial Data Schedule
</TABLE>
<PAGE>
[FORM OF OPINION]
[LETTERHEAD OF DILWORTH PAXSON LP]
Exhibit 5.1
______, 2000
The Board of Directors
U.S. Interactive, Inc.
2012 Renaissance Boulevard
King of Prussia, PA 19406
RE: Issuance and Sale of Common Stock Pursuant to
Registration Statement on Form S-1
---------------------------------------------
Dear Sirs:
We have acted as counsel for U.S. Interactive, Inc., a Delaware
corporation (the "Company"), in connection with the preparation of the
Registration Statement on Form S-1 (Registration No. 333- ) filed by the
Company with the Securities and Exchange Commission pursuant to the Securities
Act of 1933, as amended, relating to the underwritten, public offering (the
"Offering") of up to a total of 3,650,000 shares (including certain shares
issuable upon exercise of an over-allotment option) (the "Shares"), of the
Company's Common Stock, par value $.001 per share. The Registration Statement
was initially filed on March 10, 2000. (The Registration Statement, as amended
to date, most recently by Amendment No. _ dated _______, 2000, including all
exhibits thereto, is referred to below as the "Registration Statement.")
The Shares consist of: (i) 3,000,000 previously unissued Shares to be
sold by the Company to underwriters whose representatives are named in the
Prospectus constituting a part of the Registration Statement (the "Underwriters'
Shares"); (ii) a total of 200,000 presently outstanding Shares to be sold by a
the Selling Stockholder named in the Registration Statement (the "Secondary
Shares"); and (iii) up to a total of 450,000 Shares issuable upon exercise of a
thirty-day option to be granted by the Company to the underwriters (the
"Over-allotment Shares") solely for the purpose of covering over-allotments.
In this connection, we have examined: (i) the Company's Amended and
Restated Certificate of Incorporation and Amended and Restated By-laws, each as
in effect on the date hereof; (ii) the resolutions and related minutes of the
Company's Board of Directors authorizing the Offering, the preparation and
filing of the Registration Statement, and the issuance of the Underwriters'
Shares, and the Over-allotment Shares; (iii) the Registration Statement,
including, among other exhibits, the form of Underwriting Agreement and (iv)
certain officers' certificates, corporate records and such other records and
documents as we have deemed appropriate or necessary for purposes of rendering
the opinions hereinafter expressed.
In rendering the opinions expressed below, we have assumed the
authenticity of all documents and records examined, the conformity with the
original documents of all documents submitted to us as copies and the
genuineness of all signatures.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Underwriters' Shares have been duly authorized for
issuance and, when sold, paid for and delivered in accordance
with the terms of the Underwriting Agreement, will be legally
issued, fully paid and non-assessable;
2. The Secondary Shares are legally issued, and when sold, paid
for and delivered in accordance with the terms of the
Underwriting Agreement, will be fully paid and non-assessable;
and
3. The Over-allotment Shares have been duly authorized for
issuance and, if and when sold, paid for and delivered in
accordance with the terms of the Underwriting Agreement, will
be legally issued, fully paid and non-assessable.
We are admitted to practice in the Commonwealth of Pennsylvania. We
have made such investigation of the General Corporate Law of the State of
Delaware (the "Delaware GCL") as we have considered appropriate for the purpose
of rendering the opinions expressed above. This opinion is limited to the
Delaware GCL, the applicable provisions of the Delaware Constitution decisions
interpreting the Delaware GCL and the Delaware Constitution.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference made to this Firm under the caption
"Legal Matters" in the Prospectus constituting a part of the Registration
Statement.
Sincerely yours,
cc. Lawrence F. Shay,
Senior Vice President,
General Counsel
and Secretary
<PAGE>
2000 Performance Incentive Plan
Of U.S. Interactive, Inc.
1. PURPOSE.
The purposes of the 2000 Performance Incentive Plan (the "Plan") of U.S.
Interactive, Inc. (the "Company") are to advance the interests of the Company
and its shareholders by strengthening the ability of the Company to attract,
retain and reward employees, to motivate employees to achieve business
objectives established to promote the long-term growth, profitability and
success of the Company, and to encourage ownership of the Common Stock of the
Company by participating employees. The Plan authorizes performance-based stock
and cash incentive compensation in the form of stock options, stock appreciation
rights, restricted stock, performance grants and awards, and other stock-based
grants and awards. Officers of the Company and members of the Board of Directors
are not permitted to participate in this Plan.
2. DEFINITIONS.
For the purposes of the Plan, the following terms shall have the following
meanings:
(a) "ADJUSTED NET INCOME" means, with respect to any calendar or other fiscal
year of the Company, the amount reported as "Net Income" in the audited
Consolidated Income Statement of the Company and Subsidiaries for such year (as
set forth in the Company's Annual Report to Shareholders for such year),
adjusted to exclude any of the following items: (i) extraordinary items (as
described in Accounting Principles Board Opinion No. 30); (ii) gains or losses
on the disposition of discontinued operations; (iii) the cumulative effects of
changes in accounting principles; (iv) the writedown of any asset; and (v)
charges for restructuring and rationalization programs.
(b) "ANNUAL NET INCOME PER SHARE" means, with respect to any calendar or other
fiscal year of the Company in respect of which a determination thereof is being
or to be made, the Adjusted Net Income for such year divided by the average
number of shares of Common Stock outstanding during such year.
(c) "AWARD" means any payment or settlement in respect of a grant made pursuant
to the Plan, whether in the form of shares of Common Stock or in cash, or in any
combination thereof.
(d) "BOARD OF DIRECTORS" means the Board of Directors of the Company.
(e) "CAUSE", unless otherwise determined by the Committee, means (i) a
Participant's action or failure to act which (a) would materially adversely
affect the reputation, operations or financial condition of the Company or any
of its Subsidiaries; (ii) a willful failure by the Participant to perform such
Participant's duties, except as a result of the Disability or death of the
Participant; or (iii) a Participant's theft, embezzlement, perpetration of
fraud, or misappropriation of any tangible or intangible assets or property of
the Company or any of its Subsidiaries or attempted theft, embezzlement,
perpetration of fraud, or misappropriation of any tangible or intangible assets
or property of the Company or any of its Subsidiaries. In addition, and without
limiting any of the foregoing, "Cause" for purposes of this Plan shall also mean
"Cause" as that term is defined in a Participant's employment agreement, if any,
with the Company or a Subsidiary.
(f) "CODE" means the Internal Revenue Code of 1986, as amended and in effect
from time to time, or any successor statute thereto, together with the published
rulings, regulations and interpretations duly promulgated thereunder.
<PAGE>
(g) "COMMITTEE" means the committee of the Board of Directors established and
constituted as provided in Section 5 of the Plan.
(h) "COMMON STOCK" means the common stock, $.001 par value, of the Company, or
any security issued by the Company in substitution or exchange therefore or in
lieu thereof.
(i) "COMMON STOCK EQUIVALENT" means a Unit (or fraction thereof, if authorized
by the Committee) substantially equivalent to a hypothetical share of Common
Stock, credited to a Participant and having a value at any time equal to the
Fair Market Value of a share of Common Stock (or such fraction thereof) at such
time.
(j) "COMPANY" means U.S. Interactive, Inc. a Delaware corporation, or any
successor corporation.
(k) "COVERED EMPLOYEE" means any person who is a "covered employee" within the
meaning of Section 162(m) of the Code.
(l) "CUMULATIVE NET INCOME" means, in respect of any Performance Period, the
aggregate cumulative amount of the Adjusted Net Income for the calendar or other
fiscal years of the Company during such Performance Period
(m) "CUMULATIVE NET INCOME PER SHARE" means, in respect of any Performance
Period, the aggregate cumulative amount of the Annual Net Income Per Share for
the calendar or other fiscal years of the Company during such Performance
Period.
(n) "DISABILITY" shall mean permanent and total disability, as defined in
Section 22(e) of the Code.
(o) "DIVIDEND EQUIVALENT" means, in respect of a Common Stock Equivalent and
with respect to each dividend payment date for the Common Stock, an amount equal
to the cash dividend on one share of Common Stock payable on such dividend
payment date.
(p) "EMPLOYEE" means any individual who is on the active payroll of the Company
or a Subsidiary at the relevant time, but excluding any officer of the Company
and any member of the Board of Directors.
(q) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended and in
effect from time to time, including all rules and regulations promulgated
thereunder.
(r) "FAIR MARKET VALUE" means, in respect of any date on or as of which a
determination thereof is being or to be made, the average of the high and low
per share sale prices of the Common Stock reported on the exchange on which such
shares are traded on such date (if the grant date is not a business trading day,
the determination shall be made based upon the relevant data for the next
preceding trading day), or, if the Common Stock was not traded on such date, the
average of the highest bid and the lowest ask per share price reported for such
date on the exchange on which such shares of Common Stock are traded. If the
Common Stock is not traded on an exchange, the Fair Market Value shall be that
determined by the Committee in good faith based on such factors as the members
thereof, in the exercise of their business judgment, consider relevant.
<PAGE>
(s) "INCENTIVE STOCK OPTION" means any option to purchase shares of Common Stock
granted pursuant to the provisions of Section 6 of the Plan that is intended to
be and is specifically designated as an "incentive stock option" within the
meaning of Section 422 of the Code; provided, however, no option shall be an
incentive stock option unless approval by the stockholders of the Company is
obtained within twelve (12) months after the effective date of this Plan.
(t) "NON-QUALIFIED STOCK OPTION" means any option to purchase shares of Common
Stock granted pursuant to the provisions of Section 6 of the Plan that is not an
Incentive Stock Option.
(u) "OPTION AGREEMENT" has the meaning ascribed thereto in Section 6(a) of the
Plan.
(v) "PARTICIPANT" means any Employee of the Company or a Subsidiary who receives
a grant or Award under the Plan.
(w) "PERFORMANCE GRANT" means a grant made pursuant to Section 9 of the Plan,
the Award of which is contingent on the achievement of specific Performance
Goals during a Performance Period, determined using a specific Performance
Measure, all as specified in the grant agreement relating thereto.
(x) "PERFORMANCE GOALS" mean, with respect to any applicable grant made pursuant
to the Plan, the one or more targets, goals or levels of attainment required to
be achieved in terms of the specified Performance Measure during the specified
Performance Period, all as set forth in the related grant agreement.
(y) "PERFORMANCE MEASURE" means, with respect to any applicable grant made
pursuant to the Plan, one or more of the criteria identified at Section 9(c) of
the Plan selected by the Committee for the purpose of establishing, and
measuring attainment of, Performance Goals for a Performance Period in respect
of such grant, as provided in the related grant agreement.
(z) "PERFORMANCE PERIOD" means, with respect to any applicable grant made
pursuant to the Plan, the one or more periods of time, which may be of varying
and overlapping durations, as the Committee may select during which the
attainment of one or more Performance Goals will be measured to determine
whether, and the extent to which, a Participant is entitled to receive payment
of an Award pursuant to such grant.
(aa) "PLAN" means this 2000 Performance Incentive Plan of the Company, as set
forth herein and as hereafter amended from time to time in accordance with the
terms hereof.
(bb) "RESTRICTED STOCK" means shares of Common Stock issued pursuant to a
Restricted Stock Grant under Section 8 of the Plan so long as such shares remain
subject to the restrictions and conditions specified in the grant agreement
pursuant to which such Restricted Stock Grant is made.
<PAGE>
(cc) "RESTRICTED STOCK GRANT" means a grant made pursuant to the provisions of
Section 8 of the Plan.
(dd) "STOCK APPRECIATION RIGHT" means a grant in the form of a right to benefit
from the appreciation of the Common Stock made pursuant to Section 7 of the
Plan.
(ee) "STOCK OPTION" means and includes any Non-Qualified Stock Option and any
Incentive Stock Option granted pursuant to Section 6 of the Plan.
(ff) "SUBSIDIARY" means any corporation or entity in which the Company directly
or indirectly owns or controls 50% or more of the equity securities issued by
such corporation or entity having the power to vote for the election of
directors.
(gg) "UNIT" means a bookkeeping entry used by the Company to record and account
for the grant, settlement or, if applicable, deferral of an Award until such
time as such Award is paid, cancelled, forfeited or terminated, as the case may
be, which, except as otherwise specified by the Committee, shall be equal to one
Common Stock Equivalent.
3. EFFECTIVE DATE; TERM.
(a) EFFECTIVE DATE. The Plan shall be effective upon approval by the Board of
Directors.
(b) TERM. The Plan shall remain in effect until December 31, 2019, unless sooner
terminated by the Board of Directors. Termination of the Plan shall not affect
grants and Awards then outstanding.
4. SHARES OF COMMON STOCK SUBJECT TO PLAN.
(a) MAXIMUM NUMBER OF SHARES AVAILABLE FOR ISSUANCE UNDER THE PLAN. The maximum
aggregate number of shares of Common Stock which may be issued pursuant to the
Plan, subject to adjustment as provided in Section 4(b) of the Plan, shall be
four million, plus (i) any shares of Common Stock issued under the Plan that are
forfeited back to the Company or are cancelled, and (ii) any shares of Common
Stock that are tendered, whether by physical delivery or by attestation, to the
Company by a Participant as full or partial payment of the exercise price of any
Stock Option granted pursuant to the Plan, in connection with the payment or
settlement of any other grant or Award made pursuant to the Plan, or in payment
of any applicable withholding for federal, state, city, local or foreign income,
payroll or other taxes incurred in connection with the exercise of any Stock
Option or Stock Appreciation Right granted under the Plan or the receipt or
settlement of any other grant or Award under the Plan. The shares of Common
Stock which may be issued under the Plan may be authorized and unissued shares
or issued shares which have been reacquired by the Company. No fractional share
of the Common Stock shall be issued under the Plan. Awards of fractional shares
of the Common Stock, if any, shall be settled in cash.
<PAGE>
(b) ADJUSTMENTS UPON CHANGES IN CAPITAL STRUCTURE. In the event of any change in
the capital structure, capitalization or Common Stock of the Company such as a
stock dividend, stock split, recapitalization, merger, consolidation, split-up,
combination or exchange of shares or other form of reorganization, or any other
change affecting the Common Stock, such proportionate adjustments, if any, as
the Board of Directors in its discretion may deem appropriate to reflect such
change shall be made with respect to: (i) the maximum number of shares of Common
Stock which may be (1) issued pursuant to the Plan, (2) the subject of any type
of grant or Award under the Plan, and (3) granted, Awarded or issued to any
Participant pursuant to any provision of the Plan; (ii) the number of shares of
Common Stock subject to any outstanding Stock Option, Stock Appreciation Right
or other grant or Award made to any Participant under the Plan; (iii) the per
share exercise price in respect of any outstanding Stock Options and Stock
Appreciation Rights; (iv) the number of shares of Common Stock and the number of
Units or the value of such Units, as the case may be, which are the subject of
grants and Awards then outstanding under the Plan; and (v) any other term or
condition of any grant affected by any such change.
5. ADMINISTRATION.
(a) THE COMMITTEE. The Plan shall be administered by the Committee to be
appointed from time to time by the Board of Directors and, except as provided
herein, comprised of not less than two of the then members of the Board of
Directors who qualify as "non-employee directors" within the meaning of Rule
16b-3 promulgated under the Exchange Act and as "outside directors" within the
meaning of Section 162(m) of the Code. Members of the Committee shall serve at
the pleasure of the Board of Directors. The Board of Directors may from time to
time remove members from, or add members to, the Committee. A majority of the
members of the Committee shall constitute a quorum for the transaction of
business and the acts of a majority of the members present at any meeting at
which a quorum is present shall be the acts of the Committee. Any one or more
members of the Committee may participate in a meeting by conference telephone or
similar means where all persons participating in the meeting can hear and speak
to each other, which participation shall constitute presence in person at such
meeting. Action approved in writing by a majority of the members of the
Committee then serving shall be fully as effective as if the action had been
taken by unanimous vote at a meeting duly called and held. The Company shall
make grants and effect Awards under the Plan in accordance with the terms and
conditions specified by the Committee, which terms and conditions shall be set
forth in grant agreements and/or other instruments in such forms as the
Committee shall approve.
<PAGE>
(b) COMMITTEE POWERS. The Committee shall have full power and authority to
operate and administer the Plan in accordance with its terms. The powers of the
Committee include, but are not limited to, the power to: (i) select Participants
from among the Employees of the Company and Subsidiaries; (ii) establish the
types of, and the terms and conditions of, all grants and Awards made under the
Plan, subject to any applicable limitations set forth in, and consistent with
the express terms of, the Plan; (iii) make grants and pay or otherwise effect
Awards subject to, and consistent with, the express provisions of the Plan; (iv)
establish Performance Goals, Performance Measures and Performance Periods,
subject to, and consistent with, the express provisions of the Plan; (v) reduce
the amount of any grant or Award; (vi) prescribe the form or forms of grant
agreements and other instruments evidencing grants and Awards under the Plan;
(vii) pay and to defer payment of Awards on such terms and conditions, not
inconsistent with the express terms of the Plan, as the Committee shall
determine; (viii) direct the Company to make conversions, accruals and payments
pursuant to the Plan; (ix) construe and interpret the Plan and make any
determination of fact incident to the operation of the Plan; (x) promulgate,
amend and rescind rules and regulations relating to the implementation,
operation and administration of the Plan; (xi) adopt such modifications,
procedures and subplans as may be necessary or appropriate to comply with the
laws of other countries with respect to Participants or prospective Participants
employed in such other countries; (xii) delegate to other persons the
responsibility for performing administrative or ministerial acts in furtherance
of the Plan; (xiii) engage the services of persons and firms, including banks,
consultants and insurance companies, in furtherance of the Plan's activities;
and (xiv) make all other determinations and take all other actions as the
Committee may deem necessary or advisable for the administration and operation
of the Plan. In making these determinations, the Committee shall take into
account any limitations on the issuance of grants and Awards that may exist as a
result of agreements entered into by the Company.
(c) COMMITTEE's DECISIONS FINAL. Any determination, decision or action of the
Committee in connection with the construction, interpretation, administration or
application of the Plan, and of any grant agreement, shall be final, conclusive
and binding upon all participants, and all persons claiming through
Participants, affected thereby.
(d) ADMINISTRATIVE ACCOUNTS. For the purpose of accounting for Awards deferred
as to payment, the Company shall establish bookkeeping accounts expressed in
Units bearing the name of each Participant receiving such Awards. Each account
shall be unfunded, unless otherwise determined by the Committee in accordance
with Section 15(d) of the Plan.
(e) CERTIFICATIONS. In respect of each grant under the Plan to a Covered
Employee which the Committee intends to be "performance based compensation"
under Section 162(m) of the Code, the provisions of the Plan and the related
grant agreement shall be construed to confirm such intent, and to conform to the
requirements of Section 162(m) of the Code, and the Committee shall certify in
writing (which writing may include approved minutes of a meeting of the
Committee) that the applicable Performance Goal(s), determined using the
Performance Measure specified in the related grant agreement, was attained
during the relevant Performance Period at a level that equaled or exceeded the
level required for the payment of such Award in the amount proposed to be paid
and that such Award does not exceed any applicable Plan limitation.
<PAGE>
6. STOCK OPTIONS.
(a) IN GENERAL. Options to purchase shares of Common Stock may be granted under
the Plan and may be Incentive Stock Options or Non-Qualified Stock Options. All
Stock Options shall be subject to the terms and conditions of this Section 6 and
shall contain such additional terms and conditions, not inconsistent with the
express provisions of the Plan, as the Committee shall determine. Each Option
granted hereunder to a Participant shall be embodied in a written option
agreement ("Option Agreement"), signed by the Participant and by a duly
authorized officer of the Company. Stock Options may be granted in addition to,
or in tandem with or independent of Stock Appreciation Rights or other grants
and Awards under the Plan. The Committee may grant Stock Options that provide
for the automatic grant of a replacement Stock Option if payment of the exercise
price and/or any related withholding taxes is made by tendering (whether by
physical delivery or by attestation) shares of Common Stock or by having shares
of Common Stock withheld by the Company. The replacement Stock Option would
cover the number of shares of Common Stock tendered or withheld, would have a
per share exercise price equal to at least 100% of the Fair Market Value of a
share of Common Stock on the date of the exercise of the original Stock Option,
and would have such other terms and conditions as may be specified by the
Committee and set forth in the related grant agreement.
(b) ELIGIBILITY AND LIMITATIONS. Any Employee of the Company or a Subsidiary may
be granted Stock Options. The Committee shall determine, in its discretion, the
Employees to whom Stock Options will be granted, the timing of such grants, and
the number of shares of Common Stock subject to each Stock Option granted;
provided, that (i) the maximum aggregate number of shares of Common Stock which
may be issued and delivered upon the exercise of Non-Qualified Stock Options
granted under the Plan shall be four million, (ii) the maximum aggregate number
of shares of Common Stock which may be issued and delivered upon the exercise of
Incentive Stock Options shall be four million, (iii) the maximum number of
shares of Common Stock in respect of which Stock Options may be granted to any
Employee during any calendar year shall be 400,000, and (iv) in respect of
Incentive Stock Options, the aggregate Fair Market Value (determined as of the
date the Incentive Stock Option is granted) of the shares of Common Stock with
respect to which an Incentive Stock Option becomes exercisable for the first
time by a Participant during any calendar year shall not exceed $100,000, or
such other limit as may be required by the Code, except that, if authorized by
the Committee and provided for in the related grant agreement, any portion of
any Incentive Stock Option that cannot be exercised as such because of this
limitation may be converted into and exercised as a Non-Qualified Stock Option.
In no event shall any Stock Option or Stock Appreciation Right be granted to a
Participant in exchange for the Participant's agreement to the cancellation of
one or more Stock Options or Stock Appreciation Rights then held by such
Participant if the exercise price of the new grant is lower than the exercise
price of the grant to be cancelled and in no event shall any Stock Option or
Stock Appreciation Right be amended to reduce the option price, except as
contemplated by Section 4(b) of the Plan.
<PAGE>
(c) OPTION EXERCISE PRICE. The per share exercise price of each Stock Option
granted under the Plan shall be determined by the Committee prior to or at the
time of grant, but in no event shall the per share exercise price of any Stock
Option be less than 100% of the Fair Market Value of the Common Stock on the
date of the grant of such Stock Option. The exercise price of an Incentive Stock
Option issued to any Employee owning more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company shall be 110% of
the Fair Market Value of the Common Stock on the date of the grant of such Stock
Option.
(d) OPTION TERM. The term of each Stock Option shall be fixed by the Committee;
except that in no event shall the term of any Incentive Stock Option exceed ten
years after the date such Incentive Stock Option is granted, or five years in
the case of an Employee owning more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company. Any Option granted more
than 10 years from the effective date of the Plan will be a Non-Qualified Stock
Option.
(e) EXERCISABILITY. A Stock Option shall be exercisable at such time or times
and subject to such terms and conditions as shall be determined by the Committee
at the date of grant; provided, however, that no Stock Option shall be
exercisable during the first six months after the date such Stock Option is
granted. Unless the Committee specifies otherwise in the Option Agreement, every
Option granted pursuant to this Plan will vest and become exercisable with
respect to 25% of the Common Stock issuable upon exercise thereof (rounded to
the nearest whole share; rounded up in the event of a half-share) on each of the
first, second and third anniversaries of the date of grant and the remainder
shall vest on the fourth anniversary of the date of grant.
(f) EARLY EXPIRATION UPON TERMINATION OF EMPLOYMENT. Except as otherwise
provided in the applicable Option Agreement, upon termination of a Participant's
employment with the Company or its Subsidiaries for death, Disability or
termination without Cause by the Company or a Subsidiary, all Options or
portions thereof held by such Participant that are not vested and exercisable on
the date of such termination shall expire and be forfeited as of such date and
all vested Options held by such Participant shall expire to the extent not
theretofore exercised at the end of third month (one year if termination is
caused by Participant's death or Disability) following the date of such
termination. Upon voluntary termination of a Participant's employment or
termination for Cause of a Participant's employment by the Company or a
Subsidiary, all unexercised Options, whether or not vested, shall terminate
immediately upon the earlier to occur of the date the Participant receives
notice of the termination or the actual date of termination.
<PAGE>
(g) METHOD OF EXERCISE. A Stock Option may be exercised, in whole or in part, by
giving written notice of exercise to the Company specifying the number of shares
of Common Stock to be purchased. Such notice shall be accompanied by payment in
full of the purchase price, plus any required withholding taxes, in cash or, if
permitted by the terms of the related grant agreement or otherwise approved in
advance by the Committee, in shares of Common Stock already owned by the
Participant valued at the Fair Market Value of the Common Stock on the date of
exercise. The Committee may also permit Participants, either on a selective or
aggregate basis, to simultaneously exercise Stock Options and sell the shares of
Common Stock thereby acquired pursuant to a brokerage or similar arrangement
approved in advance by the Committee and to use the proceeds from such sale to
pay the exercise price and withholding taxes.
7. STOCK APPRECIATION RIGHTS.
(a) IN GENERAL. Stock Appreciation Rights in respect of shares of Common Stock
may be granted under the Plan alone, in tandem with, in addition to or
independent of a Stock Option or other grant or Award under the Plan. A Stock
Appreciation Right entitles a Participant to receive an amount equal to the
excess of the Fair Market Value of a share of Common Stock on the date of
exercise over the Fair Market Value of a share of Common Stock on the date of
grant of the Stock Appreciation Right, or such other higher price as may be set
by the Committee, multiplied by the number of shares of Common Stock with
respect to which the Stock Appreciation Right shall have been exercised.
(b) ELIGIBILITY AND LIMITATIONS. Any Employee of the Company or a Subsidiary
selected by the Committee may be granted Stock Appreciation Rights. The
Committee shall determine, in its discretion, the Employees to whom Stock
Appreciation Rights will be granted, the timing of such grants and the number of
shares of Common Stock in respect of which each Stock Appreciation Right is
granted; provided that (i) the maximum aggregate number of shares of Common
Stock in respect of which Stock Appreciation Rights may be granted shall be one
million, (ii) the maximum aggregate number of shares of Common Stock which may
be issued and delivered in payment or settlement of Stock Appreciation Rights
shall be 500,000, and (iii) the maximum number of shares of Common Stock in
respect of which Stock Appreciation Rights may be granted to any Employee during
any calendar year shall be 100,000. (c) EXERCISABILITY; EXERCISE; FORM OF
PAYMENT. A Stock Appreciation Right may be exercised by a participant at such
time or times and in such manner as shall be authorized by the Committee and set
forth in the related grant agreement, except that in no event shall a Stock
Appreciation Right be exercisable within the first six months after the date of
grant. The Committee may provide that a Stock Appreciation Right shall be
automatically exercised on one or more specified dates. No Stock Appreciation
Right may be exercised unless the holder thereof is at the time of exercise an
Employee and has been continuously an Employee since the date the Stock
Appreciation Right was granted, except that the Committee may permit the
exercise of any Stock Appreciation Right for any period following the
Participant's termination of employment not in excess of ninety (90) days on
such terms and conditions as it shall deem appropriate and specify in the
related grant agreement. A Stock Appreciation Right may be exercised, in whole
or in part, by giving the Company a written notice specifying the number of
shares of Common Stock in respect of which the Stock Appreciation Right is to be
exercised. Stock Appreciation Rights may be paid upon exercise in cash, in
shares of Common Stock, or in any combination of cash and shares of Common Stock
as determined by the Committee.
<PAGE>
8. RESTRICTED STOCK GRANTS AND AWARDS.
(a) IN GENERAL. A Restricted Stock Grant is the issuance of shares of Common
Stock in the name of an Employee, which issuance is subject to such terms and
conditions as the Committee shall deem appropriate, including, without
limitation, restrictions on the sale, assignment, transfer or other disposition
of such shares and the requirement that the Employee forfeit such shares back to
the Company (i) upon termination of employment for specified reasons within a
specified period of time, or (ii) if any specified Performance Goals are not
achieved during a specified Performance Period, or (iii) if such other
conditions as the Committee may specify are not satisfied.
(b) ELIGIBILITY AND LIMITATIONS. Any Employee of the Company or a Subsidiary
selected by the Committee may receive a Restricted Stock Grant. The Committee,
in its sole discretion, shall determine whether a Restricted Stock Grant shall
be made, the Employee to receive the Restricted Stock Grant, and the conditions
and restrictions imposed on the Restricted Stock Grant. The maximum number of
shares of Common Stock which may be issued as Restricted Stock under the Plan
shall be one million. The maximum number of shares of Common Stock which may be
issued to any Employee as Restricted Stock during any calendar year shall not
exceed 50,000. The maximum amount any Employee may receive as a Restricted Stock
Grant in any calendar year shall not exceed $500,000, determined using the Fair
Market Value of such Restricted Stock Grant as at the date of the grant thereof.
(c) RESTRICTION PERIOD. Restricted Stock Grants shall provide that in order for
a Participant to receive shares of Common Stock free of restrictions, the
Participant must remain in the employment of the Company or its Subsidiaries,
subject to such exceptions as the Committee shall deem appropriate and specify
in the related grant agreement, for a period of not less than four years
commencing on the date of the grant and ending on such later date or dates as
the Committee may designate at the time of the grant (the "Restriction Period").
The Committee, in its sole discretion, may provide for the lapse of restrictions
in installments during the Restriction Period. The Committee may also establish
one or more Performance Goals that are required to be achieved during one or
more Performance Periods within the Restriction Period as a condition to the
lapse of the restrictions. (d) RESTRICTIONS. The following restrictions and
conditions shall apply to each Restricted Stock Grant during the Restriction
Period: (i) the Participant shall not be entitled to delivery of the shares of
the Common Stock; (ii) the Participant may not sell, assign, transfer, pledge,
hypothecate, encumber or otherwise dispose of or realize on the shares of Common
Stock subject to the Restricted Stock Grant; and (iii) the shares of the Common
Stock issued as Restricted Stock shall be forfeited to the Company if the
Participant for any reason ceases to be an Employee prior to the end of the
Restriction Period, except due to circumstances specified in the related grant
agreement or otherwise approved by the Committee. The Committee may in, its sole
discretion, include such other restrictions and conditions as it may deem
appropriate.
<PAGE>
(e) PAYMENT. Upon expiration of the Restriction Period and if all conditions
have been satisfied and any applicable Performance Goals attained, the shares of
the Restricted Stock will be made available to the Participant, subject to
satisfaction of applicable withholding tax requirements, free of all
restrictions except as may be required to comply with federal and state
securities laws, as determined by the Committee in its sole discretion;
provided, that the Committee may, in its discretion, require (i) that the
Restricted Stock be retained by the Company, and (ii) that the Participant
receive a cash payment in lieu of unrestricted shares of Common Stock.
(f) RIGHTS AS A SHAREHOLDER. A Participant shall have, with respect to shares of
Restricted Stock, all of the rights of a shareholder of the Company, including
the right to vote the shares and receive any cash dividends paid thereon. Stock
dividends distributed with respect to shares of Restricted Stock shall be
treated as additional shares under the Restricted Stock Grant and shall be
subject to the restrictions and other terms and conditions set forth therein.
9. PERFORMANCE GRANTS AND AWARDS.
(a) ELIGIBILITY AND TERMS. The Committee may grant Employees of the Company and
its Subsidiaries the prospective contingent right, expressed in Units, to
receive payments of shares of Common Stock, cash or any combination thereof,
with each Unit equivalent in value to one share of Common Stock, or equivalent
to such other value or monetary amount as may be designated or established by
the Committee ("Performance Grants"), based upon Company performance over a
specified Performance Period. The Committee shall, in its sole discretion,
determine the Employees eligible to receive Performance Grants. At the time each
Performance Grant is made, the Committee shall establish the Performance Period,
the Performance Measure and the targets to be attained relative to such
Performance Measure (the "Performance Goals") in respect of such Performance
Grant. The number of shares of Common Stock and/or the amount of cash earned and
payable in settlement of a Performance Grant shall be determined at the end of
the Performance Period (a "Performance Award").
(b) LIMITATIONS ON GRANTS AND AWARDS. The maximum number of shares of Common
Stock which may be issued pursuant to Performance Grants shall be 500,000. The
maximum number of shares which may be the subject of Performance Grants made to
any Participant in respect of any Performance Period or during any calendar year
shall be 50,000. The maximum amount any Participant may receive during any
calendar year as Performance Awards pursuant to Performance Grants shall not
exceed $1 million, determined using the Fair Market Value of such Performance
Awards as of the last day of the applicable Performance Period or Periods or as
of the date or dates of the payment thereof, whichever is higher.
<PAGE>
(c) PERFORMANCE GOALS, PERFORMANCE MEASURES AND PERFORMANCE PERIODS. Each
Performance Grant shall provide that, in order for a Participant to receive an
Award of all or a portion of the Units subject to such Performance Grant, the
Company must achieve certain Performance Goals over a designated Performance
Period having a minimum duration of one year, with attainment of the Performance
Goals determined using a specific Performance Measure. The Performance Goals and
Performance Period shall be established by the Committee in its sole discretion.
The Committee shall establish a Performance Measure for each Performance Period
for determining the portion of the Performance Grant which will be earned or
forfeited based on the extent to which the Performance Goals are achieved or
exceeded. In setting Performance Goals, the Committee may use a Performance
Measure based on any one, or on any combination, of the following Company
performance factors as the Committee deems appropriate: (i) Cumulative Net
Income Per Share; (ii) Cumulative Net Income; (iii) return on sales; (iv) total
shareholder return; (v) return on assets; (vi) economic value added; (vii) cash
flow, (viii) return on equity; and (ix) cumulative operating income (which shall
equal consolidated sales minus cost of goods sold and selling, administrative
and general expense). Performance Goals may include minimum, maximum and target
levels of performance, with the size of Performance Award based on the level
attained. Once established by the Committee and specified in the grant
agreement, and if and to the extent provided in or required by the grant
agreement, the Performance Goals and the Performance Measure in respect of any
Performance Grant (or any Restricted Stock Grant or Stock-Based Grant that
requires the attainment of Performance Goals as a condition to the Award) shall
not be changed. The Committee may, in its discretion, eliminate or reduce (but
not increase) the amount of any Performance Award (or Restricted Stock or
Stock-Based Award) that otherwise would be payable to a Participant upon
attainment of the Performance Goal(s).
(d) FORM OF GRANTS. Performance Grants may be made on such terms and conditions
not inconsistent with the Plan, and in such form or forms, as the Committee may
from time to time approve. Performance Grants may be made alone, in addition to
in tandem with, or independent of other grants and Awards under the Plan.
Subject to the terms of the Plan, the Committee shall, in its discretion,
determine the number of Units subject to each Performance Grant made to a
Participant and the Committee may impose different terms and conditions on any
particular Performance Grant made to any Participant. The Performance Goals, the
Performance Period or Periods, and the Performance Measure applicable to a
Performance Grant shall be set forth in the relevant grant agreement. (e)
PAYMENT OF AWARDS. Each Participant shall be entitled to receive payment in an
amount equal to the aggregate Fair Market Value (if the Unit is equivalent to a
share of Common Stock), or such other value as the Committee shall specify, of
the Units earned in respect of such Performance Award. Payment in settlement of
a Performance Award may be made in shares of Common Stock, in cash, or in any
combination of Common Stock and cash, and at such time or times, as the
Committee, in its discretion, shall determine.
<PAGE>
10. OTHER STOCK-BASED GRANTS AND AWARDS.
(a) IN GENERAL. The Committee may make other grants and Awards pursuant to which
Common Stock is, or in the future may be, acquired by Participants, and other
grants and Awards to Participants denominated in Common Stock Equivalents or
other Units ("Stock-Based Grants"). Such Stock-Based Grants may be granted alone
or in addition to, in tandem with, or independent of any other grant made or
Award effected under the Plan.
(b) ELIGIBILITY AND TERMS. The Committee may make Stock-Based Grants to
Employees of the Company and its Subsidiaries. Subject to the provisions of the
Plan, the Committee shall have authority to determine the Employees to whom, and
the time or times at which, Stock-Based Grants will be made, the number of
shares of Common Stock, if any, to be subject to or covered by each Stock-Based
Grant, and any and all other terms and conditions of each Stock-Based Grant.
(c) LIMITATIONS. The aggregate number of shares of Common Stock Issued to
Participants pursuant to Stock-Based Grants made and Awards effected pursuant to
this Section 10 shall not exceed 500,000. No Participant shall receive more than
50,000 shares of Common Stock in settlement of Stock-Based Awards during any
calendar year. The maximum amount any Participant may receive in Stock-Based
Awards during any calendar year shall not exceed $1 million, determined using
the Fair Market Value of any shares of Common Stock delivered in payment of the
Stock-Based Awards on the date or dates of the payment thereof.
(d) FORM OF GRANTS; PAYMENT OF AWARDS. Stock-Based Grants may be made in such
form or forms and on such terms and conditions, including the attainment of
specific Performance Goals, as the Committee, in its discretion, shall approve.
Payment of Stock-Based Awards may be made in cash, in shares of Common Stock, or
in any combination of cash and shares of Common Stock, and at such time or
times, as the Committee shall determine.
11. WITHHOLDING.
The Committee may, in its discretion, and subject to its prior approval in the
case of any Participant required to file reports pursuant to Section 16(a) of
the Exchange Act, at any time a distribution is made under the Plan, whether in
cash or in shares, or at the time any Option is exercised, withhold from such
distribution or shares issuable upon the exercise of an Option, any amount
necessary to satisfy federal, foreign, state and local withholding requirements
with respect to such distribution or exercise of such Option. Such withholding
may be satisfied at the Committee's option either by cash or withholding of
shares. To the extent that any such withholding requirements are not satisfied,
each Participant shall pay to the Company any federal, foreign, state or local
taxes of any kind required by law to be withheld with respect to a distribution
under the Plan.
<PAGE>
12. DEFERRALS.
The Committee may, whether at the time of grant or at anytime thereafter prior
to payment or settlement, require a Participant to defer, or permit (subject to
such conditions as the Committee may from time to time establish) a Participant
to elect to defer, receipt of all or any portion of any payment of cash or
shares of Common Stock that would otherwise be due to such Participant in
payment or settlement of any Award under the Plan, other than Incentive Stock
Options. If any such deferral is required by the Committee (or is elected by the
Participant with the permission of the Committee), the Committee shall establish
rules and procedures for such payment deferrals. The Committee may provide for
the payment or crediting of interest, at such rate or rates as it shall in its
discretion deem appropriate, on such deferred amounts credited in cash and the
payment or crediting of dividend equivalents in respect of deferred amounts
credited in Common Stock Equivalents. Deferred amounts may be paid in a lump sum
or in installments in the matter and to the extent permitted, and in accordance
with rules and procedures established, by the Committee.
13. NON-TRANSFERABILITY OF GRANTS AND AWARDS.
No grant or Award under the Plan, and no right or interest therein, shall be (i)
assignable, alienable or transferable by a Participant, except by will or the
laws of descent and distribution, or (ii) subject to any obligation, or the lien
or claims of any creditor, of any Participant, or (iii) subject to any lien,
encumbrance or claim of any party made in respect of or through any Participant,
however arising. During the lifetime of a Participant, Stock Options and Stock
Appreciation Rights are exercisable only by, and shares of Common Stock issued
upon the exercise of Stock Options and Stock Appreciation Rights or in
settlement of other Awards will be issued only to, and other payments in
settlement of any Award will be payable only to, the Participant or his or her
legal representative. The Committee may, in its sole discretion, authorize
written designations of beneficiaries and authorize Participants to designate
beneficiaries with the authority to exercise Stock Options and Stock
Appreciation Rights granted to a Participant in the event of his or her death.
Notwithstanding the foregoing, the Committee may, in its sole discretion and on
and subject to such terms and conditions as it shall deem appropriate, which
terms and conditions shall be set forth in the related grant agreement: and (ii)
provide for the transferability of a particular grant or Award pursuant to a
qualified domestic relations order. All other transfers and any retransfer by
any permitted transferee are prohibited and any such purported transfer shall be
null and void. Each Stock Option or Stock Appreciation Right which becomes the
subject of permitted transfer (and the Participant to whom it was granted by the
Company) shall continue to be subject to the same terms and conditions as were
in effect immediately prior to such permitted transfer. The Participant shall
remain responsible to the Company for the payment of all withholding taxes
incurred as a result of any exercise of such Stock Option or Stock Appreciation
Right. In no event shall any permitted transfer of a Stock Option or Stock
Appreciation Right create any right in any party in respect of any Stock Option,
Stock Appreciation Right or other grant or Award, other than the rights of the
qualified transferee in respect of such Stock Option or Stock Appreciation Right
specified in the related grant agreement.
<PAGE>
14. CHANGE IN CONTROL.
(a) EFFECT ON GRANTS. In the event of a Change in Control (as defined below) of
the Company, the Board of Directors, in its sole discretion, may provide for
accelerated exercise and/or vesting of Stock Options, Stock Appreciation Rights
and Restricted Stock Grants, for removal of transfer restrictions, and/or that
Performance Grants and other Stock-Based Grants shall be deemed to have been
fully earned, at the maximum amount of the award opportunity specified in the
grant agreement, as of the date of the Change in Control.
(b) CHANGE IN CONTROL DEFINED. A "Change in Control" of the Company shall occur
when: (i) any Acquiring Person (other than the Company, any Subsidiary, any
employee benefit plan of the Company or of any Subsidiary, or any person or
entity organized, appointed or established by the Company or a Subsidiary for or
pursuant to the terms of any such plans), alone, or together with its Affiliates
and Associates, shall become the beneficial owner of twenty-five percent (25%)
or more of the shares of Common Stock then outstanding (except pursuant to an
offer for all outstanding shares of Common Stock at a price and upon such terms
and conditions as a majority of the Continuing Directors determines to be in the
best interest of the Company and its shareholders); or (ii) the shareholders of
the Company approve a definitive agreement for a merger or consolidation
involving the Company which would result in the Common Stock outstanding
immediately prior to such merger or consolidation continuing to represent
(whether by remaining outstanding or by being converted into voting securities
of the surviving entity) less than fifty percent of the combined voting power of
the Company and such other entity outstanding immediately after such merger or
consolidation; or (iii) the shareholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or other
disposition of all or substantially all of the assets of the Company; or (iv)
the Continuing Directors no longer constitute a majority of the Board of
Directors. "Acquiring Person" means any person (any individual, firm,
corporation or other entity) who or which, together with all its Affiliates and
Associates, shall be the beneficial owner of a substantial block of Common
Stock. "Affiliate" and "Associate" shall have the respective meanings ascribed
to such terms in Rule 12b-2 under the Exchange Act. "Continuing Director" means
any individual who is a member of the Board of Directors, while such individual
is a member of the Board of Directors, who is not an Acquiring Person, or an
Affiliate or Associate of an Acquiring Person, or a representative or nominee of
an Acquiring Person or of any such Affiliate or Associate, and was a member of
the Board of Directors prior to the occurrence of a Change in Control, and any
successor of a Continuing Director, while such successor is a member of the
Board of Directors, who is not an Acquiring Person, or an Affiliate or Associate
of an Acquiring Person, or representative or nominee of an Acquiring Person or
of any such Affiliate or Associate, and is recommended or elected to succeed the
Continuing Director by a majority of the Continuing Directors.
<PAGE>
15. AMENDMENT, SUSPENSION AND TERMINATION.
The Board or the Committee may suspend or terminate the Plan or any portion
thereof at any time and may amend it from time to time in such respects as the
Board or the Committee may deem advisable; provided, however, that no such
amendment shall be made without stockholder approval to the extent such approval
is required by law, agreement or the rules of any exchange upon which the Common
Stock is listed, and no such amendment, suspension or termination shall impair
the rights of Participants under outstanding Options without the consent of the
Participants affected thereby, except as otherwise provided herein.
<PAGE>
This document constitutes part
of a prospectus covering securities
that have been registered under
the Securities Act of 1933.
AGREEMENT EVIDENCING A GRANT OF AN INCENTIVE STOCK OPTION
AND NON-QUALIFIED STOCK OPTION UNDER THE 2000
PERFORMANCE INCENTIVE PLAN OF U.S. INTERACTIVE, INC.
Agreement (this "Agreement") made as of [GrantDate] (the "Grant Date"),
between U.S. Interactive, Inc. (the "Company"), and
[FirstName] [LastName]("Grantee").
1. Grant of Option. Pursuant to the 2000 Performance Incentive Plan of
the Company (the "Plan"), the Company hereby grants to Grantee, as of the Grant
Date, an incentive stock option to the extent all or any portion of this Option
qualifies as an "incentive stock option" under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code") and to the extent that all or any
portion of this Option does not so qualify as an "incentive stock option" under
the Code, a non-qualified stock option (together, the "Option"), to purchase an
aggregate of [Noofshares] shares (the "Option Shares") of the Common Stock of
the Company (the "Common Stock") at a price of $[Price] per share of Common
Stock, subject to adjustment and the other terms and conditions set forth herein
and in the Plan. No option will qualify as an incentive stock option unless the
stockholders of the Company approve the Plan within twelve (12) months after
adoption of the Plan by the Board.
2. Grantee Bound by Plan. Enclosed is a copy of the Plan which is
incorporated herein by reference and made a part hereof. The Plan shall govern
all aspects of this Agreement except as otherwise specifically stated herein.
Grantee hereby acknowledges receipt of a copy of the Plan and agrees to be bound
by all the terms and provisions thereof. Unless otherwise defined herein,
capitalized terms used but not defined herein shall have the meanings ascribed
to them in the Plan. The Plan should be carefully examined before any decision
is made to exercise this Option. In accordance with the terms of the Plan,
except as expressly set forth in this Agreement, both vested and unvested
options are subject to expiration and forfeiture upon termination of the
Grantee's employment with the Company or a Subsidiary, death or disability. The
date on which the expiration and forfeiture will occur is set forth more fully
in the Plan.
3. Exercise of Option. Subject to the earlier expiration or termination
of the Option as provided herein or in the Plan, the Option with respect to any
Option Shares may be exercised upon such shares becoming vested, although no
Option may be exercised within 6 months of the date of this Agreement, by
written notice to the Company at any time and from time to time thereafter.
Except as otherwise provided expressly in this Agreement, such Option shall not
be exercisable for more than the number of shares which are then vested. Subject
to all of the foregoing, this Option shall vest with respect to 100% of the
Option Shares over a four (4) year period, with 25% of the Option Shares
(rounded to the nearest whole share) vesting on each of the first, second and
third anniversaries of the Grant Date; and the remainder shall vest on the
fourth anniversary of the Grant Date.
This Option shall not be exercisable in any event after the tenth
anniversary (fifth anniversary in the case of a 10% stockholder) of the Grant
Date. This Option may not be exercised for a fraction of a share of Common
Stock. Unvested Options are subject to cancellation as provided in the Plan.
4. Conditions to Exercise. This Option may not be exercised by Grantee
unless the following conditions are met:
(a) legal counsel for the Company must be satisfied at the
time of exercise that the issuance of Option Shares upon exercise will be in
compliance with the Securities Act of 1933, as amended (the "Securities Act")
and applicable United States federal, state and local laws and foreign laws; and
(b) Grantee must pay at the time of exercise the full purchase
price for the shares of Common Stock being acquired hereunder (i) in cash or by
certified check or (ii) by delivery of shares of Common Stock already owned by
the Grantee valued at the Fair Market Value of the Common Stock on the date of
exercise, or (iii) by "cashless exercise" as provided in the Plan or (iv)
through a combination thereof. In the case of the exercise of a Non-Qualified
Stock Option or a cashless exercise, the Grantee must also remit the appropriate
withholding taxes due upon exercise, in cash or in such other manner approved by
the Committee. Please refer to the Plan for a complete description of method of
delivery of Option Shares pursuant to this Section 4(b).
<PAGE>
(c) The Grantee is employed by the Company or one of its
Subsidiaries, except as otherwise provided in the Plan.
(d) The Grantee (and any permitted transferee) shall have
fully complied with such further conditions to exercise as the Committee, in its
sole discretion, shall deem necessary or desirable to fully comply with all
federal and applicable state securities and tax laws relating to the exercise of
the Option.
5. Transferability. Except as otherwise provided below, this Option may
not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed
of by Grantee, except by will or the laws of descent and distribution (in which
case, such transferee shall succeed to the rights and obligations of Grantee
hereunder) and is exercisable during Grantee's lifetime only by Grantee. If
Grantee or anyone claiming under or through Grantee attempts to violate this
Section 5, such attempted violation shall be null and void and without effect,
and the Company's obligation hereunder shall terminate. If at the time of
Grantee's death this Option has not been fully exercised, Grantee's estate or
any person who acquires the right to exercise this Option by bequest or
inheritance or by reason of Grantee's death may, at any time within one year
after the date of Grantee's death (but in no event after the expiration of ten
years from the Grant Date), exercise this Option with respect to the number of
shares, determined under Section 3 above, as to which Grantee could have
exercised the Option at the time of Grantee's death. The applicable requirements
of Section 4 above must be satisfied in full at the time of such exercise. If
this Option is a Non-Qualified Option, it may be assigned, in whole or in part
to Grantee's spouse, children or grandchildren, or a trust for the exclusive
benefit of one or more of such persons, provided that (i) such assignment is
made as a gift or under a domestic relations order in settlement of marital
property rights and in each case, without any consideration, and (ii) that the
transferee acknowledges and agrees in writing that (y) if the transferor is a
director or officer of the Company, any shares acquired upon exercise of any
such Option may be subject to restriction on resale under Rule 144 under the
Securities Exchange Act of 1934, and (z) that any certificates representing such
shares shall be prominently marked with a legend to that effect. The Grantee,
upon any such permitted transfer, shall remain responsible to the Company for
the payment of all withholding taxes incurred as a result of any exercise of any
such Option. Any Option transferred hereunder by the Grantee shall continue to
be governed by and subject to the terms and conditions of this Agreement and may
not be subsequently transferred except by will or the laws of descent and
distribution.
<PAGE>
6. Administration. Any action taken or decision made by the Board or
the Committee or its delegates arising out of or in connection with the
construction, administration, interpretation or effect of the Plan or this
Agreement shall lie within its sole and absolute discretion, as the case may be,
and shall be final, conclusive and binding on Grantee and all persons claiming
under or through Grantee. By accepting this grant or other benefit under the
Plan, Grantee and each person claiming under or through Grantee shall be
conclusively deemed to have indicated acceptance and ratification of, and
consent to, any action taken under the Plan by the Board or the Committee or its
delegates.
7. No Rights as Stockholder. Unless and until a certificate or
certificates representing such shares of Common Stock shall have been issued to
Grantee (or any person acting under Section 5 above), Grantee shall not be or
have any of the rights or privileges of a stockholder of the Company with
respect to shares of Common Stock acquirable upon exercise of the Option.
8. Disqualifying Disposition of Shares. In the event that Grantee
exercises an Incentive Stock Option, and subsequently agrees to sell or dispose
of the Option Shares acquired upon exercise before either (i) the expiration of
two (2) years from the Grant Date, or (ii) the expiration of one (1) year from
the date of exercise, the Grantee must notify the Company of such disposition
and the terms thereof and, if required by law, make arrangements to pay the
Company in cash the amount of any withholding taxes due upon such disposition,
as determined by the Company, and the transfer of such shares on the Company's
records shall be conditioned on the payment of any such taxes.
9. Investment Representation. Grantee hereby acknowledges that the
shares of Common Stock which Grantee may acquire by exercising the Option shall
be acquired for investment without a view to distribution, within the meaning of
the Securities Act, and shall not be sold, transferred, assigned, pledged or
hypothecated in the absence of an effective registration statement for the
shares of Common Stock under the Securities Act and applicable state securities
laws or an applicable exemption from the registration requirements of the Act
and any applicable state securities laws. Grantee also agrees that the shares of
Common Stock which Grantee may acquire by exercising the Option will not be sold
or otherwise disposed of in any manner which would constitute a violation of any
applicable securities laws, whether federal or state.
10. Listing and Registration of Common Stock. The Company, in its
discretion, may postpone the issuance and/or delivery of shares of Common Stock
upon any exercise of the Option until completion of such stock exchange listing,
or registration, or other qualification of such shares under any state and/or
federal law, rule or regulation as the Company may reasonably in good faith
consider appropriate.
<PAGE>
11. Notices. Any notice hereunder to the Company shall be addressed to
the Company, Attention: Corporate Secretary, and any notice hereunder to Grantee
shall be addressed to Grantee at Grantee's last address on the records of the
Company, subject to the right of either party to designate at any time hereafter
in writing some other address. Any notice shall be deemed to have been duly
given when delivered personally, one day following dispatch if sent by
nationally recognized overnight courier, fees prepaid, or three days following
mailing if sent by registered mail, return receipt requested, postage prepaid
and addressed as set forth above.
12. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of any successors to the Company and all persons lawfully claiming
under Grantee.
13. Governing Law. The validity, construction, interpretation,
administration and effect of the Plan, and of its rules and regulations, and
rights relating to the Plan and to this Agreement, shall be governed by the
substantive laws, but not the choice of law rules, of the state of incorporation
of the Company at the time of the determination.
14. Grantee Acknowledgments.
GRANTEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
THE OPTION IS EARNED ONLY BY CONTINUING EMPLOYMENT AT THE WILL OF THE COMPANY
(NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING
SHARES HEREUNDER). GRANTEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS
AGREEMENT, NOR IN THE PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL
CONFER UPON GRANTEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT BY THE
COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH HIS RIGHT OR THE COMPANY'S RIGHT
TO TERMINATE OR MODIFY HIS EMPLOYMENT AT ANY TIME, WITH OR WITHOUT CAUSE.
Grantee acknowledges receipt of a copy of the Plan and represents that
he is familiar with the terms and provisions thereof, and hereby accepts this
Option subject to all of the terms and provisions thereof except as otherwise
specifically stated in this Option Agreement. Grantee has reviewed the Plan and
this Option Agreement in their entirety, has had an opportunity to obtain the
advice of counsel prior to executing this Option Agreement and fully understands
all provisions of this Option Agreement. Grantee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Board upon
any questions arising under the Plan.
<PAGE>
IN WITNESS WHEREOF, the Company and Grantee have executed this
Agreement as of the date first above written.
U.S. INTERACTIVE, INC.
By:
Name: ________________________
Title: ________________________
GRANTEE
Grantee's Signature
------------------------------
Name of Grantee (Print)
<PAGE>
SOFTPLUS INC.
1999 STOCK PLAN
1. Purposes of the Plan. The purposes of this 1999 Stock Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be Incentive Stock Options (as
defined under Section 422 of the Code) or Nonstatutory Stock Options, as
determined by the Administrator at the time of grant of an Option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder. Stock Purchase Rights may also be granted
under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or its Committee appointed
pursuant to Section 4 of the Plan.
(b) "Affiliate" means an entity other than a Subsidiary in which the
Company owns an equity interest or which, together with the Company, is under
common control of a third person or entity.
(c) "Applicable Laws" means the legal requirements relating to the
administration of stock option plans under applicable U.S. state corporate laws,
U.S. federal and applicable state securities laws, the Code, any Stock Exchange
rules or regulations and the applicable laws of any other country or
jurisdiction where Options or Stock Purchase Rights are granted under the Plan,
as such laws, rules, regulations and requirements shall be in place from time to
time.
(d) "Board" means the Board of Directors of the Company.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
(f) "Committee" means one or more committees or subcommittees of the
Board appointed by the Board to administer the Plan in accordance with Section 4
below.
(g) "Common Stock" means the Common Stock of the Company.
<PAGE>
(h) "Company" means SoftPlus Inc., a California corporation.
(i) "Consultant" means any person, including an advisor, who renders
services to the Company, or any Parent, Subsidiary or Affiliate, and is
compensated for such services, and any director of the Company whether
compensated for such services or not; provided, however, that if and in the
event the Company registers any class of equity security pursuant to the
Exchange Act, the term Consultant shall thereafter not include directors who are
not compensated for their services or are paid only a director's fee by the
Company.
(j) "Continuous Service Status" means the absence of any interruption
or termination of service as an Employee or Consultant to the Company or a
Parent, Subsidiary or Affiliate. Continuous Service Status shall not be
considered interrupted in the case of (i) sick leave; (ii) military leave; (iii)
any other leave of absence approved by the Administrator, provided that such
leave is for a period of not more than 90 days, unless reemployment upon the
expiration of such leave is guaranteed by contract or statute, or unless
provided otherwise pursuant to Company policy adopted from time to time; or (iv)
in the case of transfers between locations of the Company or between the
Company, its Parents, Subsidiaries or Affiliates or their respective successors.
Unless otherwise determined by the Administrator, a change in status from an
Employee to a Consultant or from a Consultant to an Employee will not constitute
an interruption of Continuous Service Status.
(k) "Corporate Transaction" means a sale of all or substantially all
of the Company's assets, or a merger, consolidation or other capital
reorganization of the Company with or into another corporation.
(l) "Director" means a member of the Board.
(m) "Employee" means any person, including officers and Directors,
employed by the Company or any Parent, Subsidiary or Affiliate of the Company.
The payment by the Company of a director's fee to a Director shall not be
sufficient to constitute "employment" of such Director by the Company.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(o) "Fair Market Value" means, as of any date, the fair market value
of Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange or
a national market system including without limitation the National Market
of the National Association of Securities Dealers, Inc. Automated Quotation
("Nasdaq") System, its Fair Market Value shall be the closing sales price
for such stock (or the closing bid, if no sales were reported), as quoted
on such system or exchange on the date of determination, or if no trading
occurred on the date of determination, on the last market trading day prior
to the time of determination, as reported in The Wall Street Journal or
such other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the Nasdaq System (but not on
the National arket thereof) or regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall be
the mean between the high bid and low asked prices for the Common Stock for
the last market trading day prior to the time of determination, as reported
in The Wall Street Journal or such other source as the Administrator deems
reliable; or
(iii) In the absence of an established market for the Common Stock,
the Fair arket Value thereof shall be determined in good faith by the
Administrator.
<PAGE>
(p) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code, as
designated in the applicable Option Agreement.
(q) "Listed Security" means any security of the Company that is listed
or approved for listing on a national securities exchange or designated or
approved for designation as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc.
(r) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option, as designated in the applicable Option
Agreement.
(s) "Option" means a stock option granted pursuant to the Plan.
(t) "Option Agreement" means a written document, the form(s) of which
shall be approved from time to time by the Administrator, reflecting the terms
of an Option granted under the Plan and includes any documents attached to or
incorporated into such Option Agreement, including, but not limited to, a notice
of stock option grant and a form of exercise notice.
(u) "Option Exchange Program" means a program approved by the
Administrator whereby outstanding Options are exchanged for Options with a lower
exercise price.
(v) "Optioned Stock" means the Common Stock subject to an Option or a
Stock Purchase Right.
(w) "Optionee" means an Employee or Consultant who receives an Option.
(x) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code, or any successor provision.
(y) "Participant" means any holder of one or more Options or Stock
Purchase Rights, or of the Shares issuable or issued upon exercise of such
awards, under the Plan.
(z) "Plan" means this 1999 Stock Plan.
(aa) "Reporting Person" means an officer, Director, or greater than
10% shareholder of the Company within the meaning of Rule 16a-2 under the
Exchange Act, who is required to file reports pursuant to Rule 16a-3 under the
Exchange Act.
(bb) "Restricted Stock" means shares of Common Stock acquired pursuant
to a grant of a Stock Purchase Right under Section 10 below.
(cc) "Restricted Stock Purchase Agreement" means a written document,
the form(s) of which shall be approved from time to time by the Administrator,
reflecting the terms of a Stock Purchase Right granted under the Plan and
includes any documents attached to such agreement.
(dd) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act,
as the same may be amended from time to time, or any successor provision.
<PAGE>
(ee) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 12 of the Plan.
(ff) "Stock Exchange" means any stock exchange or consolidated stock
price reporting system on which prices for the Common Stock are quoted at any
given time.
(gg) "Stock Purchase Right" means the right to purchase Common Stock
pursuant to Section 10 below.
(hh) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code, or any successor
provision.
(ii) "Ten Percent Holder" means a person who owns stock representing
more than 10% of the voting power of all classes of stock of the Company or any
Parent or Subsidiary.
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
the Plan, the maximum aggregate number of Shares that may be sold under the Plan
is 1,815,646 Shares of Common Stock. The Shares may be authorized, but unissued,
or reacquired Common Stock. If an Option expires or becomes unexercisable for
any reason without having been exercised in full, or is surrendered pursuant to
an Option Exchange Program, the unpurchased Shares that were subject thereto
shall, unless the Plan shall have been terminated, become available for future
grant under the Plan. In addition, any Shares of Common Stock that are retained
by the Company upon exercise of an Option or Stock Purchase Right in order to
satisfy the exercise or purchase price for such Option or Stock Purchase Right
or any withholding taxes due with respect to such exercise shall be treated as
not issued and shall continue to be available under the Plan. Shares issued
under the Plan and later repurchased by the Company pursuant to any repurchase
right that the Company may have shall not be available for future grant under
the Plan.
4. Administration of the Plan.
(a) General. The Plan shall be administered by the Board or a
Committee, or a combination thereof, as determined by the Board. The Plan may be
administered by different administrative bodies with respect to different
classes of Optionees and, if permitted by the Applicable Laws, the Board may
authorize one or more officers to grant Options or Stock Purchase Rights under
the Plan.
(b) Administration with Respect to Reporting Persons. With respect to
Options granted to Reporting Persons and Named Executives, the Plan may (but
need not) be administered so as to permit such Options to qualify for the
exemption set forth in Rule 16b-3 and to qualify as performance-based
compensation under Section 162(m) of the Code.
<PAGE>
(c) Committee Composition. If a Committee has been appointed pursuant
to this Section 4, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of any Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies (however caused) and remove all members of a Committee
and thereafter directly administer the Plan, all to the extent permitted by the
Applicable Laws and, in the case of a Committee administering the Plan pursuant
to Section 4(b) above, to the extent permitted or required by Rule 16b-3 and
Section 162(m) of the Code.
(d) Powers of the Administrator. Subject to the provisions of the Plan
and in the case of a Committee, the specific duties delegated by the Board to
such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any Stock Exchange, the Administrator
shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(o) of the Plan;
(ii) to select the Consultants and Employees to whom Options and Stock
Purchase Rights or any combination thereof may from time to time be
granted;
(iii) to determine whether and to what extent Options and Stock
Purchase Rights or any combination thereof are granted;
(iv) to determine the number of Shares of Common Stock to be covered
by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any award granted hereunder, which terms and
conditions include but are not limited to the exercise or purchase price,
the time or times when Options or Stock Purchase Rights may be exercised
(which may be based on performance criteria), any vesting acceleration or
waiver of forfeiture restrictions, and any restriction or limitation
regarding any Option, Optioned Stock, Stock Purchase Right or Restricted
Stock, based in each case on such factors as the Administrator, in its sole
discretion, shall determine;
(vii) to determine whether and under what circumstances an Option may
be settled in cash under Section 9(f) instead of Common Stock;
<PAGE>
(viii) to reduce the exercise price of any Option to the then current
Fair Market Value if the Fair Market Value of the Common Stock covered by
such Option shall have declined since the date the Option was granted and
to make any other amendments or adjustments to any Option that the
Administrator determines, in its discretion and under the authority granted
to it under the Plan, to be necessary or advisable, provided however that
no amendment or adjustment to an Option that would materially and adversely
affect the rights of any Optionee shall be made without the prior written
consent of the Optionee;
(ix) to determine the terms and restrictions applicable to Stock
Purchase Rights and the Restricted Stock purchased by exercising such Stock
Purchase Rights;
(x) to initiate an Option Exchange Program;
(xi) to construe and interpret the terms of the Plan and awards
granted under the Plan; and
(xii) in order to fulfill the purposes of the Plan and without
amending the Plan, to modify grants of Options or Stock Purchase Rights to
Participants who are foreign nationals or employed outside of the United
States in order to recognize differences in local law, tax policies or
customs.
(e) Effect of Administrator's Decision. All decisions, determinations
and interpretations of the Administrator shall be final and binding on all
Participants.
5. Eligibility.
(a) Recipients of Grants. Nonstatutory Stock Options and Stock
Purchase Rights may be granted to Employees and Consultants. Incentive Stock
Options may be granted only to Employees; provided however that Employees of
Affiliates shall not be eligible to receive Incentive Stock Options. An Employee
or Consultant who has been granted an Option or Stock Purchase Right may, if he
or she is otherwise eligible, be granted additional Options or Stock Purchase
Rights.
(b) Type of Option. Each Option shall be designated in the Option
Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designations, to the extent that the aggregate
Fair Market Value of Shares with respect to which Options designated as
Incentive Stock Options are exercisable for the first time by any Optionee
during any calendar year (under all plans of the Company or any Parent or
Subsidiary) exceeds $ 100,000, such excess Options shall be treated as
Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of the Shares subject to an Incentive Stock Option shall
be determined as of the date of grant of such Option.
<PAGE>
(c) At-Will Relationship. The Plan shall not confer upon any
Participant any right with respect to continuation of employment or consulting
relationship with the Company, nor shall it interfere in any way with such
holder's right or the Company's right to terminate his or her employment or
consulting relationship at any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon its adoption by the
Board. It shall continue in effect for a term of ten years unless sooner
terminated under Section 15 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in the
Option Agreement; provided, however, that the term shall be no more than ten
years from the date of grant thereof or such shorter term as may be provided in
the Option Agreement. However, in the case of an Incentive Stock Option granted
to an Optionee who, at the time the Option is granted, is a Ten Percent Holder,
the term of such Option shall be five years from the date of grant thereof or
such shorter term as may be provided in the Option Agreement.
8. Option Exercise Price and Consideration.
(a) The per Share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the
Administrator and set forth in the Option Agreement, but shall be subject to the
following:
(i) In the case of an Incentive Stock Option that is:
(A) granted to an Employee who at the time of grant is a Ten
Percent Holder, the per Share exercise price shall be no less than
110% of the Fair Market Value per Share on the date of grant.
(B) granted to any other Employee, the per Share exercise price
shall be no less than 100% of the Fair Market Value per Share on the
date of grant.
(ii) In the case of a Nonstatutory Stock Option that is:
(A) granted prior to the date, if any, on which the Common Stock
becomes a Listed Security to a person who at the time of grant is a
Ten Percent Holder, the per Share exercise price shall be no less than
110% of the Fair Market Value per Share on the date of the grant if
required by the Applicable Laws and, if not so required, shall be such
price as is determined by the Administrator.
(B) granted prior to the date, if any, on which the Common Stock
becomes a Listed Security to any other eligible person, the per Share
exercise price shall be no less than 85% of the Fair Market Value per
Share on the date of grant if required by the Applicable Laws and, if
not so required, shall be such price as is determined by the
Administrator.
<PAGE>
(iii) Notwithstanding the foregoing, Options may be granted with a per
Share exercise price other than as required above pursuant to a merger or
other corporate transaction.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash; (2)
check; (3) delivery of Optionee's promissory note with such recourse, interest,
security and redemption provisions as the Administrator determines to be
appropriate; (4) cancellation of indebtedness; (5) other Shares that (x) in the
case of Shares acquired upon exercise of an Option, either have been owned by
the Optionee for more than six months on the date of surrender or such other
period as may be required to avoid a charge to the Company's earnings or were
not acquired, directly or indirectly, from the Company, and (y) have a Fair
Market Value on the date of surrender equal to the aggregate exercise price of
the Shares as to which such Option shall be exercised; (6) authorization for the
Company to retain from the total number of Shares as to which the Option is
exercised that number of Shares having a Fair Market Value on the date of
exercise equal to the exercise price for the total number of Shares as to which
the Option is exercised; (7) delivery of a properly executed exercise notice
together with such other documentation as the Administrator and the broker, if
applicable, shall require to effect exercise of the Option and prompt delivery
to the Company of the sale or loan proceeds required to pay the exercise price
and any applicable withholding taxes; (8) any combination of the foregoing
methods of payment; or (9) such other consideration and method of payment for
the issuance of Shares to the extent permitted under the Applicable Laws. In
making its determination as to the type of consideration to accept, the
Administrator shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company, and the Administrator may refuse to
accept a particular form of consideration at the time of any Option exercise if,
in its sole discretion, acceptance of such form of consideration is not in the
best interests of the Company at such time.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, consistent with the term of the Plan and
reflected in the Option Agreement, including vesting requirements and/or
performance criteria with respect to the Company and/or the Optionee; provided
however, that, if required by the Applicable Laws, any Option granted prior to
the date, if any, upon which the Common Stock becomes a Listed Security shall
become exercisable at the rate of at least 20% per year over five years from the
date the Option is granted. In the event that any of the Shares issued upon
exercise of an Option (which exercise occurs prior to the date, if any, upon
which the Common Stock becomes a Listed Security) should be subject to a right
of repurchase in the Company's favor, such repurchase right shall, if required
by the Applicable Laws, lapse at the rate of at least 20% per year over five
years from the date the Option is granted. Notwithstanding the above, in the
case of an Option granted to an officer, Director or Consultant of the Company
or any Parent, Subsidiary or Affiliate of the Company, the Option may become
fully exercisable, or a repurchase right, if any, in favor of the Company shall
lapse, at any time or during any period established by the Administrator. The
Administrator shall have the discretion to determine whether and to what extent
the vesting of Options shall be tolled during any leave of absence; provided
however that in the absence of such determination, vesting of Options shall be
tolled during any such leave.
<PAGE>
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and the Company has
received full payment for the Shares with respect to which the Option is
exercised. Full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
not withstanding the exercise of the Option. The Company shall issue (or cause
to be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 12 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares that thereafter may be available, both for purposes of the Plan
and for sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) Termination of Employment or Consulting Relationship.
(i) Termination other than for Cause, Death or Disability. In the
event of the termination of an Optionee's Continuous Service Status with
the Company, other than a termination for Cause (as defined below), death
(as provided for in Section 9(d)), or disability (as provided for in
Section 9(b)), such Optionee may, but only within three months (or such
other period of time, not less than 30 days, as is determined by the
Administrator, with such determination in the case of an Incentive Stock
Option being made at the time of grant of the Option) after the date of
such termination (but in no event later than the expiration date of the
term of such Option as set forth in the Option Agreement), exercise his or
her Option to the extent that the Optionee was entitled to exercise it at
the date of such termination. To the extent that the Optionee was not
entitled to exercise the Option at the date of such termination, or if the
Optionee does not exercise the Option to the extent so entitled within the
time specified above, the Option shall terminate and the Optioned Stock
underlying the unexercised portion of the Option shall revert to the Plan.
Unless otherwise determined by the Administrator, no termination shall be
deemed to occur and this Section 9(b) shall not apply if (i) the Optionee
is a Consultant who becomes an Employee, or (ii) the Optionee is an
Employee who becomes a Consultant.
<PAGE>
(ii) Termination for Cause. In the event of the termination for Cause
of an Optionee's Continuous Service Status with the Company, the Option
will expire on Participant's Termination Date, or at such later time and on
such conditions as are determined by the Committee.
(iii) Definition of Cause. For the purposes of this Agreement, "Cause"
for Optionee's termination shall include (A) Optionee's misconduct or
negligence in performance of his or her duties hereunder as determined by
the Company; (B) dishonest or fraudulent conduct, a deliberate attempt to
do an injury to the Company, or conduct that discredits the Company or is
detrimental to the reputation of the Company, including conviction of a
felony; (C) Optionee's violation of the Company's policies and prohibitions
on discrimination and harassment, or (D) Optionee's material breach of any
element of the Company's Confidential Information and Invention Assignment
Agreement, including without limitation, Optionee's theft or other
misappropriation of the Company's proprietary information.
(c) Disability of Optionee.
(i) Notwithstanding Section 9(b) above, in the event of termination of
an Optionee's Continuous Service Status as a result of his or her total and
permanent disability (within the meaning of Section 22(e)(3) of the Code),
such Optionee may, but only within twelve months (or such other period of
time as is determined by the Administrator, with such determination in the
case of an Incentive Stock Option made at the time of grant of the Option)
from the date of such termination (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise the Option to the extent otherwise entitled to
exercise it at the date of such termination. To the extent that the
Optionee was not entitled to exercise the Option at the date of
termination, or if the Optionee does not exercise such Option to the extent
so entitled within the time specified above, the Option shall terminate and
the Optioned Stock underlying the unexercised portion of the Option shall
revert to the Plan.
<PAGE>
(ii) In the event of termination of an Optionee's Continuous Service
Status as a result of a disability which does not fall within the meaning
of total and permanent disability (as set forth in Section 22(e)(3) of the
Code), such Optionee may, but only within twelve months (or such other
period of time as is determined by the Administrator, with such
determination in the case of an Incentive Stock Option made at the time of
grant of the Option) from the date of such termination (but in no event
later than the expiration date of the term of such Option as set forth in
the Option Agreement), exercise the Option to the extent otherwise entitled
to exercise it at the date of such termination. However, to the extent that
such Optionee falls to exercise an Option that is an Incentive Stock Option
(within the meaning of Section 422 of the Code) within three months of the
date of such termination, the Option will not qualify for Incentive Stock
Option treatment under the Code. To the extent that the Optionee was not
entitled to exercise the Option at the date of termination, or if the
Optionee does not exercise such Option to the extent so entitled within the
time period specified above, the Option shall terminate and the Optioned
Stock underlying the unexercised portion of the Option shall revert to the
Plan.
(d) Death of Optionee. In the event of the death of an Optionee during
the period of Continuous Service Status since the date of grant of the Option,
or within thirty (30) days following termination of the Optionee's Continuous
Service Status, the Option may be exercised, at any time within twelve months
following the date of death (but in no event later than the expiration date of
the term of such Option as set forth in the Option Agreement), by such
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent of the right to exercise that
had accrued at the date of death or, if earlier, the date of termination of the
Optionee's Continuous Service Status. To the extent that the Optionee was not
entitled to exercise the Option at the date of death or termination, as the case
may be, or if the Optionee does not exercise such Option to the extent so
entitled within the time specified above, the Option shall terminate and the
Optioned Stock underlying the unexercised portion of the Option shall revert to
the Plan.
(e) Extension of Exercise Period. The Administrator shall have full
power and authority to extend the period of time for which an Option is to
remain exercisable following termination of an Optionee's Continuous Status as
an Employee or Consultant from the periods set forth in Sections 9(b), 9(c) and
9(d) above or in the Option Agreement to such greater time as the Board shall
deem appropriate, provided, that in no event shall such Option be exercisable
later than the date of expiration of the term of such Option as set forth in the
Option Agreement.
(f) Buy-Out Provisions. The Administrator may at any time offer to buy
out for a payment in cash or Shares an Option previously granted under the Plan
based on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time such offer is made.
<PAGE>
10. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing of the terms, conditions and restrictions related to the
offer, including the number of Shares that such person shall be entitled to
purchase, the price to be paid, and the time within which such person must
accept such offer, which shall in no event exceed 30 days from the date upon
which the Administrator made the determination to grant the Stock Purchase
Right. If required by the Applicable Laws, the purchase price of Shares subject
to Stock Purchase Rights shall not be less than 85% of the Fair Market Value of
the Shares as of the date of the offer, or, in the case of a person owning stock
representing more than 10% of the total combined voting power of all classes of
stock of the Company or any Parent or Subsidiary, the price shall not be less
than 100% of the Fair Market Value of the Shares as of the date of the offer. If
the Applicable Laws do not impose restrictions on the purchase price, the
purchase price of Shares subject to Stock Purchase Rights shall be as determined
by the Administrator. The offer to purchase Shares subject to Stock Purchase
Rights shall be accepted by execution of a Restricted Stock Purchase Agreement
in the form determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines otherwise,
the Restricted Stock Purchase Agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's employment with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original purchase price paid by
the purchaser and may be paid by cancellation of any indebtedness of the
purchaser to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine; provided, however, that with respect to a purchaser
who is not an officer, Director or Consultant of the Company or of any Parent or
Subsidiary of the Company, it shall lapse at a minimum rate of 20% per year if
required by the Applicable Laws.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock Purchase Agreements need not be the
same with respect to each purchaser.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
<PAGE>
11. Taxes.
(a) As a condition of the exercise of an Option or Stock Purchase
Right granted under the Plan, the Participant (or in the case of the
Participant's death, the person exercising the Option) shall make such
arrangements as the Administrator may require for the satisfaction of any
applicable federal, state, local or foreign withholding tax obligations that may
arise in connection with the exercise of an Option or Stock Purchase Right and
the issuance of Shares. The Company shall not be required to issue any Shares
under the Plan until such obligations are satisfied.
(b) In the case of an Employee and in the absence of any other
arrangement, the Employee shall be deemed to have directed the Company to
withhold or collect from his or her compensation an amount sufficient to satisfy
such tax obligations from the next payroll payment otherwise payable after the
date of an exercise of the Option.
(c) This Section 11(c) shall apply only after the date, if any, upon
which the Common Stock becomes a Listed Security. In the case of a Participant
other than an Employee (or in the case of an Employee where the next payroll
payment is not sufficient to satisfy such tax obligations, with respect to any
remaining tax obligations), in the absence of any other arrangement and to the
extent permitted under the Applicable Laws, the Participant shall be deemed to
have elected to have the Company withhold from the Shares to be issued upon
exercise of the Option or Stock Purchase Right that number of Shares having a
Fair Market Value determined as of the applicable Tax Date (as defined below)
equal to the amount required to be withheld. For purposes of this Section 11,
the Fair Market Value of the Shares to be withheld shall be determined on the
date that the amount of tax to be withheld is to be determined under the
Applicable Laws (the "Tax Date").
(d) If permitted by the Administrator, in its discretion, a
Participant may satisfy his or her tax withholding obligations upon exercise of
an Option or Stock Purchase Right by surrendering to the Company Shares that (i)
in the case of Shares previously acquired from the Company, have been owned by
the Participant for more than six months on the date of surrender, and (ii) have
a Fair Market Value determined as of the applicable Tax Date equal to the amount
required to be withheld.
(e) Any election or deemed election by a Participant to have Shares
withheld to satisfy tax withholding obligations under Section 11(c) or (d) above
shall be irrevocable as to the particular Shares as to which the election is
made and shall be subject to the consent or disapproval of the Administrator.
Any election by a Participant under Section 11(d) above must be made on or prior
to the applicable Tax Date.
<PAGE>
(f) In the event an election to have Shares withheld is made by a
Participant and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Participant shall receive
the full number of Shares with respect to which the Option or Stock Purchase
Right is exercised but such Participant shall be unconditionally obligated to
tender back to the Company the proper number of Shares on the Tax Date.
12. Non-Transferability of Options and Stock Purchase Rights. Options
and Stock Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred or disposed of in any manner other than by will or by the laws of
descent or distribution; provided however that, after the date, if any, upon
which the Common Stock becomes a Listed Security, the Administrator may in its
discretion grant transferable Nonstatutory Stock Options pursuant to Option
Agreements specifying (i) the manner in which such Nonstatutory Stock Options
are transferable and (ii) that any such transfer shall be subject to the
Applicable Laws. The designation of a beneficiary by an Optionee will not
constitute a transfer. An Option or Stock Purchase Right may be exercised,
during the lifetime of the holder of the Option or Stock Purchase Right, only by
such holder or a transferee permitted by this Section 12.
13. Adjustments Upon Changes in Capitalization, Corporate Transactions and
Certain Other Transactions.
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock that have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or that have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per Share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued Shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination, recapitalization or reclassification of the Common Stock (including
any change in the number of Shares of Common Stock effected in connection with a
change of domicile of the Company), or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the
Administrator, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of Shares of Common Stock subject to an Option
or Stock Purchase Right.
<PAGE>
(b) Dissolution or Liquidation. In the event of the dissolution or
liquidation of the Company, each outstanding Option or Stock Purchase Right
shall terminate immediately prior to the consummation of such action, unless
otherwise provided by the Administrator.
(c) Corporate Transactions. In the event of a Corporate Transaction,
each outstanding Option and Stock Purchase Right shall be assumed or an
equivalent option or right shall be substituted by the successor corporation or
a Parent or Subsidiary of such successor corporation, unless such successor
corporation does not agree to assume the outstanding Options or Stock Purchase
Rights or to substitute equivalent options or rights, in which case such Options
or Stock Purchase Rights shall terminate upon the consummation of the
transaction.
For purposes of this Section 13(c), an Option or a Stock
Purchase Right shall be considered assumed, without limitation, if, at the time
of issuance of the stock or other consideration upon a Corporate Transaction,
each holder of an Option or Stock Purchase Right would be entitled to receive
upon exercise of the Option or Stock Purchase Right the same number and kind of
shares of stock or the same amount of property, cash or securities as such
holder would have been entitled to receive upon the occurrence of the
transaction if the holder had been, immediately prior to such transaction, the
holder of the number of Shares of Common Stock covered by the Option or the
Stock Purchase Right at such time (after giving effect to any adjustments in the
number of Shares covered by the Option or Stock Purchase Right as provided for
in this Section 13); provided however that if such consideration received in the
transaction is not solely common stock of the successor corporation or its
Parent, the Administrator may, with the consent of the successor corporation,
provide for the consideration to be received upon exercise of the Option or
Stock Purchase Right to be solely common stock of the successor corporation or
its Parent equal to the Fair Market Value of the per Share consideration
received by holders of Common Stock in the transaction.
(d) Certain Distributions. In the event of any distribution to the.
Company's shareholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per Share of Common Stock covered by each
outstanding Option or Stock Purchase Right to reflect the effect of such
distribution.
14. Time of Granting Options and Stock Purchase Rights. The date of grant
of an Option or Stock Purchase Right shall, for all purposes, be the date on
which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Administrator;
provided, however, that in the case of any Incentive Stock Option, the grant
date shall be the later of the date on which the Administrator makes the
determination granting such Incentive Stock Option or the date of commencement
of the Optionee's employment relationship with the Company. Notice of the
determination shall be given to each Employee or Consultant to whom an Option or
Stock Purchase Right is so granted within a reasonable time after the date of
such grant.
<PAGE>
15. Amendment and Termination of the Plan.
(a) Authority to Amend or Terminate. The Board may at any time amend,
alter, suspend, discontinue or terminate the Plan, but no amendment, alteration,
suspension, discontinuation or termination (other than an adjustment made
pursuant to Section 13 above) shall be made that would materially and adversely
affect the rights of any Optionee or holder of Stock Purchase Rights under any
outstanding grant, without his or her consent. In addition, to the extent
necessary and desirable to comply with the Applicable Laws, the Company shall
obtain shareholder approval of any Plan amendment in such a manner and to such a
degree as required.
(b) Effect of Amendment or Termination. No amendment or termination of
the Plan shall materially and adversely affect Options already granted, unless
mutually agreed otherwise between the Optionee and the Administrator, which
agreement must be in writing and signed by the Optionee and the Company.
16. Conditions Upon Issuance of Shares. Notwithstanding 7 any other
provision of the Plan or any agreement entered into by the Company pursuant to
the Plan, the Company shall not be obligated, and shall have no liability for,
failure to issue or deliver any Shares under the Plan unless such issuance or
delivery would comply with the Applicable Laws, with such compliance determined
by the Company in consultation with its legal counsel.
As a condition to the exercise of an Option or Stock Purchase Right,
the Company may require the person exercising such Option or Stock Purchase
Right to represent and warrant at the time of any such exercise that the Shares
are being purchased only for investment and without any present intention to
sell or distribute such Shares if, in the opinion of counsel for the Company,
such a representation is required by law.
17. Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
18. Agreements. Options and Stock Purchase Rights shall be evidenced by
Option Agreements and Restricted Stock Purchase Agreements, respectively, in
such form(s) as the Administrator shall from time to time approve.
19. Shareholder Approval. If required by the Applicable Laws, continuance
of the Plan shall be subject to approval by the shareholders of the Company
within twelve months before or after the date the Plan is adopted. Such
shareholder approval shall be obtained in the degree and manner required under
the Applicable Laws.
<PAGE>
20. Information and Documents to Optionees and Purchasers. Prior to the
date, if any, upon which the Common Stock becomes a Listed Security and if
required by the Applicable Laws, the Company shall provide financial statements
at least annually to each Optionee and to each individual who acquired Shares
pursuant to the Plan, during the period such Optionee or purchaser has one or
more Options or Stock Purchase Rights outstanding, and in the case of an
individual who acquired Shares pursuant to the Plan, during the period such
individual owns such Shares. The Company shall not be required to provide such
information if the issuance of Options or Stock Purchase Rights under the Plan
is limited to key employees whose duties in connection with the Company assure
their access to equivalent information. In addition, at the time of issuance of
any securities under the Plan, the Company shall provide to the Optionee or the
purchaser a copy of the Plan and any agreement(s) pursuant to which securities
granted under the Plan are issued.
<PAGE>
SOFTPLUS INC.
1999 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this 1999 Stock Option Plan
are to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to Employees and
Consultants of the Company and its Subsidiaries and to promote the success of
the Company's business. Options granted under the Plan may be Incentive Stock
Options (as defined under Section 422 of the Code) or Nonstatutory Stock
Options, as determined by the Administrator at the time of grant of an Option
and subject to the applicable provisions of Section 422 of the Code, as amended,
and the regulations promulgated thereunder.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or its Committee appointed pursuant
to Section 4 of the Plan.
(b) "Affiliate" means an entity other than a Subsidiary in which the
Company owns an equity interest or which, together with the Company, is under
common control of a third person or entity.
(c) "Applicable Laws" means the legal requirements relating to the
administration of stock option plans under applicable U.S. state corporate laws,
U.S. federal and applicable state securities laws, the Code, any Stock Exchange
rules and regulations and the applicable laws of any other country or
jurisdiction where Options are granted under the Plan, as such laws, rules,
regulations and requirements shall be in place from time to time.
(d) "Board" means the Board of Directors of the Company.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
(f) "Committee" means one or more committees or subcommittees of the
Board appointed by the Board to administer the Plan in accordance with Section 4
below.
(g) "Common Stock" means the Common Stock of the Company.
(h) "Company" means SoftPlus Inc., a California corporation.
(i) "Consultant" means any person, including an advisor, who renders
services to the Company, or any Parent, Subsidiary or Affiliate, and is
compensated for such services, and any director of the Company whether
compensated for such services or not; provided, however, that if and in the
event the Company registers any class of equity security pursuant to the
Exchange Act, the term Consultant shall thereafter not include directors who are
not compensated for their services or are paid only a director's fee by the
Company.
<PAGE>
(j) "Continuous Service Status" means the absence of any interruption
or termination of service as an Employee or Consultant to the Company or a
Parent. Subsidiary or Affiliate. Continuous Service Status shall not be
considered interrupted in the case of (i) sick leave; (ii) military leave; (iii)
any other leave of absence approved by the Administrator, provided that such
leave is for a period of not more than 90 days, unless reemployment upon the
expiration of such leave is guaranteed by contract or statute, or unless
provided otherwise pursuant to Company policy adopted from time to time; or (iv)
in the case, of transfers between locations of the Company or between the
Company, its Parents, Subsidiaries or Affiliates or their respective successors.
Unless otherwise determined by the Administrator, a change in status from an
Employee to a Consultant or from a Consultant to an Employee will not constitute
an interruption of Continuous Service Status.
(k) "Corporate Transaction" means a sale of all or substantially all of
the Company's assets, or a merger, consolidation or other capital reorganization
of the Company with or into another corporation.
(l) "Director" means a member of the Board.
(m) "Employee" means any person, including officers and Directors,
employed by the Company or any Parent, Subsidiary or Affiliate of the Company.
The payment by the Company of a director's fee to a Director shall not be
sufficient to constitute "employment" of such Director by the Company.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(o) "Fair Market Value" means, as of any date, the fair market value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange or
a national market system including without limitation the National Market of the
National Association of Securities Dealers, Inc. Automated Quotation ("Nasdaq")
System, its Fair Market Value shall be the closing sales price for such stock
(or the closing bid, if no sales were reported), as quoted on such system or
exchange on the date of determination, or if no trading occurred on the date of
determination, on the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
(ii) If the Common Stock is quoted on the Nasdaq System (but not on the
National Market thereof) or regularly quoted by a recognized securities dealer
but selling prices are not reported, its Fair Market Value shall be the mean
between the high bid and low asked prices for the Common Stock for the last
market trading day prior to the time of determination, as reported in The Wall
Street Journal or such other source as the Administrator deems reliable; or
<PAGE>
(iii) In the, absence of an established market for the Common Stock,
the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(p) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code, as
designated in the applicable Option Agreement.
(q) "Listed Security" means any security of the Company that is listed
or approved for listing on a national securities exchange or designated or
approved for designation as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc.
(r) "Nonstatutory Stock Option" means an Option not intended to qualify
as an Incentive Stock Option, as designated in the applicable Option Agreement.
(s) "Option" means a stock option granted pursuant to the Plan.
(t) "Option Agreement" means a written document, the form(s) of which
shall be approved from time to time by the Administrator, reflecting the terms
of an Option granted under the Plan and includes any documents attached to or
incorporated into such Option Agreement, including, but not limited to, a notice
of stock option grant and a form of exercise notice.
(u) "Option Exchange Program" means a program approved by the
Administrator whereby outstanding Options are exchanged for Options with a lower
exercise price.
(v) "Optioned Stock" means the Common Stock subject to an Option.
(w) "Optionee" means an Employee or Consultant who receives an Option.
(x) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code, or any successor provision.
(y) "Participant" means any holder of one or more Options, or of the
Shares issuable or issued upon exercise of such Options, under the Plan.
(z) "Plan" means this 1999 Stock Option Plan.
(aa) "Reporting Person" means an officer, Director, or greater than 10%
shareholder of the Company within the meaning of Rule 16a-2 under the Exchange
Act, who is required to file reports pursuant to Rule 16a-3 under the Exchange
Act.
(bb) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act,
as the same may be amended from time to time, or any successor provision.
(cc) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.
(dd) "Stock Exchange" means any stock exchange or consolidated stock
price reporting system on which prices for the Common Stock are quoted at any
given time.
(ee) "Subsidiary" means a "Subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code, or any successor
provision.
<PAGE>
(ff) "Ten Percent Holder" means a person who owns stock representing
more than 10% of the voting power of all classes of stock of the Company or any
Parent or Subsidiary.
3. Stock Subject to the Plan. Subject to the provisions of Section 12
of the Plan, the maximum aggregate number of Shares that may be sold under the
Plan is 4,000,000 Shares of Common Stock. The Shares may be authorized, but
unissued, or reacquired Common Stock. If an Option expires or becomes
unexercisable for any reason without having been exercised in full, or is
surrendered pursuant to an Option Exchange Program, the unpurchased Shares that
were subject thereto shall, unless the Plan shall have been terminated, become
available for future grant under the Plan. In addition, any Shares of Common
Stock that are retained by the Company upon exercise of an Option in order to
satisfy the exercise or purchase price for such Option or any withholding taxes
due with respect to such exercise shall be treated as not issued and shall
continue to be available under the Plan. Shares issued under the Plan and later
repurchased by the Company pursuant to any repurchase right that the Company may
have shall not be available for future grant under the Plan.
4. Administration of the Plan
(a) General. The Plan shall be administered by the Board or a
Committee, or a combination thereof, as determined by the Board. The Plan may be
administered by different administrative bodies with respect to different
classes of Optionees and, if permitted by the Applicable Laws, the Board may
authorize one or more officers to grant Options under the Plan.
(b) Administration with Respect to Reporting Persons. With respect to
Options granted to Reporting Persons and Named Executives, the Plan may (but
need not) be administered so as to permit such Options to qualify for the
exemption set forth in Rule 16b-3 and to qualify as performance based
compensation under Section 162(m) of the Code.
(c) Committee Composition. If a Committee has been appointed pursuant
to this Section 4, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of any Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies (however caused) and remove all members of a Committee
and thereafter directly administer the Plan, all to the extent permitted by the
Applicable Laws and, in the case of a Committee administering the Plan pursuant
to Section 4(b) above, to the extent permitted or required by Rule 16b-3 and
Section 162(m) of the Code.
(d) Powers of the Administrator. Subject to the provisions of the Plan
and in the case of a Committee, the specific duties delegated by the Board to
such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any Stock Exchange, the Administrator
shall have the authority, in its discretion:
<PAGE>
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(o) of the Plan;
(ii) to select the Consultants and Employees to whom Options may from
time to time be granted;
(iii) to determine whether and to what extent Options are granted,
(iv) to determine the number of Shares of Common Stock to be covered by
each such Option granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any Option granted hereunder, which terms and conditions
include but are not limited to the exercise price, the time or times when
Options may be exercised (which may be based on performance criteria), any
vesting acceleration or waiver of forfeiture restrictions, and any restriction
or limitation regarding any Option or any Optioned Stock, based in each case on
such factors as the Administrator, in its sole discretion, shall determine;
(vii) to determine whether and under what circumstances an Option may
be settled in cash under Section 9(f) instead of Common Stock;
(viii) to reduce the exercise price of any Option to the then current
Fair Market Value if the Fair Market Value of the Common Stock covered by such
Option has declined since the date the Option was granted and to make any other
amendments or adjustments to any Option that the Administrator determines, in
its discretion and under the authority granted to it under the Plan, to be
necessary or advisable, provided however that no amendment or adjustment to an
Option that would materially and adversely affect the rights of any Optionee
shall be made without the prior written consent of the Optionee;
(ix) to initiate an Option Exchange Program;
(x) to construe and interpret the terms of the Plan and Options granted
under the Plan; and
(xi) in order to fulfill the purposes of the Plan and without amending
the Plan, to modify grants of Options to Participants who are foreign nationals
or employed outside of the United States in order to recognize differences in
local law, tax policies or customs.
(e) Effect of Administrator's Decision. All decisions, determinations
and interpretations of the Administrator shall be final and binding on all
Participants.
<PAGE>
5. Eligibility.
(a) Recipients of Grants. Nonstatutory Stock Options may be granted to
Employees and Consultants. Incentive Stock Options may be granted only to
Employees; provided however that Employees of Affiliates shall not be eligible
to receive Incentive Stock Options. An Employee or Consultant who has been
granted an Option may, if he or she is otherwise eligible, be granted additional
Options.
(b) Type of Option. Each Option shall be designated in the Option
Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designations, to the extent that the aggregate
Fair Market Value of Shares with respect to which Options designated as
Incentive Stock Options are exercisable for the first time by any Optionee
during any calendar year (under all plans of the Company or any Parent or
Subsidiary) exceeds $100,000, such excess Options shall be treated as
Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of the Shares subject to an Incentive Stock Option shall
be determined as of the date of the grant of such Option.
(c) At-Will Relationship. The Plan shall not confer upon any
Participant any right with respect to continuation of employment or consulting
relationship with the Company, nor shall it interfere in any way with such
Optionee's right or the Company's right to terminate his or her employment or
consulting relationship at any time, with or without cause.
(d) Reserved.
(e) Reserved.
(f) Term of Option. The term of each Option shall be the term stated in
the Option Agreement; provided, however, that the term shall be no more than ten
years from the date of grant thereof or such shorter term as may be provided in
the Option Agreement. However, in the case of an Incentive Stock Option granted
to an Optionee who, at the time the Option is granted, is a Ten Percent Holder,
the term of such Option shall be five years from the date of grant thereof or
such shorter term as may be provided in the Option Agreement.
6. Term of Plan. The Plan shall become effective upon its adoption by
the Board. It shall continue in effect for a term of ten years unless sooner
terminated under Section 14 of the Plan.
<PAGE>
7. Reserved.
8. Option Exercise Price and Consideration.
(a) The per Share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the
Administrator and set forth in the applicable Option Agreement, but shall be
subject to the following:
(i) In the case of an Incentive Stock Option that is:
(A) granted to an Employee who, at the time of grant is a Ten Percent
Holder, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(B) granted to any other Employee. the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option that is:
(A) granted prior to the date, if any, on which the Common Stock
becomes a Listed Security to a person who at the time of grant is a Ten Percent
Holder, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of the grant if required by the Applicable
Laws and, if not so required, shall be such price as is determined by the
Administrator.
(B) granted prior to the date, if any, on which the Common Stock
becomes a Listed Security to any other eligible person, the per Share exercise
price shall be no less than 85% of the Fair Market Value per Share on the date
of grant if required by the Applicable Laws and, if not so required, shall be
such price as is determined by the Administrator.
(iii) Notwithstanding the foregoing, Options may be granted with a per
Share exercise price other than as required above pursuant to a merger or other
corporate transaction.
<PAGE>
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash; (2)
check; (3) delivery of Optionee's promissory note with such recourse, interest,
security and redemption provisions as the Administrator determines to be
appropriate (4) cancellation of indebtedness; (5) other Shares that (x) in the
case of Shares acquired upon exercise of an Option, either have been owned by
the Optionee for more than six months on the date of surrender or such other
period as may be required to avoid a charge to the Company's earnings or were
not acquired, directly or indirectly, from the Company, and (y) have a Fair
Market Value on the date of surrender equal to the aggregate exercise price of
the Shares as to which such Option shall be exercised; (6) authorization for the
Company to retain from the total number of Shares as to which the Option is
exercised that number of Shares having a Fair Market Value on the date of
exercise equal to the exercise price for the total number of Shares as to which
the Option is exercised; (7) delivery of a property executed exercise notice
together with such other documentation as the Administrator and the broker, if
applicable, shall require to effect exercise of the Option and prompt delivery
to the Company of the sale or loan proceeds required to pay the exercise price
and any applicable withholding taxes; (8) any combination of the foregoing
methods of payment; or (9) such other consideration and method of payment for
the issuance of Shares to the extent permitted under the Applicable Laws. In
making its determination as to the type of consideration to accept. the
Administrator shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company, and the Administrator may refuse to
accept a particular form of consideration at the time of any Option exercise if,
in its sole discretion, acceptance of such form of consideration is not in the
best interests of the Company at such time.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option granted
hereunder shall be exercisable at such times and under such conditions as
determined by the Administrator, consistent with the term of the Plan and
reflected in the Option Agreement, including vesting requirements and/or
performance criteria with respect to the Company and/or the Optionee; provided
however, that, if required by the Applicable Laws, any Option granted prior to
the date, if any, upon which the Common Stock becomes a Listed Security shall
become exercisable at the rate of at least 20% per year over five years from the
date the Option is granted. In the event that any of the Shares issued upon
exercise of an Option (which exercise occurs prior to the date, if any, upon
which the Common Stock becomes a Listed Security) should be subject to a right
of repurchase in the Company's favor, such repurchase right shall, if required
by the Applicable Laws, lapse at the rate of at least 20% per year over five
years from the date the Option is granted. Notwithstanding the above, in the
case of an Option granted to an officer, Director or Consultant of the Company
or any Parent, Subsidiary or Affiliate of the Company, the Option may become
fully exercisable, or a repurchase right, if any, in favor of the Company shall
lapse, at any time or during any period established by the Administrator. The
Administrator shall have the discretion to determine whether and to what extent
the vesting of Options shall be tolled during any leave of absence; provided
however that in the absence of such determination, vesting of Options shall be
tolled during any such leave.
<PAGE>
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and the Company has
received full payment for the Shares with respect to which the Option is
exercised. Full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
not withstanding the exercise of the Option. The Company shall issue (or cause
to be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 12 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares that thereafter may be available, both for purposes of the Plan
and for sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) Termination of Employment or Consulting Relationship.
(i) Termination other than for Cause, Death or Disability. In the event
of the termination of an Optionee's Continuous Service Status with the Company,
other than a termination for Cause (as defined below), death (as provided for in
Section 9(d)), or disability (as provided for in Section 9(b)), such Optionee
may, but only within three months (or such other period of time, not less than
30 days, as is determined by the Administrator, with such determination in the
case of an Incentive Stock Option being made at the time of grant of the Option)
after the date of such termination (but in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement), exercise
his or her Option to the extent that the Optionee was entitled to exercise it at
the date of such termination. To the extent that the Optionee was not entitled
to exercise the Option at the date of such termination, or if the Optionee does
not exercise the Option to the extent so entitled within the time specified
above, the Option shall terminate and the Optioned Stock underlying the
unexercised portion of the Option shall revert to the Plan. Unless otherwise
determined by the Administrator, no termination shall be deemed to occur and
this Section 9(b) shall not apply if (i) the Optionee is a Consultant who
becomes an Employee, or (ii) the Optionee is an Employee who becomes a
Consultant.
(ii) Termination for Cause. In the event of the termination for Cause
of an Optionee's Continuous Service Status with the Company, the Option will
expire on Participant's Termination Date, or at such later time and on such
conditions as are determined by the Committee.
<PAGE>
(iii) Definition of Cause. For the purposes of this Agreement, "Cause"
for Optionee's termination shall include (A) Optionee's misconduct or negligence
in performance of his or her duties hereunder as determined by the Company; (B)
dishonest or fraudulent conduct, a deliberate attempt to do an injury to the
Company, or conduct that discredits the Company or is detrimental to the
reputation of the Company, including conviction of a felony; (C) Optionee's
violation of the Company's policies and prohibitions on discrimination and
harassment, or (D) Optionee's material breach of any element of the Company's
Confidential Information and Invention Assignment Agreement, including without
limitation, Optionee's theft or other misappropriation of the Company's
proprietary information.
(c) Disability of Optionee.
(i) Notwithstanding Section 9(b) above, in the event of termination of
an Optionee's Continuous Service Status as a result of his or her total and
permanent disability (within the meaning of Section 22(e)(3) of the Code), such
Optionee may, but only within twelve months (or such other period of time as is
determined by the Administrator, with such determination in the case of an
Incentive Stock Option made at the time of grant of the Option) from the date of
such termination (but in no event later than the expiration date of the term of
such Option as set forth in the Option Agreement), exercise the Option to the
extent otherwise entitled to exercise it at the date of such termination. To the
extent that the Optionee was not entitled to exercise the Option at the date of
termination, or if the Optionee does not exercise. Such Option to the extent so
entitled within the time specified above, the Option shall terminate and the
Optioned Stock underlying the unexercised portion of the Option shall revert to
the Plan.
(ii) In the event of termination of an Optionee's Continuous Service
Status as a result of a disability which does not fall within the meaning of
total and permanent disability (as set forth in Section 22(e)(3) of the Code),
such Optionee may, but only within twelve months (or such other period of time
as is determined by the Administrator, with such determination in the case of an
Incentive Stock Option made at the time of grant of the Option) from the date of
such termination (but in no event later than the expiration date of the term of
such Option as set forth in the Option Agreement), exercise the Option to the
extent otherwise entitled to exercise it at the date of such termination.
However, to the extent that such Optionee falls to exercise an Option that is an
Incentive Stock Option (within the meaning of Section 422 of the Code) within
three months of the date of such termination, the Option will not qualify for
incentive Stock Option treatment under the Code. To the extent that the Optionee
was not entitled to exercise the Option at the date of termination, or if the
Optionee does not exercise such Option to the extent so entitled within the time
period specified above, the Option shall terminate and the Optioned Stock
underlying the unexercised portion of the Option shall revert to the Plan.
<PAGE>
(d) Death of Optionee. In the event of the death of an Optionee during
the period of Continuous Service Status since the date of grant of the Option,
or within thirty (30) days following termination of the Optionee's Continuous
Service Status, the Option may be exercised, at any time within twelve months
following the date of death (but in no event later than the expiration date of
the term of such Option as set forth in the Option Agreement), by such
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent of the right to exercise that
had accrued at the date of death or, if earlier, the date of termination of the
Optionee's Continuous Service Status. To the extent that the Optionee was not
entitled to exercise the Option at the date of death or termination, as the case
may be, or if the Optionee does not exercise such Option to the extent so
entitled within the time specified above, the Option shall terminate and the
Optioned Stock underlying the unexercised portion of the Option shall revert to
the Plan.
(e) Extension of Exercise Period. The Administrator shall have full
power and authority to extend the period of time for which an Option is to
remain exercisable following termination of an Optionee's Continuous Status as
an Employee or Consultant from the periods set forth in Sections 9(b), 9(c) and
9(d) above or in the Option Agreement to such greater time as the Board shall
deem appropriate, provided, that in no event shall such Option be exercisable
later than the date of expiration of the term of such Option as set forth in the
Option Agreement.
(f) Buy-Out Provisions. The Administrator may at any time offer to buy
out for a payment in cash or Shares an Option previously granted under the Plan,
based on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time such offer is made.
10. Taxes.
(a) As a condition of the exercise of an Option granted under the Plan,
the Participant (or in the case of the Participant's death. the person
exercising the Option) shall make such arrangements as the Administrator may
require for the satisfaction of any applicable federal, state, local or foreign
withholding tax obligations that may arise in connection with the exercise of an
Option and the issuance of Shares. The Company shall not be required to issue
any Shares under the Plan until such obligations are satisfied.
(b) In the case of an Employee and in the absence of any other
arrangement, the Employee shall be deemed to have directed the Company to
withhold or collect from his or her compensation an amount sufficient to satisfy
such tax obligations from the next payroll payment otherwise payable after the
date of an exercise of the Option.
<PAGE>
(c) This Section 10(c) shall apply only after the date, if any, upon
which the Common Stock becomes a Listed Security. In the case of a Participant
other than an Employee (or in the case of an Employee where the next payroll
payment is not sufficient to satisfy such tax obligations, with respect to any
remaining tax obligations), in the absence of any other arrangement and to the
extent permitted under the Applicable Laws, the Participant shall be deemed to
have elected to have the Company withhold from the Shares to be issued upon
exercise of the Option that number of Shares having a Fair Market Value
determined as of the applicable Tax Date (as defined below) equal to the amount
required to be withheld. For purposes of this Section 10, the Fair Market Value
of the Shares to be withheld shall be determined on the date that the amount of
tax to be withheld is to be determined under the Applicable Laws (the "Tax
Date").
(d) If permitted by the Administrator, in its discretion, a Participant
may satisfy his or her tax withholding obligations upon exercise of an Option by
surrendering to the Company Shares that (i) in the case of Shares previously
acquired from the Company, have been owned by the Participant for more than six
months on the date of surrender, and (ii) have a Fair Market Value determined as
of the applicable Tax Date equal to the amount required to be withheld.
(e) Any election or deemed election by a Participant to have Shares
withheld to satisfy tax withholding obligations under Section 10(c) or (d) above
shall be irrevocable as to the particular Shares as to which the election is
made and shall be subject to the consent or disapproval of the Administrator.
Any election by a Participant under Section 10(d) above must be made on or prior
to the applicable Tax Date.
(f) In the event an election to have Shares withheld is made by a
Participant and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Participant shall receive
the full number of Shares with respect to which the Option is exercised but such
Participant shall be unconditionally obligated to tender back to the Company the
proper number of Shares on the Tax Date.
11. Non-Transferability of Options. Options may not be sold, pledged,
assigned. hypothecated, transferred or disposed of in any manner other than by
will or by the laws of descent or distribution; provided however that, after the
date, if any. upon which the Common Stock becomes a Listed Security, the
Administrator may in its discretion grant transferable Nonstatutory Stock
Options pursuant to Option Agreements specifying (1) the manner in which such
Nonstatutory Stock Options are transferable and (ii) that any such transfer
shall be subject to the Applicable Laws. The designation of a beneficiary by an
Optionee will not constitute a transfer. An Option may be exercised, during the
lifetime of the holder of the Option, only by such holder or a transferee
permitted by this Section 11.
<PAGE>
12. Adjustments Upon Changes in Capitalization, Corporate Transactions
and Certain Other Transactions.
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock that have been
authorized for issuance under the Plan but as to which no Options have yet been
granted or that have been returned to the Plan upon cancellation or expiration
of an Option, as well as the price per Share of Common Stock covered by each
such outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued Shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination, recapitalization or
reclassification of the Common Stock (including any change in the number of
Shares of Common Stock effected in connection with a change of domicile of the
Company), or any other increase or decrease in the number of issued shares of
Common Stock effected without receipt of consideration by the Company; provided
however that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Administrator, whose determination in that
respect shall be final, binding and conclusive. Except as expressly provided
herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of Shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the dissolution or
liquidation of the Company, each outstanding Option will terminate immediately
prior to the consummation of such action, unless otherwise provided by the
Administrator.
(c) Corporate Transactions. In the event of a Corporate Transaction,
each outstanding Option shall be assumed or an equivalent option shall be
substituted by the successor corporation (or a Parent or Subsidiary of such
successor corporation), unless the successor corporation does not agree to
assume the outstanding Options or substitute equivalent options, in which case
the outstanding Options shall terminate upon the consummation of the
transaction.
<PAGE>
For purposes of this Section 12(c), an Option shall be considered
assumed, without limitation, if, at the time of issuance of the stock or other
consideration upon a Corporate Transaction, each Optionee would be entitled to
receive upon exercise of an Option the same number and kind of shares of stock
or the same amount of property, cash or securities as the Optionee would have
been entitled to receive upon the occurrence of such transaction if the Optionee
had been, immediately prior to the transaction, the holder of the number of
Shares of Common Stock covered by the Option at Such time (after giving effect
to any adjustments in the number of Shares covered by the Option as provided for
In this Section 12); provided however that if such consideration received in the
transaction is not solely common stock of the successor corporation or its
Parent, the Administrator may, with the consent of the successor corporation,
provide for the consideration to be received upon exercise of the Option to be
solely common stock of the successor corporation or its Parent equal to the Fair
Market Value of the per Share consideration received by holders of Common Stock
in the transaction.
(d) Certain Distributions. In the event of any distribution to the
Company's shareholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per Share of Common Stock covered by each
outstanding Option to reflect the effect of such distribution.
13. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Administrator;
provided however that in the case of any Incentive Stock Option, the grant date
shall be the later of the date on which the Administrator makes the
determination granting such Incentive Stock Option or the date of commencement
of the Optionee's employment relationship with the Company. Notice of the
determination shall be given to each Employee or Consultant to whom an Option is
so granted within a reasonable time after the date of such grant.
14. Amendment and Termination of the Plan.
(a) Authority to Amend or Terminate. The Board may at any time amend,
alter, suspend, discontinue or terminate the Plan, but no amendment, alteration,
suspension, discontinuation or termination (other than an adjustment made
pursuant to Section 13 above) shall be made that would materially and adversely
affect the rights of any Optionee under any outstanding grant, without his or
her consent. In addition, to the extent necessary and desirable to comply with
the Applicable Laws, the Company shall obtain shareholder approval of any Plan
amendment in such a manner and to such a degree as required.
(b) Effect of Amendment or Termination. No amendment or termination of
the Plan shall materially and adversely affect Options already granted, unless
mutually agreed otherwise between the Optionee and the Administrator, which
agreement must be in writing and signed by the Optionee and the Company.
<PAGE>
15. Conditions Upon Issuance of Shares. Notwithstanding any other
provision of the Plan or any agreement entered into by the Company pursuant to
the Plan, the Company shall not be obligated, and shall have no liability for,
failure to issue or deliver any Shares under the Plan unless such issuance or
delivery would comply with the Applicable Laws, with such compliance determined
by the Company in consultation with its legal counsel.
As a condition to the exercise of an Option the Company may require the
person exercising such Option to represent and warrant at tile time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, Such a representation is required by law.
16. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
17. Option Agreements. Options shall be evidenced by Option Agreements
in such form(s) as the Administrator shall from time to time approve.
18. Shareholder Approval. If required by the Applicable Laws,
continuance of the Plan shall be subject to approval by the shareholders of the
Company within twelve months before or after the date the Plan is adopted. Such
shareholder approval shall be obtained in the degree and manner required under
the Applicable Laws.
19. Information and Documents to Optionees. Prior to the date, if any,
upon which the Common Stock becomes a Listed Security and if required by the
Applicable Laws, the Company shall provide financial statements at least
annually to each Optionee during the period such Optionee has one or more
Options outstanding, and in the case of an individual who acquired Shares
pursuant to the Plan, during the period such individual owns such Shares. The
Company shall not be required to provide such information if the issuance of
Options under the Plan is limited to key employees whose duties in connection
with the Company assure their access to equivalent information. In addition, at
the time of issuance of any securities under the Plan, the Company shall provide
to the Optionee a copy of the Plan and any agreement(s) pursuant to which
securities granted under the Plan are issued.
<PAGE>
SOFT PLUS, INC.
1997 STOCK PLAN
(FORMERLY AMENDED AND RESTATED 1994 STOCK PLAN)
1. Purposes of the Plan. The purposes of this Stock Plan are to attract
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Directors and
Consultants and to promote the success of the Company's business. Options
granted under the Plan may be Incentive Stock Options or Nonstatutory Stock
Options, as determined by the Administrator at the time of grant. Stock Purchase
Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees as shall
be administering the Plan in accordance with Section 4 hereof.
(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any other country or jurisdiction where Options or Stock Purchase Rights are
granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means a committee of Directors appointed by the Board
in accordance with Section 4 hereof.
(f) "Common Stock" means the Common Stock of the Company.
(g) "Company" means Soft Plus, Inc., a CA corporation.
(h) "Consultant" means any person who is engaged by the Company or any
Parent or Subsidiary to render consulting or advisory services to such entity.
(i) "Director" means a member of the Board of Directors of the Company.
(j) "Disability" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
<PAGE>
(k) "Employee" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(1) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(m) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange or
a national market system, including without limitation the Nasdaq National
Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market
Value shall be the closing sales price for such stock (or the closing bid, if no
sales were reported) as quoted on such exchange or system for the last market
trading day prior to the time of determination, as reported in The Wall Street
Journal or such other source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall be the
mean between the high bid and low asked prices for the Common Stock on the last
market trading day prior to the day of determination; or
(iii) In the absence of an established market for the Common Stock, the
Fair Market Value thereof shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code.
(o) "Nonstatutory Stock Option" means an Option not intended to qualify
as an Incentive Stock Option.
(p) "Officer" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(q) "Option" means a stock option granted pursuant to the Plan.
<PAGE>
(r) "Option Agreement" means a written or electronic agreement between
the Company and an Optionee evidencing the terms and conditions of an individual
Option grant. The Option Agreement is subject to the terms and conditions of the
Plan.
(s) "Option Exchange Program" means a program whereby outstanding
Options are exchanged for Options with a lower exercise price.
(t) "Optioned Stock" means the Common Stock subject to an Option or a
Stock Purchase Right.
(u) "Optionee" means the holder of an outstanding Option or Stock
Purchase Right granted under the Plan.
(v) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(w) "Plan" means this 1997 Stock Plan.
(x) "Restricted Stock" means shares of Common Stock acquired pursuant
to a grant of a Stock Purchase Right under Section 11 below.
(y) "Section 16(b)" means Section 16(b) of the Securities Exchange Act
of 1934, as amended.
(z) "Service Provider" means an Employee, Director or Consultant.
(aa) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 12 below.
(bb) "Stock Purchase Right" means a right to purchase Common Stock
pursuant to Section 11 below.
(cc) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 12
of the Plan, the maximum aggregate number of Shares which may be subject to
option and sold under the Plan is 1,500,000 Shares. The Shares may be authorized
but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated). However, Shares that have actually been issued under the Plan, upon
exercise of either an Option or Stock Purchase Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.
<PAGE>
4. Administration of the Plan.
(a) Administrator. The Plan shall be administered by the Board or a
Committee appointed by the Board, which Committee shall be constituted to comply
with Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the Plan
and, in the case of a Committee, the specific duties delegated by the Board to
such Committee, and subject to the approval of any relevant authorities, the
Administrator shall have the authority in its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock Purchase
Rights may from time to time be granted hereunder;
(iii) to determine the number of Shares to be covered by each such
award granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, of any Option or Stock
Purchase Right granted hereunder. Such terms and conditions include, but are not
limited to, the exercise price, the time or times when Options or Stock Purchase
Rights may be exercised (which may be based on performance criteria), any
vesting acceleration or waiver of forfeiture restrictions, and any restriction
or limitation regarding any Option or Stock Purchase Right or the Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vi) to determine whether and under what circumstances an Option may be
settled in cash under subsection 9(e) instead of Common Stock;
(vii) to reduce the exercise price of any Option to the then current
Fair Market Value if the Fair Market Value of the Common Stock covered by such
Option has declined since the date the Option was granted;
(viii) to initiate an Option Exchange Program;
<PAGE>
(ix) to prescribe, amend and rescind rules and regulations relating to
the Plan, including rules and regulations relating to sub-plans established for
the purpose of qualifying for preferred tax treatment under foreign tax laws;
(x) to allow Optionees to satisfy withholding tax obligations by
electing to have the Company withhold from the Shares to be issued upon exercise
of an Option or Stock Purchase Right that number of Shares having a Fair Market
Value equal to the amount required to be withheld. The Fair Market Value of the
Shares to be withheld shall be determined on the date that the amount of tax to
be withheld is to be determined. All elections by Optionees to have Shares
withheld for this purpose shall be made in such form and under such conditions
as the Administrator may deem necessary or advisable; and
(xi) to construe and interpret the terms of the Plan and awards granted
pursuant to the Plan.
(c) Effect of Administrator's Decision. All decisions, determinations
and interpretations of the Administrator shall be final and binding on all
Optionees.
5. Eligibility.
(a) Nonstatutory Stock Options and Stock Purchase Rights may be granted
to Service Providers. Incentive Stock Options may be granted only to Employees.
(b) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $ 100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 5(b), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(c) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon any Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall it interfere in
any way with his or her right or the Company's right to terminate such
relationship at any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon its adoption by
the Board. It shall continue in effect for a term of ten (10) years unless
sooner terminated under Section 14 of the Plan.
7. Term of Option. The term of each Option shall be stated in the
Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof.
<PAGE>
MISSING PAGE
<PAGE>
its determination as to the type of consideration to accept, the Administrator
shall consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
9. Exercise of Option.
(a) Procedure for Exercise, Rights as a Shareholder. Any Option granted
hereunder shall be exercisable according to the terms hereof at such times and
under such conditions as determined by the Administrator and set forth in the
Option Agreement. Except in the case of Options granted to Officers, Directors
and Consultants, Options shall become exercisable at a rate of no less than 20%
per year over five (5) years from the date the Options are granted. Unless the
Administrator provides otherwise, vesting of Options granted hereunder shall be
tolled during any unpaid leave of absence. An Option may not be exercised for a
fraction of a Share.
An Option shall be deemed exercised when the Company receives: (i)
written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Shares, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 12 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares thereafter available, both for purposes of the Plan and for
sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) Termination of Relationship as a Service Provider. If an Optionee
ceases to be a Service Provider, such Optionee may exercise his or her Option
within such period of time as is specified in the Option Agreement (of at least
thirty (30) days) to the extent that the Option is vested on the date of
termination (but in no event later than the expiration of the term of the Option
as set forth in the Option Agreement). In the absence of a specified time in the
Option Agreement, the Option shall remain exercisable for three (3) months
following the Optionee's termination. If, on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by the
unvested portion of the Option shall revert to the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified by
the Administrator, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
<PAGE>
(c) Disability of Optionee. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
(of at least six (6) months) to the extent the Option is vested on the date of
termination (but in no event later than the expiration of the term of such
Option as set forth in the Option Agreement). In the absence of a specified time
in the Option Agreement, the Option shall remain exercisable for twelve (12)
months following the Optionee's termination. If, on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by the
unvested portion of the Option shall revert to the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service Provider,
the Option may be exercised within such period of time as is specified in the
Option Agreement (of at least six (6) months) to the extent that the Option is
vested on the date of death (but in no event later than the expiration of the
terms of such Option as set forth in the Option Agreement) by the Optionee's
estate or by a person who acquires the right to exercise the Option by bequest
or inheritance. In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, at the time of death, the Optionee is not vested as to the
entire Option, the Shares covered by the unvested portion of the Option shall
immediately revert to the Plan. If the Option is not so exercised within the
time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to buy
out for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
10. Non-Transferability of Options and Stock Purchase Rights. The
Options and Stock Purchase Rights may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by will or by
the laws of descent or distribution and may be exercised, during the lifetime of
the Optionee, only by the Optionee.
<PAGE>
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically of the terms, conditions and restrictions
related to the offer, including the number of Shares that such person shall be
entitled to purchase, the price to be paid, and the time within which such
person must accept such offer. The terms of the offer shall comply in all
respects with Section 260.140.42 of Title 10 of the California Code of
Regulations. The offer shall be accepted by execution of a Restricted Stock
purchase agreement in the form determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines otherwise,
the Restricted Stock purchase agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's service with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine. Except with respect to Shares purchased by
Officers, Directors and Consultants, the repurchase option shall in no case
lapse at a rate of less than 20% per year over five (5) years from the date of
purchase.
(c) Other Provisions. The Restricted Stock purchase agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
exercised, the purchaser shall have rights equivalent to those of a shareholder
and shall be a shareholder when his or her purchase is entered upon the records
of the duly authorized transfer agent of the Company. No adjustment shall be
made for a dividend or other right for which the record date is prior to the
date the Stock Purchase Right is exercised, except as provided in Section 12 of
the Plan.
12. Adjustments Upon Changes in Capitalization. Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company. The conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option or Stock Purchase Right.
<PAGE>
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option or Stock Purchase Right until
fifteen (15) days prior to such transaction as to all of the Optioned Stock
covered thereby, including Shares as to which the Option or Stock Purchase Right
would not otherwise be exercisable. In addition, the Administrator may provide
that any Company repurchase option applicable to any Shares purchased upon
exercise of an Option or Stock Purchase Right shall lapse as to all such Shares,
provided the proposed dissolution or liquidation takes place at the time and in
the manner contemplated. To the extent it has not been previously exercised, an
Option or Stock Purchase Right will terminate immediately prior to the
consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company with
or into another corporation, or the sale of substantially all of the assets of
the Company, each outstanding Option and Stock Purchase Right shall be assumed
or an equivalent option or right substituted by the successor corporation or a
Parent or Subsidiary of the successor corporation. In the event that the
successor corporation refuses to assume or substitute for the Option or Stock
Purchase Right, the Optionee shall fully vest in and have the right to exercise
the Option or Stock Purchase Right as to all of the Optioned Stock, including
Shares as to which it would not otherwise be vested or excercisable. If an
0ption or Stock Purchase Right becomes fully vested and exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully exercisable for a period of
fifteen (15) days from the date of such notice, and the Option or Stock Purchase
Right shall terminate upon the expiration of such period. For the purposes of
this paragraph, the Option or Stock Purchase Right shall be considered assumed
if, following the merger or sale of assets, the option or right confers the
right to purchase or receive, for each Share of Optioned Stock subject to the
Option or Stock Purchase Right immediately prior to the merger or sale of
assets, the consideration (whether stock, cash, or other securities or property)
received in the merger or sale of assets by holders of Common Stock for each
Share held on the effective date of the transaction (and if holders were offered
a choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares); provided, however, that if such
consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Stock Purchase Right, for each Share
of Optioned Stock subject to the Option or Stock Purchase Right, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
13. Time of Granting Options and Stock Purchase Rights. The date of
grant of an Option or Stock Purchase Right shall, for all purposes, be the date
on which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Administrator. Notice
of the determination shall be given to each Service Provider to whom an Option
or Stock Purchase Right is so granted within a reasonable time after the date of
such grant.
<PAGE>
14. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend, alter,
suspend or terminate the Plan.
(b) Shareholder Approval. The Board shall obtain shareholder approval
of any Plan amendment to the extent necessary and desirable to comply with
Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
15. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with Applicable Laws and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
(b) Investment Representations. As a condition to the exercise of an
Option, the Administrator may require the person exercising such Option to
represent and warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required.
16. Inability to Obtain Authority. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
17. Reservation of Shares. The Company, during the term of this Plan,
shall at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
18. Shareholder Approval. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the degree and manner
required under Applicable Laws.
<PAGE>
AGREEMENT AND PLAN OF MERGER
Dated: February 1, 2000
By and Among
U.S. INTERACTIVE, INC.,
FIRST ACQUISITION CO.,
SOFT PLUS, INC.,
MOHAN UTTARWAR,
VIJAY UTTARWAR,
VINAY DESHPANDE and
O.P. SRINIVASAN
<PAGE>
TABLE OF CONTENTS
Page
Article I. Definitions.........................................................1
Article II. The Merger.........................................................5
2.1 The Merger............................................................5
2.2 Closing...............................................................6
2.3 Effective Time of the Merger..........................................6
2.4 Effects of the Merger.................................................6
2.5 Certificate of Incorporation and Bylaws...............................6
2.6 Board of Directors and Officers.......................................6
Article III. Effect of the Merger on the Capital Stock of the
Constituent Corporations; Exchange of Certificates..7
3.1 Effect on Capital Stock...............................................7
3.2 Exchange of Certificates.............................................10
Article IV. Approval; Amendment; Termination..................................13
4.1 Approval.............................................................13
4.2 Amendment............................................................13
4.3 Termination..........................................................13
Article V. Representations and Warranties Regarding Soft Plus.................13
5.1 Organization; Qualification..........................................13
5.2 Subsidiaries.........................................................14
5.3 Capital Structure....................................................14
5.4 Authority; Noncontravention..........................................16
5.5 Financial Statements.................................................17
5.6 Absence of Undisclosed Liabilities...................................17
5.7 Absence of Certain Changes of Events.................................18
5.8 Litigation...........................................................18
5.9 Compliance with Applicable Laws......................................19
5.10 Soft Plus Benefit Plans..............................................19
5.11 Employees............................................................21
5.12 Taxes................................................................22
5.13 State Takeover Statutes..............................................23
5.14 Brokers..............................................................23
5.15 Machinery and Equipment..............................................24
5.16 Inventory............................................................24
5.17 Leases...............................................................24
5.18 Environmental Laws...................................................24
5.19 Insurance............................................................24
5.20 Intellectual Property; Year 2000.....................................24
5.21 Bank Accounts, Letters of Credit and Powers of Attorney..............26
5.22 Accounts and Notes Receivable........................................26
<PAGE>
5.23 Accounts Payable.....................................................26
5.24 Customers, Suppliers, Licensees and Consulting Agreements............26
5.25 Absence of Defaults..................................................27
5.26 No-Shop Agreement....................................................28
5.27 Absence of Corrupt Practices.........................................28
5.28 No Material Misstatements or Omissions...............................28
Article VI. Representations and Warranties Regarding the Principal
Shareholders......................................................28
6.1 Title to the Shares..................................................28
6.2 Power and Capacity...................................................29
6.3 Litigation...........................................................29
6.4 Spousal Consent......................................................29
6.5 Waiver of Claims.....................................................30
6.6 Documents Delivered..................................................30
6.7 Accredited Investor..................................................30
6.8 Waiver of Rights.....................................................31
6.9 No Ownership of USI Stock............................................31
Article VII. Representations and Warranties of USI and Acquisition............31
7.1 Organization, Standing and Corporate Power...........................31
7.2 Subsidiaries.........................................................31
7.3 Capital Structure....................................................32
7.4 Authority; Noncontravention..........................................32
7.5 Litigation...........................................................33
7.6 Issuance of Shares...................................................33
7.7 Securities Exchange Act of 1934......................................33
7.8 Absence of Undisclosed Liabilities...................................34
7.9 Compliance with Applicable Laws......................................34
7.10 No Material Misstatements or Omissions...............................35
7.11 Receipt of Fairness Opinion..........................................35
Article VIII. Covenants Relating to Conduct of Business.......................35
8.1 Conduct of Business by Soft Plus.....................................35
8.2 No Solicitation by Soft Plus; No Revocation..........................37
8.3 Standstill Agreements; Confidentiality Agreements....................37
8.4 Advise of Changes....................................................37
8.5 Fees and Expenses....................................................38
8.6 Compliance with California Corporation Law
and Section 280G of the Code.......................................38
8.7 Additional Covenants.................................................38
Article IX. Additional Agreements.............................................39
9.1 Post-Closing Registration Rights.....................................39
9.2 Registration of Soft Plus Options....................................40
9.3 Employee Benefit Plans; Existing Agreements..........................40
9.4 Lock-up and Market-out Agreement with Respect to USI Stock...........40
9.5 Post-Closing Audit...................................................41
9.6 Access to Information; Confidentiality...............................41
9.7 Commercially Reasonable Best Efforts.................................41
9.8 Public Announcements.................................................42
9.9 Tax Treatment........................................................42
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<PAGE>
9.10 Resignation of Soft Plus Board of Directors..........................42
9.11 Deliver of Books and Records.........................................42
9.12 Blue Sky Laws........................................................42
9.13 Listing of Additional Shares.........................................43
9.14 USI Board Vacancy Appointment........................................43
9.15 Indemnification of Officers and Directors............................43
Article X. Conditions Precedent...............................................44
10.1 Conditions to Each Party's Obligation To Effect the Merger...........44
10.2 Conditions to Obligations of USI and Acquisition.....................44
10.3 Conditions to Obligations of Soft Plus...............................47
10.4 Frustration of Closing Conditions....................................48
Article XI. Termination, Amendment and Waiver.................................49
11.1 Termination..........................................................49
11.2 Effect of Termination................................................49
11.3 Extension; Waiver....................................................49
11.4 Procedure for Termination, Amendment, Extension or Waiver............50
Article XII. Indemnification..................................................50
12.1 Survival of Representations and Warranties...........................50
12.2 Escrow Fund..........................................................50
12.3 Indemnification......................................................51
12.4 Claims in Excess of the Indemnity Threshold..........................52
12.5 Escrow Period........................................................52
12.6 Distributions; Voting................................................52
12.7 Method of Asserting Claims...........................................53
12.8 Soft Plus Shareholder Agent; Power of Attorney.......................53
12.9 Waiver of Contribution...............................................53
12.10 Indemnity by USI.....................................................53
12.11 Effect of Investigation..............................................54
12.12 Notice to the Indemnitor.............................................54
12.13 Rights of Parties to Settle or Defend................................54
12.14 Settlement Proposals.................................................55
Article XIII. General Provisions..............................................55
13.1 Notices..............................................................55
13.2 Interpretation.......................................................57
13.3 Further Assurances...................................................57
13.4 Counterparts.........................................................58
13.5 Entire Agreement; No Third-Party Beneficiaries.......................58
13.6 Governing Law........................................................58
13.7 Dispute Resolution...................................................58
13.8 Assignment...........................................................59
13.9 Enforcement..........................................................59
13.10 Headings.............................................................59
13.11 Severability.........................................................59
13.12 Time of the Essence..................................................60
13.13 Exhibits and Schedules...............................................60
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<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated February 1, 2000, is by and among
U.S. INTERACTIVE, INC., a Delaware corporation ("USI"), FIRST ACQUISITION CO., a
Delaware corporation and a wholly owned subsidiary of USI ("Acquisition"), and
SOFT PLUS, INC., a California corporation ("Soft Plus"), and certain
shareholders of Soft Plus, MOHAN UTTARWAR, VIJAY UTTARWAR, VINAY DESHPANDE and
O.P. SRINIVASAN (referred to collectively as the "Principal Shareholders").
BACKGROUND
The respective Boards of Directors of USI, Acquisition and Soft Plus have
approved and declared advisable this Agreement and the merger of Soft Plus with
and into Acquisition (the "Merger"), upon the terms and subject to the
conditions set forth in this Agreement, whereby each issued and outstanding
share of common stock, no stated par value, of Soft Plus ("Soft Plus Common
Stock"), other than shares owned by Soft Plus, will be converted as provided
herein solely into the right to receive the Merger Consideration, consisting of
the Share Consideration and the Cash Consideration, as such terms are defined
herein.
The respective Boards of Directors of USI, Acquisition and Soft Plus have
each determined that the Merger in accordance with the provisions of the
California General Corporation Law (the "CGCL") and Delaware General Corporation
Law (the "DGCL"), and subject to the terms and conditions of this Agreement, and
the other transactions contemplated hereby are consistent with, and in
furtherance of, their respective business strategies and goals.
USI, Acquisition and Soft Plus desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger.
For U.S. federal income tax purposes, it is intended that the Merger
qualify as a reorganization under the provisions of section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and that this Agreement
constitute a plan of reorganization.
Concurrently with the execution hereof, Principal Shareholders, Storm
Ventures Fund I, LLC, and The Subhedar Revocable Trust, dated February 5, 1993
executed a consent in writing of a majority of the shareholders of Soft Plus to
approve the Merger (the "Majority Shareholder Consent").
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:
Article I. Definitions.
For purposes of this Agreement:
1.1.1 An "affiliate" of any Person means another Person that directly
or indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first Person, where "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management policies of a Person, whether through the ownership
of voting securities, by contract, as trustee or executor, or otherwise.
<PAGE>
1.1.2 "Agreement" or "this Agreement" means " this Agreement and Plan
of Merger, together with the Exhibits and Schedules. All Schedules referenced
herein have been delivered to USI prior to the execution hereof. All references
to "Schedules" herein refer to such previously delivered Schedules.
1.1.3 A "business day" means any day other than Saturday, Sunday or any
other day on which banks are legally permitted to be closed in Pennsylvania.
1.1.4 "Cash Consideration" means $100 million, consisting of the
Closing Cash Consideration and the USI Note.
1.1.5 "Cash Consideration Ratio" means the quotient of (a) one (1)
divided by (b) Soft Plus Shares Outstanding.
1.1.6 "Cash Consideration Value Per Share" means the quotient of (a)
the Cash Consideration divided by (b) Soft Plus Shares Outstanding.
1.1.7 "Certificate" or "Certificates" means certificates evidencing
shares of Soft Plus Common Stock or Soft Plus Preferred Stock.
1.1.8 "Closing Cash Consideration" means $20 million.
1.1.9 "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
1.1.10 "Escrow Agent" means Chase Manhattan Trust Company, or such
other institution selected by the mutual agreement of USI and the Soft Plus
Shareholder Agent.
1.1.11 "Escrow Agreement" means that certain escrow agreement
referenced in Section 3.1.5 below.
1.1.12 "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
1.1.13 "Expense Threshold" means $1.0 million in the aggregate, for
legal expenses not in excess of $500,000 and for consulting fees not in excess
of $500,000 (other than the fees of First Albany Corporation).
1.1.14 "Filings" means any registration, declaration or filing with any
Governmental Entity.
1.1.15 "Fully Diluted Share Number" means the aggregate number of
shares of the Soft Plus Common Stock issued and outstanding as of the Closing on
a fully-diluted basis, including all shares of Soft Plus Common Stock issuable
upon exercise of all Soft Plus Options (under any Soft Plus Option Plan), shares
of Soft Plus Common Stock into which Soft Plus Preferred Stock are convertible
and warrants to purchase Soft Plus Preferred Stock or Soft Plus Common Stock,
all of which are reflected in Schedules 5.3.1 and 5.3.3.
1.1.16 "GAAP" means generally accepted accounting principles.
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<PAGE>
1.1.17 "Governmental Entity" means a court, arbitration tribunal,
governmental department, commission, authority, board, bureau, agency or other
instrumentality of the United States, any state or commonwealth of the United
States, any foreign county or other sovereign.
1.1.18 "Indemnity Damages Limit" means the sum of (a) ten percent (10%)
of the Merger Value, plus (b) the principal amount of the USI Note until such
time that the USI Note is paid in full.
1.1.19 "Indemnity Threshold" means $250,000.
1.1.20 "knowledge" means, with respect to any statement herein, to the
best of the knowledge, information and belief of the Person making such
statement after having made due inquiry; for any Person which is not an
individual means, with respect to any specific matter, the knowledge of such
Person's executive officers and other officers having primary responsibility for
such matter, in each case obtained in the conduct of their duties after due
inquiry.
1.1.21 "Liens" means pledges, claims, liens, charges, encumbrances and
security interests of any kind or nature whatsoever.
1.1.22 "material adverse change" or "material adverse effect" means,
when used in connection with Soft Plus or USI, any change, effect, event,
occurrence or state of facts that is, or is reasonably likely to be, materially
adverse to the business, financial condition or results of operations of such
party and its Subsidiaries taken as a whole; provided, however, the following
are deemed not to constitute either a material adverse change or material
adverse effect, either alone or in combination: (a) a change in the market price
or trading volume of USI Common Stock, unless the price of USI Common Stock
becomes less than $14; (b) conditions affecting internet professional services
industry, as a whole; (c) conditions affecting the U.S. economy, as a whole; (d)
any effect arising primarily out of or resulting primarily from actions
contemplated by the parties in connection with the Agreement or which is
primarily attributable to the announcement of the Agreement and the transactions
contemplated thereby (to the extent so attributable); and (e) actions or events
permitted under the Agreement.
1.1.23 "Merger Consideration" means the Share Consideration and the
Cash Consideration.
1.1.24 "Merger Value" means the sum of (a) the Share Consideration,
multiplied by the USI Closing Date Price, plus (b) the Cash Consideration.
1.1.25 "Nasdaq" means The Nasdaq Stock Market, Inc.
1.1.26 "Optionholder Exchange Ratio" means the quotient of (a) Soft
Plus Per Share Value, divided by (b) the USI Closing Date Price.
1.1.27 "Permits" means a governmental authorization, approval, order,
license, franchise, consent or permit from an applicable Governmental Entity.
1.1.28 "Person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity.
3
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1.1.29 "Professional Fees" means the fees described in Section 8.5.
1.1.30 "SEC" means the United States Securities and Exchange
Commission.
1.1.31 "Securities Act" means the Securities Act of 1933, as amended.
1.1.32 "Share Consideration" means 4.8 million shares of USI Common
Stock.
1.1.33 "Shareholder Exchange Ratio" means the quotient of (a)
Shareholder Per Share Value, divided by (b) the USI Closing Date Price.
1.1.34 "Shareholder Per Share Value" means Soft Plus Per Share Value,
minus the Cash Consideration Value Per Share.
1.1.35 "Soft Plus Closing Ratio" means, with respect to each Soft Plus
Shareholder, the number of shares of Soft Plus Common Stock and Soft Plus
Preferred Stock held by such Shareholder (on a fully diluted basis) divided by
the number of shares of Soft Plus Common Stock and Soft Plus Preferred Stock
held by all Soft Plus Shareholders (on a fully diluted basis). When reference is
made herein to "pro rata share" of Cash Consideration, it means, with respect to
any Soft Plus Shareholder, the product of the Cash Consideration multiplied by
the Soft Plus Closing Ratio for each such Soft Plus Shareholder.
1.1.36 "Soft Plus Common Stock" means the common stock of Soft Plus, no
par value.
1.1.37 "Soft Plus Debt" means the sum of Soft Plus's outstanding
long-term and short-term debt, as set forth in the 1999 Financial Statements, as
such term is defined in Section 5.5.1.
1.1.38 "Soft Plus Debt Ceiling" means $3.5 million.
1.1.39 "Soft Plus Shares Outstanding" means the Fully Diluted Share
Number minus the number of shares of Soft Plus Common Stock subject to Soft Plus
Options as set forth in Section 5.3.3.
1.1.40 "Soft Plus Option" means an option to purchase Soft Plus Common
Stock.
1.1.41 "Soft Plus Optionholder" means a holder of a Soft Plus Option as
of the Closing.
1.1.42 "Soft Plus Per Share Value" means the quotient of (a) the Share
Consideration multiplied by USI Closing Date Price, plus the Cash Consideration,
divided by (b) the Fully Diluted Share Number.
1.1.43 "Soft Plus Preferred Stock" means the preferred stock of Soft
Plus, no par value, of Soft Plus.
4
<PAGE>
1.1.44 "Soft Plus Shareholder" or "Soft Plus Shareholders" means a
holder or the holders as of the Closing of the Soft Plus Common Stock and/or the
Soft Plus Preferred Stock and/or any security with rights to purchase or convert
into Soft Plus Common Stock and/or Soft Plus Preferred Stock, including without
limitation, any warrants to purchase shares of Soft Plus Series B Preferred
Stock or shares of Soft Plus Common Stock.
1.1.45 "Soft Plus Shareholder Agent" means Mohan Uttarwar, the Person
appointed by the Soft Plus Shareholders for the purposes provided in the Escrow
Agreement.
1.1.46 "Soft Plus Shareholder Agent Agreement" means the agreement in
the form of Exhibit A attached hereto, among the Soft Plus, the Soft Plus
Shareholder Agent and the Soft Plus Shareholders, to appoint the Soft Plus
Shareholder Agent to act on behalf of the Soft Plus Shareholders as provided
herein.
1.1.47 A "Subsidiary" of any Person means a Person in which a Person
has any interest, direct or indirect, including, without limitation, voting or
non-voting stock, membership or partnership interest, or other evidence of or
right to acquire any interest in such Person by such Person.
1.1.48 "Unvested Soft Plus Shares" means shares of Soft Plus Common
Stock that are not fully vested (and, therefore, are subject to a right of
repurchase by Soft Plus) and held by the Persons listed on Schedule 3.2.8.2.
1.1.49 "USI Closing Date Price" means the average closing price (as of
4 P.M. E.S.T or earlier closing time) of USI Common Stock as reported by Nasdaq
on the three trading days immediately prior to the Closing Date.
1.1.50 "USI Common Stock" means the common stock, par value $0.001 per
share, of USI.
1.1.51 "USI Note" means the promissory note of USI in the original
principal amount of $80 million in the form of Exhibit B.
Article II. The Merger.
2.1 The Merger.
Upon the terms and subject to the conditions set forth in this Agreement,
and in accordance with the DGCL and the CGCL, Soft Plus shall be merged with and
into Acquisition on the Closing Date. Following the effective time of the Merger
(the "Effective Time"), Acquisition shall be the surviving company (the
"Surviving Company"), continuing its corporate existence under, and shall
succeed to and assume all the rights and obligations of Soft Plus in accordance
with, the CGCL. The name of the Surviving Company from and after the Effective
Time shall be "SoftPlus, Inc." Unless otherwise required by Section 407 of the
CGCL (regarding fractional shares), and except as provided in Section 3.2.9
(relating to dissenters' rights), the Merger Consideration is the sole
consideration Soft Plus Shareholders shall receive hereunder in exchange for
their shares of Soft Plus Common Stock and/or Soft Plus Preferred Stock.
5
<PAGE>
2.2 Closing.
The closing of the Merger (the "Closing") will take place at 10:00 a.m. on
a date to be specified by the parties (the "Closing Date"), which shall be no
later than the second business day after satisfaction or waiver of the
conditions set forth in Article X (other than those conditions that by their
nature are to be satisfied at the Closing, but subject to the satisfaction or
waiver of those conditions), unless another time or date is agreed to by the
parties hereto. The Closing shall take place at the offices of USI's counsel,
Dilworth Paxson LLP, 3200 Mellon Bank Center, 1735 Market Street, Philadelphia,
PA. At the time of Closing, the Closing certificates, opinions of counsel and
other documents to be delivered pursuant to this Agreement will be exchanged.
2.3 Effective Time of the Merger.
The Merger shall become effective on the Closing Date upon the filing of
the Certificate of Merger (described below). On the Closing Date the parties
shall cause to be filed a Certificate of Merger (in the form of Exhibit C
attached hereto, which shall have attached thereto the articles of incorporation
of Acquisition in the form of Exhibit D attached hereto) with the Secretary of
State of the State of Delaware in accordance with the provisions of the DGCL
(the "Certificate of Merger") and with the Secretary of State of the State of
California in accordance with the provisions of the CGCL.
2.4 Effects of the Merger.
On the Effective Time of the Merger, the Merger shall have the legal effect
provided in section 259 of the DGCL and section 1107 of the CGCL.
2.5 Certificate of Incorporation and Bylaws.
2.5.1 The articles of incorporation of Acquisition shall be in the form
of Exhibit D attached hereto, until thereafter amended as provided therein and
by law.
2.5.2 The bylaws of Acquisition shall be in the form of Exhibit F
attached hereto, until thereafter amended as provided therein and by law.
2.6 Board of Directors and Officers.
2.6.1 The directors of Acquisition immediately prior to the Closing
Date shall be the directors of Acquisition, until the earlier of their
resignation or removal or until their respective successors are duly elected and
qualified, as the case may be.
2.6.2 The officers of Acquisition immediately prior to the Closing Date
shall be the officers of Acquisition, until the earlier of their resignation or
removal or their respective successors are duly elected and qualified, as the
case may be.
6
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Article III. Effect of the Merger on the Capital Stock of the Constituent
Corporations; Exchange of Certificates.
3.1 Effect on Capital Stock.
As of the Closing Date, by virtue of the Merger and without any action on
the part of the holder of any shares of Soft Plus Common Stock, Soft Plus
Preferred Stock (or warrants to acquire Soft Plus Common Stock or Soft Plus
Preferred Stock) or any shares of capital stock of Acquisition:
3.1.1 Capital Stock of Acquisition. Each issued and outstanding share
of capital stock of Acquisition shall remain an issued and outstanding share of
common stock of Acquisition.
3.1.2 Cancellation of Treasury Stock. Each share of Soft Plus Common
Stock that is owned by Soft Plus shall automatically be canceled and retired and
shall cease to exist, and no consideration shall be delivered in exchange
therefor.
3.1.3 Conversion of Soft Plus Common Stock, Preferred Stock, Options
and Warrants.
3.1.3.1 Subject to Sections 3.1.4 and 3.1.5, each share of the
Soft Plus Common Stock issued and outstanding and held by a Soft Plus
Shareholder as of the Closing Date (other than shares to be canceled in
accordance with Section 3.1.2 above) shall be converted into the right to
receive that number of shares of USI Common Stock equal to the Shareholder
Exchange Ratio, rounded down to the nearest whole number, plus a portion of the
Cash Consideration equal to the product of (a) the Cash Consideration Ratio
multiplied by (b) the Cash Consideration.
3.1.3.2 Subject to Sections 3.1.4 and 3.1.5, each share of the
Soft Plus Preferred Stock issued and outstanding and held by a Soft Plus
Shareholder as of the Closing Date and each warrant to purchase Soft Plus
Preferred Stock issued and outstanding as of the Closing Date (with the number
of shares subject to such warrant being calculated based on a net exercise basis
in accordance with the terms of the warrant) shall be converted into the right
to receive that number of shares of USI Common Stock equal to the Shareholder
Exchange Ratio, rounded down to the nearest whole number, plus a portion of the
Cash Consideration equal to the product of (a) the Cash Consideration Ratio
multiplied by (b) the Cash Consideration.
3.1.3.3 On and after the Closing Date, subject to Section 3.2.9
below, each Soft Plus Shareholder holding a Certificate or Certificates shall
cease to have any rights with respect thereto and shall no longer be outstanding
and shall automatically be canceled and retired and shall cease to exist, except
the right to receive a portion of the Merger Consideration upon surrender of
such Certificate in accordance with Section 3.2, without interest, and no
transfer of shares of Soft Plus Common Stock or Soft Plus Preferred Stock shall
be made on the stock transfer books of Acquisition.
3.1.3.4 The existing Soft Plus option plans (the "Option Plans")
and form of option grant are in the forms attached hereto as Exhibit G and the
options (vested and unvested) to purchase Soft Plus Common Stock outstanding now
and as of the Closing Date (the "Soft Plus Options") are listed on Schedule
5.3.3. At the Effective Time, the Soft Plus Options shall by virtue of the
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Merger and without any further action on the part of Soft Plus or the holder
thereof, be assumed by USI in accordance with this Section 3.1.3.4 Each such
Soft Plus Option so assumed by USI under this Agreement shall continue to have,
and be subject to, the same terms and conditions set forth in the Option Plans
immediately prior to the Effective Time, except that (i) such Soft Plus Option
will be exercisable for that number of whole shares of USI Common Stock equal to
the product of the number of shares of Soft Plus Common Stock that were issuable
upon exercise of such Soft Plus Option immediately prior to the Effective Time
multiplied by the Optionholder Exchange Ratio and rounded down to the nearest
whole number of shares of USI Common Stock, and (ii) the per share exercise
price for the shares of USI Common Stock issuable upon exercise of such assumed
option will be equal to the quotient determined by dividing the exercise price
per share of Soft Plus Common Stock at which such Soft Plus Option was
exercisable immediately prior to the Effective Time by the Optionholder Exchange
Ratio, rounded up to the nearest whole cent. Each Soft Plus Optionholder shall
be vested in the option to purchase USI Common Stock in the same proportion that
such Soft Plus Optionholder was vested in his or her Soft Plus Option as of the
Closing Date, and shall continue to vest in the option to purchase USI Common
Stock in accordance with the same vesting schedule applicable to such Soft Plus
Optionholder's Soft Plus Option prior to the Closing Date with respect to
service performed for USI following the Closing Date. It is the intention of the
parties that the Soft Plus Options assumed by USI qualify following the
Effective Time as incentive stock options as defined in section 422 of the Code
if, and only to the extent, such Soft Plus Options qualified as incentive stock
options prior to the Effective Time.
3.1.3.5 On and after the Closing Date, each Soft Plus
Optionholder holding a Soft Plus Option shall cease to have any rights as an
Optionholder of Soft Plus, except for his, her or its rights as a holder of Soft
Plus Options to purchase USI Common Stock pursuant to the terms of the Soft Plus
Option Plans and applicable grant letters, and no transfer of Soft Plus Options
shall be made on the transfer books of Acquisition. Following the Closing, USI
will provide written notice to each person who immediately prior to the
Effective Time was a Soft Plus Optionholder of USI's assumption of such Soft
Plus Option.
3.1.3.6 All outstanding warrants to purchase Soft Plus Common
Stock shall terminate unexercised by virtue of the Merger and without any action
on the part of the holder thereof.
3.1.4 Adjustment of the principal amount of the USI Note. At the
Closing or in connection with the Post-Closing Audit (as defined in Section
9.5), the principal amount of the USI Note shall be adjusted as provided in this
Section 3.1.4. If the principal amount of the USI Note is not outstanding at the
time such adjustment is to be made under this Section 3.1.4, then USI shall be
entitled to receive Escrow Shares with a value (based on the USI Closing Date
Price) equal to the adjustment required by this Section 3.1.4. If the
Post-Closing Audit requires an adjustment that has an effect on more than one of
the following subsections, then USI shall have the right to select only one of
the subsections so effected for purposes of the adjustment required under this
Section 3.1.4. Any adjustment hereunder shall considered a reduction of the
original consideration paid by USI hereunder.
3.1.4.1 The principal amount of the USI Note shall be reduced by
the amount the Soft Plus Debt as of the Closing Date exceeds the Soft Plus Debt
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Ceiling, as determined in connection with the Post-Closing Audit if any Soft
Plus Debt from and after the date hereof is incurred other than in accordance
with Section 8.1.1.6.
3.1.4.2 The principal amount of the USI Note shall be reduced by
the amount the Post-Closing Audit determines Soft Plus's shareholders' equity is
less than $2.2 million (Soft Plus's shareholders' equity as reported on its
financial statements as at December 31, 1999), before taking into account
deferred stock compensation charges.
3.1.4.3 The principal amount of the USI Note shall be reduced by
the product of (a) the amount the Post-Closing Audit determines Soft Plus's
gross revenue for 1999 is less than $24 million (Soft Plus's projected gross
revenue based on its financial statements for the period ended December 31,
1999), multiplied by (b) the dollar amount resulting from dividing the Merger
Value by $24 million.
3.1.4.4 The principal amount of the USI Note shall be reduced by
the Professional Fees paid by USI in accordance with Section 8.5 in excess of
the Expense Threshold.
3.1.4.5 The principal amount of the USI Note shall be reduced by
the aggregate cost to acquire all right, title and interest of the minority
shareholders in Soft Plus Systems Private Limited (India), including all legal
fees and related regulatory costs and expenses in excess of $10,000.
3.1.5 Escrow Shares. USI Common Stock equal to ten percent (10%) of the
Merger Value (that number of shares equal to ten percent of the quotient of (a)
the Merger Value divided by (b) the USI Closing Date Price, herein the "Escrow
Shares") will be issued to the Escrow Agent to hold, subject to the following
sentence, for a period of one year following the Closing Date as escrow agent in
accordance with an escrow agreement, by and among USI, the Soft Plus Shareholder
Agent on behalf of all Soft Plus Shareholders and the Escrow Agent to be
executed and delivered at the Closing in the form attached hereto as Exhibit H
(the "Escrow Agreement") for purposes of the indemnification provided in Article
XII. The cost and expense of such escrow and the Escrow Agent shall be borne
equally by USI and the Principal Shareholders. If USI pays the full cost of such
fees and expenses, it may set-off against the principal amount of the USI Note,
or make a claim against the Escrow Fund, as USI may elect, the share of such
fees and expenses of the Principal Shareholders.
3.1.6 Anti-Dilution Provisions. If USI changes (or establishes a record
date for changing) the number of shares of USI Common Stock issued and
outstanding prior to the Closing Date as a result of a stock split, stock
dividend, recapitalization, subdivision, reclassification, combination, exchange
of shares or similar transaction with respect to the outstanding USI Common
Stock and the record date therefor shall be prior to the Closing Date, the
Shareholder Exchange Ratio and the Optionholder Exchange Ratio shall be
proportionately adjusted to reflect fully such split, stock dividend,
recapitalization, subdivision, reclassification, combination, exchange of shares
or similar transaction.
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3.2 Exchange of Certificates.
3.2.1 Surrender of Certificates and Disbursement. Subject to the terms
hereof and upon the surrender of the Certificates to USI (or to an agent for
such purpose designated by USI) by each Soft Plus Shareholder together with a
Letter of Transmittal substantially in the form of Exhibit I (the "Letter of
Transmittal") and any necessary stock powers and other documents (including
forms W-9 and W-8, as required by USI or Acquisition), duly executed and, if
required, with signatures notarized or guaranteed, each holder of such
Certificates shall be entitled to receive in exchange therefor USI Common Stock,
a pro rata portion of Closing Cash Consideration, and a pro rata portion of the
cash proceeds of the USI Note once the USI Note is paid in full in accordance
with its terms as provided herein and therein. Upon such surrender, USI or its
designee will promptly tender or cause to be tendered the USI Common Stock and
the pro rata portion of Closing Cash Consideration to each such holder. If USI
engages a third party to act as the paying agent hereunder, the fees and
expenses thereof shall be borne one-half by USI and one-half by the Principal
Shareholders. If USI pays the full cost of such fees and expenses, it may
set-off against the principal amount of the USI Note, or make a claim against
the Escrow Fund, as USI may elect, the share of such fees and expenses of the
Principal Shareholders.
3.2.2 Transferred Certificates. If USI Common Stock and Closing Cash
Consideration is to be delivered to a Person other than the Person in whose name
the Certificates surrendered in exchange therefor are registered, it shall be a
condition to the delivery of the USI Common Stock and the cash portion of the
Cash Consideration at the Closing that the Certificates so surrendered shall be
properly endorsed or accompanied by appropriate stock transfer powers and any
other documents required by USI and otherwise in proper form for transfer, that
such transfer otherwise be proper and that the Person requesting such transfer
pay to the Soft Plus Shareholder Agent any transfer or other taxes payable by
reason of the foregoing or establish to the satisfaction of USI or its designee
that such taxes have been paid or are not required to be paid.
3.2.3 Delivery of USI Common Stock. At the Closing USI or its designee
shall deliver to each Soft Plus Shareholder who has complied with the delivery
requirements of Section 3.2.1 above such Soft Plus Shareholder's pro rata share
of the Closing Cash Consideration, and as promptly as reasonably and
commercially possible following the Closing USI shall deliver or cause to be
delivered by USI or its designee a certificate in the name of each Soft Plus
Shareholder representing that number of whole shares of USI Common Stock, in
each case as such Soft Plus Shareholder is entitled; provided, however, USI
shall retain the per share Closing Cash Consideration with respect to any
Unvested Soft Plus Shares, which USI shall hold, together with in accordance
with Section 3.2.8. If USI delivers shares of USI Common Stock and the Closing
Cash Consideration with its designee, or upon delivery of the same to each such
Soft Plus Shareholder, none of USI, Acquisition or the Soft Plus shall have any
further liability to the Soft Plus Shareholders with respect to the USI Common
Stock to be delivered at the Closing.
3.2.4 Delivery of the USI Note. At the Closing, USI shall deliver to
the Soft Plus Shareholder Agent the USI Note to be held by the Soft Plus
Shareholder Agent in accordance with the Soft Plus Shareholder Agent Agreement
until the USI Note is paid in full in accordance with its terms. Each Soft Plus
Shareholder shall be entitled to receive a pro rata portion of the proceeds of
the USI Note when paid in full, based on the relative number of shares of USI
Common Stock received at or in connection with the Closing by Soft Plus
Shareholders, as the same may be reduced to reflect shares of USI Common Stock
into which Unvested Soft Plus Shares are converted and exchanged in connection
with the Merger that are repurchased in accordance with the provisions of
Section 3.2.8.
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3.2.5 Delivery of USI Common Stock to the Escrow Agent. At the Closing,
USI shall deliver certificates representing the Escrow Shares to the Escrow
Agent for holding pursuant to the terms of the Escrow Agreement.
3.2.6 Delivery of Soft Plus Common Stock. In order for a Soft Plus
Shareholder to receive the Merger Consideration to which such Soft Plus
Shareholder is entitled, such Soft Plus Shareholder shall comply with the
delivery requirements of Section 3.2.1 above. Each such Certificate or an
attached stock power shall be duly and validly endorsed in the name of
Acquisition and in proper form for transfer.
3.2.7 No Fractional Shares. As permitted by Section 407 of the CGCL,
fractional shares shall be disregarded for all Soft Plus Shareholders who, if
fractional shares were to be issued in connection with the Merger, would
otherwise have received a fraction of a share of USI Common Stock that
represents less than one-half of one percent (.5%) of the total shares of USI
Common Stock any Soft Plus Shareholder is entitled to receive in connection with
the Merger. No certificates or scrip representing fractional shares of USI
Common Stock shall be issued upon the surrender for exchange of Certificates, no
dividend or distribution of USI shall relate to such fractional share interests
and such fractional share interests will not entitle the owner thereof to vote
or to any rights of a stockholder of USI.
3.2.8 Certain Restrictions.
3.2.8.1 Certain shares of Soft Plus Common Stock were issued
under and subject to certain Restricted Stock Purchase Agreements. Such shares
of Soft Plus Common Stock that remain unvested immediately following the Closing
are referred to herein as the Unvested Soft Plus Shares. The shares of USI
Common Stock into which Unvested Soft Plus Shares are exchanged in accordance
with the terms hereof shall continue to be subject to the terms and conditions
of such Restricted Stock Purchase Agreements, and a legend regarding such terms
and conditions shall be set forth on such Certificates, in addition to any other
applicable legend thereon.
3.2.8.2 Each of the Soft Plus Shareholders listed on Schedule
3.2.8.2 will hold the number of Unvested Soft Plus Shares set forth such
Schedule as of the Closing Date. Shares of USI Common Stock into which such
Unvested Soft Plus Shares are converted and exchanged in connection with the
Merger shall remain unvested and shall remain subject to a right of repurchase
by USI, as provided in the foregoing subsection. Until the time such shares
become fully vested and are no longer subject to repurchase by USI, USI shall
hold and retain such shares and the per share Closing Cash Consideration to
which a holder of a Unvested Soft Plus Shares would otherwise be entitled in
connection with the Merger. USI shall release such shares and the applicable
Closing Cash Consideration as promptly as commercially reasonable following the
date such shares become fully vested and are no longer subject to a right of
repurchase.
3.2.8.3 Shares of USI Common Stock that are not exchanged in
accordance with the terms hereof, if any, and only to the extent permitted by
law, including the provisions of applicable escheat laws, shall not be issued by
USI to a former Soft Plus Shareholder, but shall be retained to satisfy claims,
if any, arising from or relating to any verbal offer, commitment, understanding
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or agreement to issue any equity interest in Soft Plus to any Person. Any shares
not so exchanged shall be returned to the treasury of USI.
3.2.9 Dissenting Shares.
3.2.9.1 Each outstanding share of Soft Plus Common Stock or Soft
Plus Preferred Stock held by a Soft Plus Shareholder who has demanded and
perfected his or her right to an appraisal of his or her shares in accordance
with section 1301 of the CGCL and who has not effectively withdrawn or lost such
right to such appraisal ("Dissenting Shares") shall not be converted into or
represent a right to receive USI Common Stock or a pro rata share of the Cash
Consideration based upon the Shareholder Exchange Ratio (as the same may be
adjusted in accordance with the terms hereof) pursuant to Section 3.1.3 and the
other provisions of this Article III, but the holder thereof shall be entitled
only to such rights as are granted by Chapter 13 of the CGCL. Each holder of
Dissenting Shares who becomes entitled to payment for Soft Plus Common Stock or
Soft Plus Preferred Stock then owned pursuant to Chapter 13 of the CGCL shall
receive payment therefor from USI in accordance with the CGCL.
3.2.9.2 If any Soft Plus Shareholder who demands appraisal of
his, her or its shares under Chapter 13 of the CGCL shall effectively withdraw
or lose (through failure to perfect or otherwise) his, her or its right to
appraisal, each share of Soft Plus Common Stock and/or Soft Plus Preferred Stock
held by such Soft Plus Shareholder, and each shall automatically be converted
into the right to receive that number of shares of USI Common Stock equal to the
Shareholder Exchange Ratio, rounded down to the nearest whole number, plus a
portion of the Cash Consideration equal to the product of (a) the Cash
Consideration Ratio multiplied by (b) the Cash Consideration, and all such
shares of Soft Plus Common Stock and Soft Plus Preferred Stock shall be
delivered in accordance with the provisions of this Article III.
3.2.9.3 Prior to the Closing, Soft Plus shall give USI and
Acquisition prompt notice of any written demands for appraisal, withdrawals of
demands for appraisal and any other instruments served pursuant to Chapter 13 of
the CGCL received by Soft Plus. From and after the Closing USI shall give the
Soft Plus Shareholder Agent prompt notice of any written demands for appraisal,
withdrawals of demands for appraisal and any other instruments served pursuant
to Chapter 13 of the CGCL received by Acquisition.
3.2.10 Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the delivery to USI or its designee of a notarized
affidavit of that fact by the Person claiming such Certificate to be lost,
stolen or destroyed, USI or its designee will cause to be issued the allocable
USI Common Stock and Cash Consideration to such Person; provided, however, that
as a condition to such issuance USI or its designee may, in its discretion,
require the owner of such lost or destroyed Certificate to give USI or its
designee a bond in such sum as USI or its designee may reasonably direct as
indemnity against any claim that may be made with respect to the Certificate
alleged to have been lost, stolen or destroyed.
3.2.11 Legends. Each stock certificate evidencing the USI Common Stock,
whether delivered at the Closing or to the Escrow Agent, shall be designated
with such legend or legends as shall be deemed necessary or appropriate by USI
upon the advice of its counsel.
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Article IV. Approval; Amendment; Termination.
4.1 Approval.
Soft Plus, Acquisition, and USI each agree to execute and deliver such
further documents and instruments and to do such other acts and things as may be
necessary and appropriate to complete all requisite corporate action in
connection with the transactions contemplated by this Agreement.
4.2 Amendment.
This Agreement may be amended by the parties hereto notwithstanding the
approval hereof by the Majority Shareholder Consent, except as provided in
section 1104 of the CGCL and section 251(d) of the DGCL, as applicable pursuant
to section 252(e) of the DGCL. Any such amendment must be in writing signed on
behalf of each of the parties
4.3 Termination.
This Agreement may be terminated, notwithstanding the foregoing approvals
as provided in Article XI hereof.
Article V. Representations and Warranties Regarding Soft Plus.
As a material inducement for Acquisition and USI to enter into and
consummate the transactions contemplated hereby, the Principal Shareholders,
jointly and severally (but in all events subject to the provisions of Article
XII), represent and warrant to Acquisition and USI as follows, subject to such
exceptions as are specifically disclosed in the Schedules referred to in the
following Section, dated as of the date of this Agreement and delivered by the
Principal Shareholders to USI and Acquisition prior to the execution and
delivery of this Agreement. Any exceptions set forth on a particular Schedule
that specifically references a Section or subsection of this Agreement shall be
deemed to qualify only the representation, warranty, covenant, statement or
certificate delivered in connection herewith to which it specifically relates
unless specifically incorporated in and cross-referenced in another Schedule.
5.1 Organization; Qualification.
Each of Soft Plus and its Subsidiaries is a corporation or other legal
entity duly organized, validly existing and in good standing (with respect to
jurisdictions which recognize such concept) under the laws of the jurisdiction
in which it is organized and has the requisite corporate or other power, as the
case may be, and authority to carry on its business as now being conducted,
except for those jurisdictions where the failure to be so organized, existing or
in good standing individually or in the aggregate is not reasonably likely to
have a material adverse effect on Soft Plus or any of its Subsidiaries. Each of
Soft Plus and its Subsidiaries is duly qualified or licensed to do business and
is in good standing (with respect to jurisdictions which recognize such concept)
in each jurisdiction in which the nature of its business or the ownership,
leasing, licensing or operation of its properties makes such qualification or
licensing necessary, except for those jurisdictions where the failure to be so
qualified or licensed or to be in good standing individually or in the aggregate
is not reasonably likely to have a material adverse effect on Soft Plus. Copies
of the articles of incorporation and bylaws of Soft Plus heretofore delivered to
USI are accurate and complete as of the date hereof and as of the Closing Date.
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5.2 Subsidiaries.
Schedule 5.2 sets forth a true, correct and complete list of (a) the name
and jurisdiction of incorporation of each Subsidiary of Soft Plus in which Soft
Plus owns, directly or indirectly, capital stock, (b) the total number of shares
of each class of capital stock of each Subsidiary authorized, the number of such
shares outstanding and the number of such shares owned by Soft Plus or any of
the Subsidiaries (indicating the name of the owner), and (c) a true, correct and
complete list of the directors and officers of Soft Plus and each Subsidiary.
All of the issued and outstanding shares of each Subsidiary have been duly and
validly authorized and issued and are fully paid, nonassessable and free of
preemptive rights. No shares of any Subsidiary have been issued in violation of
the preemptive rights of any shareholder of such Subsidiary. The shares of each
Subsidiary were issued in compliance with all applicable federal, state and
foreign securities laws and regulations, and are owned as set forth in Schedule
5.2, free and clear of any and all Liens and free of any restriction on the
right to vote, sell or otherwise dispose of such capital stock or other
ownership interests. Except for Soft Plus's ownership of the Subsidiaries as
disclosed on Schedule 5.2 and as may be otherwise described in such Schedule,
Soft Plus does not, directly or indirectly, have any ownership or other interest
in, or control of, any Person, nor is Soft Plus an affiliate of any Person other
than the shareholders of Soft Plus set forth on Schedule 3.2.3. The interests in
Soft Plus Systems Private Limited (India) not otherwise owned by Soft Plus (the
"Indian Subsidiary Minority Interest") are subject to repurchase on and after
May 1, 2000 (the "India Repurchase"), Soft Plus has executed a memorandum of
understanding in the form of Exhibit I-1 ("MOU") which assuming due
authorization, execution and delivery by the other parties thereto, creates a
valid and binding agreement, enforceable in accordance with its term, for Soft
Plus to acquire the Indian Subsidiary Minority Interest in accordance with
applicable law and without interfering with the on-going operations of Soft Plus
Systems Private Limited (India). Soft Plus is the equitable owner of 89.96%
interest in Soft Plus Systems Private Limited (India), has applied for the
necessary and appropriate authorization for the issuance to Soft Plus of such
equity interest in Soft Plus Systems Private Limited (India), and to the
knowledge of the Principal Shareholders there is no reason why such
authorization will not be granted.
5.3 Capital Structure.
5.3.1 Soft Plus is authorized to issue two classes of shares, designed
"Common Stock" and "Preferred Stock," respectively, both of which are without
par value. The total number of shares of Common Stock Soft Plus is authorized to
issue is 20,000,000. The total number of shares of Preferred Stock Soft Plus is
authorized to issue is 5,000,000 shares of which 2,000,000 are designed as
"Series A Preferred Stock" and 1,000,000 are designed as "Series B Preferred
Stock." As of the date hereof and as of the Closing Date, 13,227,582 shares of
the Soft Plus Common Stock are issued and outstanding; 1,250,000 shares of the
Series A Preferred Stock are issued and outstanding; and 844,514 shares of the
Series B Preferred Stock are issued and outstanding; which are and will be held
by the shareholders of Soft Plus listed on Schedule 5.3.1 in such amounts as are
set forth on such Schedule and such Shareholders reside at the address indicated
on such schedule.
5.3.2 There are no shares of the Soft Plus Common Stock held by Soft
Plus in its treasury.
5.3.3 Three Million, Eight Hundred Fifty-seven Thousand, Seven Hundred
and Ninety-seven (3,857,797) Soft Plus Options are issued and outstanding, and
held by those Soft Plus Optionholders listed on Schedule 5.3.3 in such amounts
and with the vesting, exercise prices and exercise dates set forth on such
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Schedule, and except as set forth on such schedule are incentive stock options
(as defined under section 422 of the Code) and 1,245,000 Soft Plus Options are
reserved for issuance. Schedule 5.3.3 sets forth a true, correct and complete
list of all Soft Plus Options (vested and unvested, whether pursuant to a
written agreement or plan, or verbal) to purchase Soft Plus Common Stock
outstanding under the Option Plans, and none of the Soft Plus Options accelerate
or are otherwise effected by the Merger other than being converted into a right
to acquire shares of USI Common Stock as provided herein. Except as set forth on
Schedule 5.3.3, all Soft Plus Options have been granted in the forms of option
grant attached hereto as Exhibit G with no material variation in the terms
thereof.
5.3.4 A warrant to purchase 90,000 shares of Soft Plus Series B
Preferred Stock, with a strike price of $1.64 per share is issued and
outstanding as of the date hereof (the "Series B Warrant"). A warrant to
purchase 15,000 shares of Soft Plus Common Stock with a strike price of $4.00 is
issued and outstanding as of the date hereof (individually, the "Common Stock
Warrant" and collectively with the Series B Warrant, the "Soft Plus Warrants").
5.3.5 No bonds, debentures, notes or other indebtedness of Soft Plus
having the right to vote (or convertible into, or exchangeable for, securities
having the right to vote) on any matters on which Soft Plus Shareholders may
vote are issued or outstanding.
5.3.6 Except as set forth on Schedule 5.3.6, all of the Soft Plus
Common Stock, Soft Plus Preferred Stock have been duly and validly authorized
and issued and are fully paid and nonassessable and all of the Soft Plus Options
and the Soft Plus Warrants have been duly and validly authorized and issued,
including authorization of each of the Option Plans by the Board of Directors of
Soft Plus and the Soft Plus Shareholders within twelve (12) months after
adoption thereof by Soft Plus; none have been issued in violation of the
preemptive rights of any Soft Plus Shareholder or Soft Plus Optionholder; all
were issued in compliance with all applicable federal and state securities laws
and regulations. A rescission offer under applicable California securities laws
(the "Rescission Offer") has been made to all holders of Soft Plus Options and
shares of Soft Plus Common Stock issued upon exercise of Soft Plus Options, in
each case granted pursuant to Soft Plus's 1997 Stock Option Plan or 1999 Stock
Option Plan, evidence of which has been provided to USI.
5.3.7 Except as specifically described in this Section 5.3 or set forth
in Schedule 5.3.7, (x) there are not issued, reserved for issuance or
outstanding any shares of capital stock or other voting securities of Soft Plus,
any securities of Soft Plus convertible into or exchangeable or exercisable for
shares of capital stock or voting securities of Soft Plus, any warrants, calls,
options or other rights to acquire from Soft Plus or any Soft Plus Subsidiary,
and no obligation of Soft Plus or any Soft Plus Subsidiary to issue, any capital
stock, voting securities or securities convertible into or exchangeable or
exercisable for capital stock or voting securities of Soft Plus and (y) there
are not any outstanding obligations of Soft Plus or any Soft Plus Subsidiary to
repurchase, redeem or otherwise acquire any such securities or to issue, deliver
or sell, or cause to be issued, delivered or sold, any such securities, except
as contemplated hereby. Soft Plus is not a party to any voting agreement with
respect to the voting of any such securities. There are no outstanding (A)
securities of Soft Plus or any Soft Plus Subsidiary convertible into or
exchangeable or exercisable for shares of capital stock or other voting
securities or ownership interests in any Soft Plus Subsidiary, (B) warrants,
calls, options or other rights to acquire from Soft Plus or any Soft Plus
Subsidiary, and no obligation of Soft Plus or any Soft Plus Subsidiary to issue,
any capital stock, voting securities or other ownership interests in, or any
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securities convertible into or exchangeable or exercisable for any capital
stock, voting securities or ownership interests in, any Soft Plus Subsidiary or
(C) obligations of Soft Plus or any Soft Plus Subsidiary to repurchase, redeem
or otherwise acquire any such outstanding securities of Soft Plus subsidiaries
or to issue, deliver or sell, or cause to be issued, delivered or sold, any such
securities. Other than the Soft Plus Subsidiaries set forth on Schedule 5.2,
Soft Plus does not directly or indirectly beneficially own any securities or
other beneficial ownership interests in any other Person.
5.3.8 Each Soft Plus Shareholder who acquired shares of Soft Plus
Common Stock under a restricted stock purchase agreement filed an election under
section 83(b) of the Code, and Soft Plus has received a copy of each such
election.
5.4 Authority; Noncontravention.
5.4.1 Soft Plus has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated by
this Agreement. The execution and delivery of this Agreement by Soft Plus and
the consummation by Soft Plus of the transactions contemplated by this Agreement
has been duly authorized by all necessary corporate action on the part of Soft
Plus, subject only to providing notice to Soft Plus Shareholders as provided in
Section 8.6.1. This Agreement has been duly executed and delivered by Soft Plus
and, assuming due authorization, execution and delivery by USI and Acquisition,
constitutes legal, valid and binding obligations of Soft Plus, enforceable
against Soft Plus in accordance with its terms.
5.4.2 Without limiting the other provisions of Section 5.4.1 above, the
Board of Directors of Soft Plus, at a meeting duly called and held has, in light
of and subject to the terms and conditions set forth herein, determined that
this Agreement, the Merger and the other transactions contemplated hereby are
fair and in the best interests of the Soft Plus Shareholders.
5.4.3 Except as set forth on Schedule 5.4.3, the execution and delivery
of this Agreement by Soft Plus does not, and the performance by Soft Plus of its
obligations hereunder will not, (a) violate or conflict with any provision of
the articles of incorporation or bylaws of Soft Plus, or any amendments thereto
or restatements thereof, as in effect on the date hereof, (b) violate any of the
terms, conditions or provisions of any applicable law, rule, regulation, order,
writ, injunction, judgment or decree of any Governmental Entity applicable to
Soft Plus or (c) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any note, bond, indenture, debenture, security
agreement, trust agreement, lien, mortgage, lease, agreement, license,
franchise, permit, guaranty, joint venture agreement, or other agreement,
instrument or obligation, oral or written, to which Soft Plus is a party
(whether as an original party or as an assignee or successor) or by which any of
its properties is bound. No Permit is, and no Filings are, required in
connection with the execution, delivery and performance of this Agreement by
Soft Plus and the consummation of the transactions contemplated hereby, except
(i) the receipt of a Tax Clearance Certificate from the California Franchise Tax
Board, (ii) the filing of the Certificate of Merger, together with the required
officers' certificates with the Secretary of State of the State of Delaware and
the Secretary of State of the State of California,. and (iii) such other
consents, authorizations, filings, approvals and registrations which, if not
obtained or made, would not have a material adverse effect on Soft Plus and
would not prevent, or materially alter or delay any of the transactions
contemplated by this Agreement. The only consents or waivers of third parties to
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contracts set forth on Schedule 5.4.3 necessary for USI, Acquisition and Soft
Plus to enter this Agreement and to consummate the transactions contemplated
hereby are set forth on Schedule 10.2.2; the consents or waivers of third
parties to contracts omitted from Schedule 10.2.2 are not necessary for USI,
Acquisition and Soft Plus to enter this Agreement and to consummate the
transactions contemplated hereby and the failure to obtain such consents or
waivers of the parties to the contracts omitted from Schedule 10.2.2 do not and
will not have a material adverse effect individually or in the aggregate on Soft
Plus or its Subsidiaries.
5.5 Financial Statements.
5.5.1 Except as set forth in Schedule 5.5.1, Soft Plus has previously
furnished to USI true, correct and complete copies of the following financial
statements with respect to Soft Plus and its Subsidiaries (the "Financial
Statements"): (i) audited balance sheets, statements of operations,
shareholders' equity, and cash flows for each of the calendar years ended 1997
and 1998; and (ii) unaudited balance sheet, statement of operations, and
statement of cash flows for the calendar year ended December 31, 1999. The
Financial Statements for the calendar year ended December 31, 1999 is referred
to herein as the "1999 Financial Statements."
5.5.2 The Financial Statements were prepared in accordance with GAAP
applied on a basis consistent throughout the periods indicated and consistent
with each other and that of preceding accounting periods, except to the extent
of reclassification within cost categories in order to conform with USI's
financial reporting practices. The Financial Statements were prepared on the
basis of the books and records of Soft Plus and its Subsidiaries, and fully,
fairly and accurately present the financial position of Soft Plus and its
Subsidiaries as of the dates thereof and the results of operations and changes
in financial position of Soft Plus and its Subsidiaries for each of the periods
then ended. USI shall not be entitled to indemnification for a breach of the
representation set forth in this Section 5.5.2 regarding the 1999 Financial
Statements if and only to the extent USI is entitled to reduce the principal
amount of the USI Note in accordance with Section 3.1.4.
5.5.3 On the Closing Date, there will be no restrictions on the
availability of cash of Soft Plus and its Subsidiaries in banks and on hand,
except clearance of checks in the ordinary course of business.
5.5.4 The accounts and other receivables as set forth on the Financial
Statements, and arising since the date thereof, are based on actual and bona
fide services rendered or the sale, rental or license of equipment, merchandise,
supplies and software by Soft Plus in the ordinary course of the business of
Soft Plus and its Subsidiaries, and except as specifically identified in the
Financial Statements none of such accounts receivable have been billed in
advance of providing such services, sales, rentals or licensing.
5.6 Absence of Undisclosed Liabilities.
Except as disclosed on Schedule 5.6, Soft Plus and its Subsidiaries have no
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent), including without limitation (a) obligations or liabilities
pursuant to all Soft Plus Benefit Plans (as that term is defined in Section
5.10), including all unfunded past service costs, (b) obligations or liabilities
pursuant to all bonus, incentive, compensation, insurance, deferred
compensation, severance and other fringe benefit plans, contracts, agreements,
arrangements and programs of any type, coverage or form, including, without
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limitation, any employee welfare benefit program as defined in section 3(1) of
ERISA, and (c) obligations or liabilities for vacation pay, other than (i) those
set forth or adequately provided for in the Financial Statements, (ii) those
incurred in the ordinary course of business and not required to be set forth in
the Financial Statements under GAAP, and (iii) those incurred in the ordinary
course of business since the December 31, 1999, and consistent with past
practice.
5.7 Absence of Certain Changes of Events.
Except as set forth on Schedule 5.7 or otherwise disclosed herein, since
December 31, 1999, there has not been (a) any issuance of any shares of capital
stock, declaration, setting aside or payment of any dividend, any grant of
options not disclosed on Schedule 5.3.3, any execution of any agreements with
respect to any shares of capital stock or any other of Soft Plus's and its
Subsidiaries' securities or any distribution with respect to shares of Soft
Plus's capital stock; (b) any material changes made to any Soft Plus Benefit
Plans, including any modification, amendment, revision, restatement or revision
or any action to deplete any asset of any of the Soft Plus Benefit Plans; (c)
any material adverse change in Soft Plus's or its Subsidiaries' business or the
results of their respective operations; (d) any damage, destruction or casualty
loss, whether covered by insurance or not, adversely affecting the assets or the
respective business; (e) (i) any increase in the rate or terms of compensation
payable to or to become payable to Soft Plus's or any of its Subsidiaries'
employees in excess of 10% in the aggregate for all such employees, officers,
directors or consultants, or (ii) any modifications in employee benefits to Soft
Plus's or any of its Subsidiaries' employees; (f) any creation of or assumption
of any mortgage, pledge, or other lien or encumbrance upon any of the assets of
Soft Plus or any of its Subsidiaries; (g) any incurrence of any additional debt
for money borrowed by Soft Plus or any of its Subsidiaries; (h) any sale,
assignment, lease, transfer or other disposition of any of the assets of Soft
Plus or any of its Subsidiaries other than in the usual and ordinary course of
business consistent with past practice; (i) any imposition or incurring of any
obligation or liability, fixed or contingent not in the ordinary course of
business of Soft Plus or any of its Subsidiaries; (j) other than as a result of
completion of an engagement or otherwise in the ordinary course of business, any
termination or alteration of Soft Plus's or its Subsidiaries' relationship with
its or their customers that, during any period in the last two (2) years,
accounted for more than 5% in the aggregate of Soft Plus's or any of its
Subsidiaries' respective sales; (k) INTENTIONALLY OMITTED; (l) any change in the
general character of Soft Plus's or its Subsidiaries' business and properties;
or (m) any change in any method of accounting or accounting practice or policy
of Soft Plus or any of its Subsidiaries.
5.8 Litigation.
5.8.1 Except as set forth in Schedule 5.8.1, as of the date hereof: (i)
there are no actions, suits, arbitrations, legal or administrative proceedings
or investigations threatened or pending or claims asserted against Soft Plus or
any of its Subsidiary of which Soft Plus or any of its Subsidiaries has
knowledge and Soft Plus and the subsidiaries have no knowledge of any basis for
such actions, suits arbitrations, legal or administrative proceedings; and (ii)
neither Soft Plus nor any of the subsidiaries nor the assets, properties or
business of any of them is subject to any judgment, order, writ, injunction or
decree of any Governmental Entity.
5.8.2 Soft Plus and the subsidiaries are not a party to any suit,
action, arbitration or legal, administrative, governmental or other proceeding
or investigation pending or, to the knowledge of Soft Plus or any of its
Subsidiaries, threatened which might have an adverse effect or restrict the
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ability of Soft Plus or any of its Subsidiaries to consummate the transactions
contemplated by this Agreement or to perform its obligations thereunder.
5.8.3 There is no judgment, order, injunction or decree of any
Governmental Entity to which Soft Plus or any of its Subsidiaries is subject
which might have an adverse effect or restrict the ability of Soft Plus or any
of its Subsidiaries to consummate the transactions contemplated by this
Agreement or to perform its obligations thereunder.
5.9 Compliance with Applicable Laws.
Soft Plus, its Subsidiaries and employees hold all permits, licenses,
variances, exemptions, orders, registrations, approvals, work permits and visas
of all Governmental Entities which are required for the employment or engagement
of its and their employees and the operation of the businesses of Soft Plus and
its Subsidiaries (the "Soft Plus Permits"). Soft Plus and its Subsidiaries have
complied with, are not in violation of, and have not received any notices of
violation with respect to and are in compliance with the terms of the Soft Plus
Permits, and all applicable statutes, laws, ordinances, rules and regulations
except applicable statutes, laws, ordinances, rules and regulations other than
referenced in the first sentence of this Section 5.9 the non-compliance with
which would cost $10,000 to correct or satisfy the applicable penalty or fine on
an individual basis or $100,000 in the aggregate, or the non-compliance with
which would not have a material adverse effect on Soft Plus and its
Subsidiaries. No action, demand or investigation by any Governmental Entity and
no suit, action or proceeding by any Person, in each case with respect to Soft
Plus or any of its Subsidiaries or any of their respective properties, is
pending or, to the knowledge of Soft Plus, threatened that could reasonably be
expected to have an adverse effect on Soft Plus or impair the ability of Soft
Plus to perform its obligations under this Agreement or prevent or delay the
consummation of any of the transactions contemplated by this Agreement.
5.10 Soft Plus Benefit Plans.
5.10.1 Schedule 5.10.1 lists all employee benefit (including
multiemployer) plans, funds or programs (within the meaning of the Code or
ERISA), whether or not they are or are intended to be (a) covered or qualified
under the Code, ERISA or any other applicable law of the United States, any
state or commonwealth of the United States, any foreign county or other
sovereign, (b) funded or unfunded, or (c) generally available to all employees
of Soft Plus, which are maintained and/or contributed to by Soft Plus ("Soft
Plus Benefit Plans"). For purposes of this Section 5.10.1, references to Soft
Plus shall include any corporation which is a member of a controlled group of
corporations (as defined in section 414(b) of the Code) which includes Soft
Plus; any trade or business (whether or not incorporated) which is under common
control (as defined in section 414(c) of the Code) with Soft Plus; any
organization (whether or not incorporated) which is a member of an affiliated
service group (as defined in section 414(m) of the Code) which includes Soft
Plus; and any other entity required to be aggregated with Soft Plus pursuant to
regulations under section 414(o) of the Code.
5.10.2 Soft Plus has delivered to USI (i) copies of all Soft Plus
Benefit Plans documents and other instruments relating to all Soft Plus Benefit
Plans sponsored solely by Soft Plus or any of its Subsidiaries, if any, (ii)
copies of the most recent financial statements with respect to such Soft Plus
Benefit Plans, if any, (iii) true, correct and complete copies of all annual
reports for such Soft Plus Benefit Plans prepared within the past [three (3)
years], if any, and (iv) all filings with respect to such Soft Plus Benefit
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Plans submitted to and any correspondence received by Soft Plus or any of its
Subsidiaries from any Government Entity within the past two (2) years with
respect to such filings, if any.
5.10.3 Except as set forth on Schedule 5.10.3, Soft Plus Benefit Plans
which are intended to be qualified under section 401(a) of the Code and exempt
from tax under section 501(a) of the Code have received or may rely upon a
determination letter or opinion issued by the IRS that the plan is so qualified
and such determination remains in effect and has not been revoked, or there is
time remaining in which to apply for a determination letter from the IRS with
respect to such initial and continuing qualified status and make such amendments
as may be required by the IRS within the remedial amendment period under Code
section 401(b) as set forth by regulation, IRS notice or pronouncement. Neither
Soft Plus nor any of its Subsidiaries has taken or omitted to take any action
since the date of any such determination which would adversely affect such
qualification or exemption, or result in the imposition of excise taxes or tax
on unrelated business income under the Code or ERISA.
5.10.4 Except in the case of multiemployer plans, (i) no reportable
event (as defined in section 4043 of ERISA or the regulations thereunder) for
which the reporting requirements have not been fully waived, or accumulated
funding deficiency whether or not waived (as defined in section 302 of ERISA),
or liability to the Pension Benefit Guaranty Corporation ("PBGC") under section
4062 of ERISA, or any prohibited transaction (as defined in section 406 of ERISA
or section 4975 of the Code and not otherwise exempt under ERISA or the Code),
nor other fiduciary violations has occurred and/or exists with respect to any
Soft Plus Benefit Plans; (ii) except as set forth Schedule 5.10.4, each of the
Soft Plus Benefit Plans and provisions thereof, the trusts created thereby, and
the operation of the Soft Plus Benefit Plans is currently in compliance with and
conform to applicable provisions of the Code (including but not limited to
section 412), ERISA, other statutes, and rules and regulations of applicable
Governmental Entities, except with respect to such amendments as are not
required to have been made to such Soft Plus Benefit Plans as of the Closing
Date; and (iii) no funding or other obligations for a Soft Plus Benefit Plan
will be triggered as a result of the Merger or the transactions contemplated
hereby.
5.10.5 There is no tolling agreement (an agreement that extends the
applicable statute of limitations) signed, no action, audit, suit or claim
pending or, threatened in writing relating to any of the Soft Plus Benefit
Plans, fiduciary of any such Soft Plus Benefit Plans or assets of any such Soft
Plus Benefit Plans, before any court, tribunal or government agency and there
are no other claims (other than routine claims for benefits under the Soft Plus
Benefit Plans).
5.10.6 Soft Plus has delivered to USI the most recent audit reports,
actuarial reports and annual reports for the Soft Plus Benefit Plans, if any.
5.10.7 Neither Soft Plus nor any of its Subsidiaries has, with respect
to any multiemployer plan, suffered or caused a complete withdrawal or partial
withdrawal (as such terms are respectively defined in sections 4203 and 4205 of
ERISA).
5.10.8 With respect to any Soft Plus Benefit Plan that is an employee
welfare benefit plan within the meaning of section 3(1) of ERISA (a "Welfare
Plan"), neither Soft Plus nor any of its Subsidiaries has any knowledge or
received written notice that (a) any such Welfare Plan the contributions to
which are claimed as a deduction under any provision of the Code is not
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currently in compliance with all applicable requirements pertaining to such
deduction, (b) with respect to any welfare benefit fund within the meaning of
section 419 of the Code that comprises part of a Welfare Plan, there is no
disqualified benefit within the meaning of section 4976(b) of the Code that
would subject Soft Plus to a tax under section 4976(a) of the Code, or (iii)
with respect to any group health plan, there is no failure to meet the
requirements of section 4980(B)(f) of the Code that would subject Soft Plus to
the tax under section 4980(B)(b), or with respect to years beginning before the
effective date of such section, any such Plan that was a group health plan
within the meaning of section 162(i)(3) of the Code as of that date did not meet
all of the then requirements of section 162(k) of the Code.
5.11 Employees.
5.11.1 Schedule 5.11.1 sets forth a list of the names, titles, work
locations and current annual salary rates of and bonuses paid or payable to all
present officers and employees of Soft Plus and its Subsidiaries ("Employees") ,
and Schedule 5.11.1B sets forth a list of extended offers of employment or
inter-company transfer as of January 28, 2000.
5.11.2 Except as set forth in Schedule 5.11.2, neither Soft Plus nor
any of its Subsidiaries has any employment agreement with, maintains any Plans
or has any obligations for any employee benefits or bonuses with respect to, any
Employees not otherwise disclosed herein. All Employees are employed by Soft
Plus on an "at will" basis. Neither Soft Plus nor any of its Subsidiaries has
received a written notice of default with respect to any such agreements.
5.11.3 Except as set forth on Schedule 5.11.3, Schedule 5.11.3A, and
Schedule 5.11.3B, neither Soft Plus nor any of its Subsidiaries has any existing
obligations for bonuses or deferred compensation to Employees or any employment
agreements, severance agreement or change of control agreements with any
Employees, officers or directors.
5.11.4 Soft Plus and its Subsidiaries are in compliance with all
applicable requirements regarding employment of the United States, any state or
commonwealth of the United States, any foreign county or other sovereign,
including all record-keeping or other employment-related obligations. Neither
Soft Plus nor any of its Subsidiaries is a party to any collective bargaining or
other labor union contract applicable to its Employees and no collective
bargaining agreement is being negotiated by Soft Plus or any of its
Subsidiaries. As of the date of this Agreement, there is no labor dispute,
strike or work stoppage against Soft Plus or any of its Subsidiaries pending or,
to the knowledge of Soft Plus, threatened which may interfere with the
respective business activities of Soft Plus or any of its Subsidiaries. As of
the date of this Agreement, to the knowledge of Soft Plus, none of Soft Plus,
any of its Subsidiaries or any of their respective representatives or Employees
has committed any unfair labor practice in connection with the operation of the
respective business of Soft Plus or any of its Subsidiaries, and there is no
charge or complaint against Soft Plus or any of its Subsidiaries by the National
Labor Relations Board or any comparable federal, state or foreign governmental
agency pending or threatened in writing.
5.11.5 Except as set forth on Schedule 5.11.5, no Employee will be
entitled to any additional benefits or any acceleration of the time of payment
or vesting of any benefits under any Soft Plus Benefit Plan as a result of the
transactions contemplated by this Agreement (except as required under Code
section 411(d)(3)). Except as set forth on Schedule 5.11.5, no amount payable,
or economic benefit provided, by Soft Plus or its Subsidiaries (including any
acceleration of the time of payment or vesting of any benefit) would likely be
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considered an "excess parachute payment" under section 280G of the Code, nor is
any Person entitled to receive any additional payment from Soft Plus or its
Subsidiaries or any other Person (a "Parachute Gross-Up Payment") in the event
that the excise tax of section 4999 of the Code is imposed on such Person.
5.11.6 Each Employee working in the United States is either a citizen
of the United States or resident alien, possesses a valid visa or work permit to
be present and working in the United States. Schedule 5.11.6 sets forth the name
of each Employee working in the United States or who Soft Plus has committed or
intends to engage as an Employee in the United States who is not a United States
citizen as set forth on Schedule 5.11.1 and the visa or work permit for such
Employee to work or be present in the United States, the expiration date of such
visa or work permit, and the status of any pending visa, work permit or "green
card" and set forth on Schedule 5.11.6, as applicable, is a completed and
executed form or other document to amended each such Soft Plus Permit in
connection with the Merger.
5.11.7 Except as set forth on Schedule 5.11.7, each Employee has
executed and delivered to Soft Plus and/or its Subsidiary a confidentiality
agreement requiring each such Employee to maintain in confidence all information
relating to Soft Plus and its Subsidiaries.
5.12 Taxes.
5.12.1 Each of Soft Plus and its Subsidiaries has timely filed all tax
returns as defined in Section 5.12.8 required to be filed by it and all such tax
returns are true, correct and complete (or requests for extensions to file such
tax returns have been timely filed, granted and have not expired). Soft Plus and
each of its Subsidiaries has paid (or Soft Plus has paid on its behalf) all
taxes (as defined in Section 5.12.8) shown as due on such tax returns or
otherwise due or payable, and the most recent financial statements of Soft Plus
reflect an adequate reserve for all taxes payable by Soft Plus and its
Subsidiaries for all taxable periods and portions thereof accrued through the
date of such financial statements.
5.12.2 No deficiencies for any taxes have been proposed, asserted or
assessed against Soft Plus or any of its Subsidiaries that are not adequately
reserved for.
5.12.3 Neither Soft Plus nor any of its Subsidiaries has constituted
either a "distributing corporation" or a "controlled corporation" in a
distribution of stock qualifying for tax-free treatment under section 355 of the
Code (x) in the two years prior to the date of this Agreement or (y) in a
distribution which could otherwise constitute part of a "plan" or "series of
related transactions" (within the meaning of section 355(e) of the Code) in
conjunction with the Merger.
5.12.4 Neither Soft Plus nor any of its Subsidiaries has executed any
waiver or extension of any statute of limitations on the assessment or
collection of any taxes or with respect to any liability arising therefrom.
Neither Soft Plus nor any of its Subsidiaries has any liability for the taxes of
any Person pursuant to section 1.1502-6 of the Treasury Regulations promulgated
under the Code or comparable provisions of any taxing authority in respect of
any consolidated, combined or unitary tax return. There are no tax liens on any
assets of Soft Plus or any of its Subsidiaries, other than liens for current
taxes not yet due and payable and liens for taxes that are being contested in
good faith by appropriate proceedings.
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5.12.5 No consent under section 341(f) of the Code (relating to sale
of stock of a corporation) has been filed with respect to Soft Plus or any of
its Subsidiaries.
5.12.6 There are no tax sharing agreements (an agreement among a group
of affiliated taxpayers to share tax benefits among the affiliated group) or
similar arrangements with respect to or involving Soft Plus or any of its
Subsidiaries. Soft Plus and each of its Subsidiaries is in compliance with the
terms and conditions of any applicable tax exemptions, tax agreements or tax
orders of any government to which it may be subject or which it may have
claimed, and the transactions contemplated by this Agreement will not have any
adverse effect on such compliance.
5.12.7 As used in this Agreement, "taxes" shall include all (x)
federal, state, local or foreign income, franchise, gross receipts, employment,
property, sales and use, excise and other taxes or similar governmental charges,
including any interest, penalties or additions with respect thereto, (y)
liability for the payment of any amounts of the type described in (x) as a
result of being a member of an affiliated, consolidated, combined or unitary
group, and (z) liability for the payment of any amounts as a result of being
party to any tax sharing agreement or as a result of any express or implied
obligation to indemnify any other Person with respect to the payment of any
amounts of the type described in clause (x) or (y).
5.12.8 As used in this Agreement, "tax returns" shall include any tax
return, declaration or estimated tax, tax report or other tax statement, or any
similar filing, including any schedule or attachment thereto, and including any
amendment thereof, required to be submitted to any Governmental Entity with
respect to any tax.
5.13 State Takeover Statutes.
The Board of Directors of Soft Plus has unanimously approved the terms of
this Agreement and the consummation of the Merger and the other transactions
contemplated by this Agreement and such approval, together with the Majority
Shareholder Consent, constitutes approval of the Merger and the other
transactions contemplated by this Agreement by the Soft Plus Board of Directors
under the provisions of section 1101 of the CGCL. To the knowledge of Soft Plus,
no other state takeover statute is applicable to the Merger or the other
transactions contemplated hereby.
5.14 Brokers.
Except for First Albany Corporation and set forth on Schedule 5.14, no
broker, investment banker, financial advisor or other Person is entitled to any
broker's, finder's, financial advisor's or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Soft Plus. Schedule 5.14 sets forth is a
true, correct and complete list of all fees and expenses of Soft Plus or any of
the Principal Shareholders, including without limitation the fees of First
Albany Corporation, in connection with the Merger, execution, delivery and
performance hereunder, and Soft Plus has furnished to USI true, correct and
complete copies of all agreements under which any such fees or expenses are
payable, including without limitation the agreement with First Albany
Corporation, and all indemnification and other agreements related to the
engagement of the Persons to whom such fees are payable, all of which shall be
paid by USI in accordance with Section 8.5 below, and which shall reduce the
principal amount of the USI Note as provided in Section 3.1.4 above to the
extent such expenses exceed the Expense Threshold. If the USI Note is not
outstanding at the time such adjustment is to be made under Section 3.1.4 above,
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then USI shall be entitled to receive Escrow Shares with a value equal to the
adjustment required by Section 3.1.4 above.
5.15 Machinery and Equipment.
Set forth on Schedule 5.15 is a list of fixed assets as maintained on the
books of Soft Plus and its Subsidiaries as of December 31, 1999.
5.16 Inventory.
Set forth on Schedule 5.16 is a description of all classes of inventory
owned by Soft Plus and it Subsidiaries as of the December 31, 1999.
5.17 Leases.
Set forth on Schedule 5.17 is a list of all outstanding leases or licenses
pursuant to which Soft Plus and its Subsidiaries have (i) obtained the right to
use or occupy any real or personal property, or (ii) granted to any other party
the right to use any real or personal property described herein. Soft Plus has
heretofore delivered or made available to USI or Acquisition copies of all the
written leases and licenses described on Schedule 5.17, together with all
amendments thereto.
5.18 Environmental Laws.
Soft Plus and its Subsidiaries are not in violation in any material respect
of any federal, state, foreign and local laws relating to pollution or
protection of the environment, including laws relating to emissions, discharges,
releases or threatened releases of pollutants, contaminants, chemicals, or
industrial, toxic or hazardous substances or wastes into the environment
(including, without limitation, ambient air, surface water, ground water, land
surface or subsurface strata) or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, chemicals, or industrial toxic or
hazardous substances or wastes
5.19 Insurance.
Schedule 5.19 contains a description of all policies or binders of
insurance insuring Soft Plus and each of its Subsidiaries (including without
limitation, "keyman" insurance, any errors and omissions insurance) or any
directors and officers (in their capacity as such) thereof or any of its
properties or assets (specifying the insurer, the amount of the coverage, the
type of insurance, the risks insured, the expiration date, the policy number,
the premium and any agent or broker). Soft Plus has no outstanding performance
bonds which have been delivered to any Person in connection with the business
and operations of Soft Plus and its Subsidiaries.
5.20 Intellectual Property; Year 2000.
5.20.1 All patents, trademarks, trade names and service marks which
Soft Plus and its Subsidiaries own or utilize and all registrations granted
and/or applications pending therefor, if any, are listed on Schedule 5.20.1.
Soft Plus and its Subsidiaries own, or are validly licensed or otherwise have
the right to use, all patents, patent rights, trademarks, trade secrets, trade
names, service marks, copyrights and other proprietary intellectual property
rights and computer programs (the "Intellectual Property Rights") used or
useable in the conduct of the business of Soft Plus and its Subsidiaries.
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5.20.2 Neither Soft Plus nor any of its Subsidiaries has interfered
with, infringed upon, misappropriated or otherwise come into conflict with any
Intellectual Property Rights or other proprietary information of any other
Person. Neither Soft Plus nor any of its Subsidiaries has received any written
charge, complaint, claim, demand or notice alleging any such interference,
infringement, misappropriation or other conflict (including any claim that Soft
Plus or any such Subsidiary must license or refrain from using any Intellectual
Property Rights or other proprietary information of any other Person) which has
not been settled or otherwise fully resolved. To the knowledge of the Principal
Shareholders, no other Person has interfered with, infringed upon,
misappropriated or otherwise come into conflict with any Intellectual Property
Rights of Soft Plus or any of its Subsidiaries.
5.20.3 To the knowledge of the Principal Shareholders USI's use of the
Intellectual Property Rights will not interfere with, infringe upon,
misappropriate or otherwise come into conflict with the Intellectual Property
Rights of any other Person.
5.20.4 All software/computer applications owned or licensed from
others ("Software Applications") are, when used in accordance with associated
documentation on a specified platform or platforms, capable upon installation of
(i) operating in the same manner on dates in both the twentieth and twenty-first
centuries and (ii) accurately processing, providing and receiving date data
from, into and between the twentieth and twenty-first centuries, including the
years 1999 and 2000, and making leap-year calculations. The year 2000 date
change does not adversely affect the systems and facilities that support the
operations of Soft Plus and its Subsidiaries. Without limiting the generality of
the foregoing, except as set forth on Schedule 5.20.4 the Software Applications:
5.20.4.1 operate prior to, during and after the calendar year
2000 A.D., and more specifically, operate during each such time period without
error relating to date data, including any error relating to, or the product of,
date data which represents or references different centuries or more than one
century;
5.20.4.2 do not abnormally end or provide invalid or incorrect
results as a result of date data, including date data which represents or
references different centuries or more than one century;
5.20.4.3 are capable of date data century recognition,
calculations which accommodate same century and multi-century formulas and date
values, and date data interface values that reflect the century;
5.20.4.4 all of Soft Plus's vendors who provide hardware or
software (except for "off the shelf" software) for Soft Plus's information
systems ("Technology Vendors") have provided Soft Plus assurances of their year
2000 compliance; and
5.20.4.5 Soft Plus has not notified all of its customers
regarding any potential "year 2000" problem contained in any software or other
products sold or licensed to such customers at any time.
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5.20.5 Except as set forth on Schedule 5.20.5, any invention,
modification, discovery, design, development, improvement, process, software
program, work of authorship, documentation, formula, data, technique, know-how,
secret or intellectual property right whatsoever or any interest therein
(whether or not patentable or registrable under copyright or similar statutes or
subject to analogous protection) (herein called "Developments") either alone or
with others that any employee of Soft Plus made, created, discovered or reduced
to practice that related to the business of Soft Plus or any of the products or
services being developed, manufactured or sold by Soft Plus or which may be used
in relation therewith, resulted from tasks assigned such employee by Soft Plus,
constitute "work made for hire" and are the sole and absolute property of Soft
Plus. Notwithstanding anything set forth on Schedule 5.20.5, Soft Plus owns or
possesses intellectual property rights necessary for the conduct of its business
as now conducted and proposed to be conducted without any conflict with or
infringement of the rights of others.
5.21 Bank Accounts, Letters of Credit and Powers of Attorney.
Schedule 5.21 lists (a) all bank accounts, lock boxes and safe deposit
boxes relating to the business and operations of Soft Plus and its Subsidiaries
(Schedule 5.21 also sets forth, opposite the identification of each such account
or box by its account or box number, the name, address, telephone number, and
contact Person for the bank or other institution where such account or box is
located, the account balance or description of the box contents, and the name of
each authorized signatory thereto), (b) all outstanding letters of credit issued
by financial institutions for the account of Soft Plus and its Subsidiaries
(setting forth, in each case, the name, address, telephone number, and contact
Person for each financial institution issuing such letter of credit, the maximum
amount available under such letter, the terms (including the expiration date) of
such letter of credit and the party or parties in whose favor such letter of
credit was issued), and (c) the name, address, and telephone number of each
Person who has a power of attorney to act on behalf of Soft Plus and its
Subsidiaries. Soft Plus has heretofore delivered to USI true, correct and
complete copies of each letter of credit and each power of attorney described on
Schedule 5.21.
5.22 Accounts and Notes Receivable.
Schedule 5.22 sets forth a true, correct and complete list, as of December
31, 1999, setting forth, by customer or obligor (Schedule 5.22 also sets forth,
opposite the name of each customer or obligor, the address and telephone number
for such customer or obligor), an aging of the accounts and notes receivable of
Soft Plus and its Subsidiaries in categories of less than 31 days due, 31 to 60
days due, 61 to 90 days due and 91 days or greater due.
5.23 Accounts Payable.
Schedule 5.23 sets forth a true, correct and complete list, as of December
31, 1999, of all of the accounts payable of Soft Plus and its Subsidiaries,
setting forth, by vendor (Schedule 5.23 also sets forth, opposite the name of
each vendor, the address and telephone number for such vendor), an aging of the
accounts payable of Soft Plus and its Subsidiaries in categories less than 31
days due, 31 to 60 days due, 61 to 90 days due and 91 days or greater due.
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5.24 Customers, Suppliers, Licensees and Consulting Agreements.
5.24.1 Except as otherwise indicated thereon, Schedule 5.24 lists each
and every document not otherwise listed on any other Schedule, for the
following: (i) written contract or commitment to which Soft Plus or any of its
Subsidiaries is a party which presently creates an aggregate obligation on the
part of Soft Plus or any of its Subsidiaries in excess of $50,000; (ii) written
debt instrument, including, without limitation, any loan agreements, promissory
notes, security agreements or other evidences of indebtedness, where Soft Plus
or any of its Subsidiaries is a lender or borrower; (iii) written contract or
commitment restricting Soft Plus or any of its Subsidiaries from engaging in any
line of business or in any geographic area; (iv) written contract or agreement
to which Soft Plus or any of its Subsidiaries is a party (whether as an original
party or an assignee or successor) for a line of credit or guarantee, pledge or
undertaking of the indebtedness of any other Person or entity; (v) written
contract or commitment to which Soft Plus or any of its Subsidiaries is a party
(whether as an original party or an assignee or successor) for any charitable
contribution; (vi) written loan agreement, security agreement, note, debenture,
or other contract or commitment (except for this Agreement) limiting or
restraining Soft Plus or any of its Subsidiaries from declaring, setting aside,
authorizing or making payment of any dividend or any distribution, whether in
cash or property; (vii) written joint venture or partnership agreement to which
Soft Plus or any of its Subsidiaries is a party (whether as an original party or
as an assignee or successor); (viii) written agreement or agreements to which
Soft Plus or any of its Subsidiaries is a party (whether as an original party or
as an assignee or successor) with respect to any assignment, discounting or
reduction of any receivables, other than normal trade discounts, of Soft Plus or
any of its Subsidiaries; (ix) written distributorship, sales agency, sales
representative, brokerage marketing agreement, including without limitation,
agreements with insurance companies which presently creates an aggregate
obligation on the part of Soft Plus or any of its Subsidiaries in excess of
$50,000; (x) existing agreements, options, commitments or rights with, to or in
any third party to acquire any assets or properties, real, personal or mixed, or
any interest therein, of Soft Plus or any of its Subsidiaries; (xi) a list of
all clients of Soft Plus and its Subsidiaries as of December 31, 1999; (xii)
agreements with affiliates.
5.24.2 Soft Plus and its Subsidiaries have heretofore delivered to USI
or Acquisition true, correct and complete copies of all documents described in
Schedule 5.24. There are no oral contracts or commitments of the types described
in this Section 5.24 which create an aggregate obligation on the part of Soft
Plus or any of its Subsidiaries in excess of $50,000. There are no contracts or
commitments between Soft Plus or its Subsidiaries, on the one hand, and any
Person who is an affiliate of Soft Plus, on the other, except as listed on
Schedule 5.24 or agreements referred to in this Agreement.
5.25 Absence of Defaults.
Except as set forth in Schedule 5.25: (a) neither Soft Plus nor its
Subsidiaries has received notice that it has not complied with and performed all
of its obligations required to be performed under all contracts, agreements and
leases to which it is a party (whether as an original party or as an assignee or
successor) as of the date hereof, or that it is in default in any respect under
any contract, agreement, lease, undertaking, commitment or other obligation
which presently creates an aggregate obligation on the part of Soft Plus or any
of its Subsidiaries in excess of $50,000; and (b) Soft Plus and its Subsidiaries
have no knowledge that any party has failed to comply in any respect with or
perform all of its obligations required to be performed under any contract,
agreement or lease to which Soft Plus or any of its Subsidiaries is a party
(whether as an original party or as an assignee or successor) as of the date
hereof under which there is a present aggregate obligation in excess of $50,000.
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5.26 No-Shop Agreement.
During the times that such agreements were in effect, until the date
hereof, Soft Plus has complied in all respects with its obligations under the
non-binding letter of understanding, as well as the letter of confidentiality,
by and among Soft Plus and the Principal Shareholders on the one hand and USI on
the other, dated November 18, 1999.
5.27 Absence of Corrupt Practices.
To the knowledge of the Principal Shareholders, neither Soft Plus nor any
officer of Soft Plus, nor any employee or agent of Soft Plus (nor any Person
acting on behalf of any of the foregoing) has since Soft Plus's date of
incorporation, directly or indirectly, given or agreed to give any gift or
similar benefit to any customer, supplier, governmental employee or other Person
who is or may be in a position to help or hinder Soft Plus or assist Soft Plus
in connection with any actual or proposed transaction, which, if not given in
the past, might have had a material adverse effect on the business or prospects
of Soft Plus, or which, if not continued in the future, might materially
adversely affect the business of Soft Plus, or which might subject Soft Plus to
suit or penalty in any private or governmental litigation or proceeding.
5.28 No Material Misstatements or Omissions.
Neither this Agreement nor the representations and warranties by the
Principal Shareholders contained herein or in any documents, instruments,
certificates or Schedules furnished pursuant hereto or in connection with the
transactions contemplated hereby contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements or facts
contained herein and therein not misleading. There is no fact that is known to
the Principal Shareholders which adversely affects the business, operations,
affairs or condition of Soft Plus which has not been set forth in this Agreement
or in the documents, instruments, certificates or Schedules furnished pursuant
hereto.
Article VI. Representations and Warranties Regarding the Principal Shareholders.
Each Principal Shareholder represents and warrants to Acquisition and
USI as to himself that with respect to such Principal Shareholder as follows:
6.1 Title to the Shares.
Such Principal Shareholder is the lawful record and beneficial owner of,
and has good and marketable title to, the number of shares of Soft Plus Common
Stock and Soft Plus Preferred Stock, set forth opposite the name of such
Principal Shareholder on Schedule 5.3.1, free and clear of any and all liens,
security interests, charges, claims, pledges or other encumbrances and any other
rights of any third party pursuant to any agreement; (ii) there are no existing
agreements, subscriptions, options, warrants, calls, commitments, trusts (voting
or otherwise), or rights of any kind whatsoever granting to any Person or entity
any interest in or the right to purchase or otherwise acquire any of such
Principal Shareholder's shares of Soft Plus Common Stock or Soft Plus Preferred
Stock at any time, or upon the happening of any stated event; and (iii) there
are no proxies, agreements or understandings with respect to the voting of such
Principal Shareholder's shares of Soft Plus Common Stock or Soft Plus Preferred
Stock.
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6.2 Power and Capacity.
6.2.1 Such Principal Shareholder has full right, power and legal
capacity to execute, deliver and perform his obligations under this Agreement
and to vote his shares of Soft Plus Common Stock and Soft Plus Preferred Stock
in favor of the Merger and to execute and deliver the Majority Shareholder
Consent to approve the Merger and this Agreement pursuant to the terms hereof.
6.2.2 The execution and delivery of this Agreement by such Principal
Shareholder, and the consummation by such Principal Shareholder of the
transactions herein contemplated and the fulfillment by such Principal
Shareholder of the terms hereof, will not require any consent, approval,
authorization, or order of, notice to or filing with, any Governmental Entity
(except as may be required under the Securities Act, or state blue sky laws) and
will not result in a breach of any of any indenture, mortgage, deed of trust or
other agreement or instrument to which such Principal Shareholder is a party, or
of any order, rule or regulation applicable to such Principal Shareholder of any
Governmental Entity having jurisdiction.
6.2.3 The execution and delivery of an employment agreement by Mohan
Uttarwar in the form of Exhibit Q, and the employment of all the Principal
Shareholders by USI and/or Acquisition in the business heretofore conducted by
Soft Plus and USI does not and will not violate or conflict with any provision
of any contract to which such Principal Shareholders are a party, including
without limitation, Sections 10 and 11 of those certain Digital Tools
Incorporated Consulting Agreements between Digital Tools Incorporated and the
Principal Shareholders, dated as of April 7, 1997.
6.3 Litigation.
6.3.1 Such Principal Shareholder is not a party to any suit, action,
arbitration or legal, administrative, governmental or other proceeding or
investigation pending or, to the knowledge of such Principal Shareholder,
threatened which would adversely affect or restrict the ability of such
Principal Shareholder to consummate the transactions contemplated by this
Agreement or to perform his obligations hereunder.
6.3.2 There is no judgment, order, injunction or decree of any
Governmental Entity to which such Principal Shareholder is subject which would
adversely affect or restrict the ability of such Principal Shareholder to
consummate the transactions contemplated by this Agreement or to perform his
obligations hereunder.
6.4 Spousal Consent.
The Person executing the Spousal Consent, if any, delivered in connection
with such Principal Shareholder's execution of this Agreement is the only Person
who holds any community property rights, by virtue of marriage or otherwise, in
connection with such Principal Shareholder's shares of Soft Plus Common Stock.
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6.5 Waiver of Claims.
The Principal Shareholders have no claim against Soft Plus, and do hereby
release Soft Plus from any and all claims which they now have or may have
against Soft Plus, including any claims arising from or in connection with the
execution, delivery and performance of this Agreement or the consummation of the
Merger. Each of the Principal Shareholders has express notice of the provisions
of California Civil Code Section 1542, which provides as follows:
"A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him might have materially affected his
settlement with the debtor."
and being aware of said Code section, waives any rights he may have thereunder
as well as under any statutes or common law principles of similar effect in any
other states or any other jurisdiction or under federal law. Notwithstanding the
foregoing, nothing contained herein shall be deemed to waive or release any
rights or benefits that each Principal Shareholder may have pursuant to Article
XII below.
The foregoing shall not be a waiver of any claim to payments due to and
accrued on the books and records of Soft Plus prior to the Effective Date, nor
shall it act as a wavier of any right to indemnification for a claim made or
asserted by or on behalf of a Person not a party hereto, or an employee or
affiliate of Soft Plus, whether such indemnification arises by way of insurance,
under Soft Plus's bylaws or contact if consistent with the articles of
incorporation of Soft Plus and the applicable provisions of the CGCL.
Notwithstanding the immediately preceding sentence, the foregoing is
specifically intended to waive any rights to severance or other payments that
are or may be due as a result of the termination of the employment agreement of
each Principal Shareholder with Soft Plus in connection with the Merger, it
being acknowledged and agreed that the employment with Soft Plus shall not end
as a result of said termination.
6.6 Documents Delivered.
The Soft Plus Shareholder Agent has received and distributed to the Soft
Plus Shareholders for review USI's third quarter report on Form 10-Q for the
third quarter of the fiscal year ended September 30, 1999, as filed with the
SEC. The Soft Plus Shareholder Agent has received and distributed to the Soft
Plus Shareholders for review: (1) the Merger Agreement; (2) the Soft Plus
Shareholder Agent Agreement; and (3) the Escrow Agreement.
6.7 Accredited Investor.
Such Principal Shareholder resides at the residence set forth on Schedule
5.3.1. Such Principal Shareholder (a) is acquiring the USI Common Stock for
investment for such Principal Shareholder's own account, with no intention of
reselling or otherwise distributing the same, subject, nevertheless, to any
requirement of law that the disposition of such Principal Shareholder's property
shall at all times be within such Principal Shareholder's control, (b) is an
"accredited investor" as defined in Regulation D under the Securities Act, (c)
has such knowledge and experience in financial and business matters that he, she
or it is capable of evaluating the merits and risks of the investments made or
to be made in connection with the acquisition and exercise of the USI Common
Stock, (d) has, so far as such Principal Shareholder is aware, been provided all
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such information and access to information concerning such Principal
Shareholder's investment hereunder as such Principal Shareholder's has requested
from USI, and (e) acknowledges that the USI Common Stock to be delivered herein
is not registered under the Securities Act, and each such certificate evidencing
shall be designated with such legend or legends as shall be deemed necessary or
appropriate by USI upon the advice of its counsel.
6.8 Waiver of Rights.
Each of the Principal Shareholders hereby waives, for such Principal
Shareholder and such Principal Shareholder's heirs, legal representatives,
successors and assigns, the right to exercise any and all statutory and/or
contractual rights of redemption with respect to any of the shares of Soft Plus
Common Stock and/or Soft Plus Preferred Stock and/or Soft Plus Options owned of
record or beneficially by such Principal Shareholder, as well as the right to
exercise any and all statutory and/or contractual rights of appraisal with
respect to any of the Soft Plus Common Stock, Soft Plus Preferred Stock or the
Soft Plus Options.
6.9 No Ownership of USI Stock.
Such Principal Shareholder does not own, directly or indirectly,
beneficially or otherwise, any USI Common Stock.
Article VII. Representations and Warranties of USI and Acquisition.
As a material inducement for Soft Plus and the Principal Shareholders to
enter into and consummate the transactions contemplated hereby, USI represents
and warrants to Soft Plus and the Principal Shareholders as follows:
7.1 Organization, Standing and Corporate Power.
Each of USI and Acquisition is a corporation or other legal entity duly
organized, validly existing and in good standing (with respect to jurisdictions
which recognize such concept) under the laws of the jurisdiction in which it is
organized and has the requisite corporate or other power, as the case may be,
and authority to carry on its business as now being conducted, except for those
jurisdictions where the failure to be so organized, existing or in good standing
individually or in the aggregate is not reasonably likely to have a material
adverse effect on USI. Each of USI and its Subsidiaries is duly qualified or
licensed to do business and is in good standing (with respect to jurisdictions
which recognize such concept) in each jurisdiction in which the nature of its
business or the ownership, leasing or operation of its properties makes such
qualification or licensing necessary, except for those jurisdictions where the
failure to be so qualified or licensed or to be in good standing individually or
in the aggregate is not reasonably likely to have a material adverse effect on
USI. USI has made available to Soft Plus prior to the execution of this
Agreement true, correct and complete of its certificate of incorporation and
bylaws and the certificate of incorporation and bylaws of USI and Acquisition,
in each case as amended to date.
7.2 Subsidiaries.
Other than Acquisition, USI does not have any Significant Subsidiaries (as
defined in Rule 1-02 of Regulation S-X of the Securities and Exchange
Commission).
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7.3 Capital Structure.
As of the date hereof, the authorized capital stock of USI consists of 90
million shares of USI Common Stock, and 15 million shares of preferred stock,
par value $0.001 ("USI Preferred Stock"). As of December 31, 1999,
7.3.1 19,488,483 shares of USI Common Stock were issued and
outstanding,
7.3.2 1,062,709 shares of USI Common Stock were issued but held in
treasury;
7.3.3 no shares of USI Preferred Stock were issued and outstanding, and
7.3.4 approximately 5,948,771 shares of USI Common Stock were reserved
for issuance pursuant to outstanding stock options or other rights to purchase
or receive USI Common Stock granted under USI's 1998 Performance Incentive Plan
(the "1998 Incentive Plan"), the Amended and Restated 1998 Stock Option Plan
(the "1998 SOP"), the Amended and Restated 1997 Stock Option Plan (the "1997
SOP"), and the Amended and Restated 1996 Stock Option Plan (formerly Digital
Evolution, Inc. Stock Option Plan) (the "1996 SOP") (collectively, the "USI
Option Plans") (of which 3,402,972 were subject to outstanding stock options or
other rights to purchase or receive USI Common Stock granted under the USI Stock
Plans (collectively, "USI Stock Options"). Except as set forth in this Section
7.3, no shares of capital stock or other voting securities of USI are issued,
reserved for issuance or outstanding. There are no outstanding stock
appreciation rights ("SARs") or rights (other than the USI Stock Options) to
receive shares of USI Common Stock on a deferred basis granted under the USI
Stock Plans or otherwise. No bonds, debentures, notes or other indebtedness of
USI having the right to vote (or convertible into, or exchangeable for,
securities having the right to vote) on any matters on which stockholders of USI
may vote are issued or outstanding. All outstanding shares of capital stock of
USI are duly authorized, validly issued, fully paid and non-assessable and not
subject to preemptive rights. Other than warrants originally issued to Progress
Capital, Inc. to purchase 70,000 shares of USI Common Stock and as otherwise
disclosed in this Section 7.3.4, (x) USI has not issued and there are not
outstanding any warrants, calls options or other rights to acquire from USI, and
no obligation of USI to issue, any capital stock, voting securities or
securities convertible into or exchangeable or exercisable for capital stock or
voting securities of USI and (y) there are not any outstanding obligations of
USI to repurchase, redeem or otherwise acquire any such securities or to issue,
deliver or sell, or cause to be issued, delivered or sold, any such securities.
USI is not a party to any voting agreement with respect to the voting of any
such securities.
7.4 Authority; Noncontravention.
7.4.1 Acquisition and USI have all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated by this Agreement. The execution and delivery of this Agreement by
Acquisition and USI and the consummation by Acquisition and USI of the
transactions contemplated by this Agreement has been duly authorized by all
necessary corporate action on the part of Acquisition and USI. This Agreement
has been duly executed and delivered by Acquisition and USI and, constitutes
legal, valid and binding obligations of Acquisition and USI, enforceable against
Acquisition and USI in accordance with its terms.
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7.4.2 Without limiting the other provisions of Section 7.4.1 above, the
Boards of Directors of Acquisition and USI have duly authorized this Agreement,
the Merger and the other transactions contemplated hereby.
7.4.3 The execution and delivery of this Agreement by Acquisition and
USI does not, and the performance by each of Acquisition and USI of its
respective obligations hereunder will not, (a) violate or conflict with any
provision of its certificate or articles of incorporation or bylaws thereof, as
in effect on the date hereof or any amendments thereto or restatements thereof,
or (b) violate any of the terms, conditions or provisions of any applicable law,
rule, regulation, order, writ, injunction, judgment or decree of any
Governmental Entity applicable to USI or Acquisition, or (c) result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, cancellation
or acceleration) under, any of the terms, conditions or provisions of any note,
bond, indenture, debenture, security agreement, trust agreement, lien, mortgage,
lease, agreement, license, franchise, permit, guaranty, joint venture agreement,
or other agreement, instrument or obligation, oral or written, to which
Acquisition and USI is a party (whether as an original party or as an assignee
or successor) or by which any of their properties is bound. No Permits and no
Filings are required in connection with the execution, delivery and performance
of this Agreement by Acquisition and USI and the consummation of the
transactions contemplated hereby, except (i) the filing by Acquisition of the
Certificate of Merger, together with the required officers' certificates with
the Secretary of State of the State of Delaware and the Secretary of State of
the State of California, and (ii) any filings required to be made with the SEC
or Nasdaq.
7.5 Litigation.
7.5.1 Acquisition and USI are not parties to any suit, action,
arbitration or legal, administrative, governmental or other proceeding or
investigation pending or, to the knowledge of either of them, threatened which
might have a material adverse effect or restrict their ability to consummate the
transactions contemplated by this Agreement or to perform their obligations
hereunder.
7.5.2 There is no judgment, order, injunction or decree of any
Governmental Entity to which Acquisition or USI is subject which might have a
material adverse effect on or restrict their ability to consummate the
transactions contemplated by this Agreement or to perform their obligations
hereunder.
7.6 Issuance of Shares.
USI Common Stock to be issued to the Soft Plus Shareholders hereunder, when
issued and delivered in accordance with the terms hereof, will be duly and
validly issued, fully paid and nonassessable and free of restrictions on
transfer other than restrictions on transfer under this Agreement, the Lock-Up
Agreements and applicable state and federal securities laws. The USI Common
Stock will be issued in compliance with all applicable federal and state
securities laws.
7.7 Securities Exchange Act of 1934.
7.7.1 USI has filed all forms, reports and documents required to be
filed by USI with the SEC since the date of its initial public offering, and
previously has made available to Soft Plus copies, in the form filed with the
SEC, of (a) its Quarterly Reports on Form 10-Q for the period ended September
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30, 1999 and (b) all other forms, reports and registration statements (other
than Quarterly Reports on Form 10-Q not referred to in clause (b) above) filed
with the SEC by USI prior to the date hereof, and USI will have made available
to Soft Plus true and complete copies of any additional documents filed with the
SEC by USI after the date hereof and prior to the Closing Date (collectively,
the "USI SEC Documents"). As of their respective filing dates, the USI SEC
Documents complied in all material respects with the requirements of the
Exchange Act and the Securities Act
7.7.2 The financial statements of USI, including the notes thereto,
included in the USI SEC Documents (the "USI Financial Statements") were complete
and correct in all material respects as of their respective filing dates,
complied as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto as of their respective dates, and have been prepared in
accordance with GAAP applied on a basis consistent throughout the periods
indicated and consistent with each other (except as may be indicated in the
notes thereto or, in the case of unaudited statements, included in Quarterly
Report on Forms 10-Q). The USI Financial Statements fairly present the
consolidated financial condition and operating results of USI and its
subsidiaries at the dates and during the periods indicated therein (subject, in
the case of unaudited statements, to normal, recurring year-end adjustments).
There has been no change in USI accounting policies except as described in the
notes to the USI Financial Statements. Since the date of the most recently filed
USI SEC Document, USI's Quarterly Report on Forms 10-Q, there has been no
material adverse change in USI's business or the results of its operations.
7.7.3 USI agrees to use its reasonable best efforts to file with the
SEC in a timely manner (including available extensions of time) all reports and
other documents required to be filed by an issuer of securities registered under
the Exchange Act.
7.8 Absence of Undisclosed Liabilities.
USI has no material obligations or liabilities of any nature (matured or
unmatured, fixed or contingent) other than (i) those set forth or adequately
provided for in the Balance Sheet included in USI's Quarterly Report on Form
10-Q heretofore provided to Soft Plus for the period ended September 30, 1999
(the "USI Balance Sheet"), (ii) those incurred in the ordinary course of
business and not required to be set forth in the USI Balance Sheet under GAAP,
and (iii) those incurred in the ordinary course of business since the USI
Balance Sheet Date and consistent with past practice.
7.9 Compliance with Applicable Laws.
USI has complied with, is not in violation of, and has not received any
notices of violation with respect all applicable statutes, laws, ordinances,
rules and regulations except applicable statutes, laws, ordinances, rules and
regulations the non-compliance with which would cost $10,000 to correct or
satisfy the applicable penalty or fine on an individual basis or $100,000 in the
aggregate, or the non-compliance with which would not have a material adverse
effect on USI. No action, demand or investigation by any Governmental Entity and
no suit, action or proceeding by any Person, in each case with respect to USI or
any of its properties, is pending or, to the knowledge of USI, threatened that
could reasonably be expected to have an adverse effect on USI or impair the
ability of USI to perform its obligations under this Agreement or prevent or
delay the consummation of any of the transactions contemplated by this
Agreement.
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7.10 No Material Misstatements or Omissions.
Neither this Agreement nor the representations and warranties USI or
Acquisition contained herein or in any documents, instruments, certificates or
Schedules furnished pursuant hereto or in connection with the transactions
contemplated hereby contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements or facts contained herein
and therein not misleading.
7.11 Receipt of Fairness Opinion.
USI has received the opinion of Lehman Brothers, in form and substance
satisfactory to USI, dated on or before the date hereof, to the effect that, as
of such date, the Merger Consideration is fair to USI from a financial point of
view (the "Fairness Opinion").
Article VIII. Covenants Relating to Conduct of Business.
8.1 Conduct of Business by Soft Plus.
8.1.1 During the period from the date of this Agreement to the Closing
Date, Soft Plus shall, and shall cause its Subsidiaries to, carry on their
respective businesses in the ordinary course consistent with past practice and
in compliance with all applicable laws and regulations and, to the extent
consistent therewith, to preserve intact their current business organizations,
to use its best efforts to keep available the services of their current officers
and other key employees and preserve their relationships with those Persons
having business dealings with them. Without limiting the generality of the
foregoing during the period from the date of this Agreement to the Closing Date,
without the prior written consent of USI Soft Plus shall not, and shall not
permit any of its Subsidiaries to:
8.1.1.1 other than $225,000 in connection with the Rescission
Offer, declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock; split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock; or purchase, redeem or otherwise acquire any shares of capital
stock of Soft Plus or any of its Subsidiaries or any other securities thereof or
any rights, warrants or options to acquire any such shares or other securities,
except for purchases of capital stock or other securities of Soft Plus or its
Subsidiaries (or any rights, warrants or options to acquires such shares or
securities) by Soft Plus from those of its directors or employees terminated
after the date hereof and prior to the Closing Date.
8.1.1.2 other than the issuance of options in the ordinary course
of business to newly hired Soft Plus employees, issue, deliver, sell, pledge or
otherwise encumber or subject to any Lien any shares of its capital stock, any
other voting securities or any securities convertible into, or any rights,
warrants or options to acquire, any such shares, voting securities or
convertible securities;
8.1.1.3 amend the articles of incorporation, bylaws or other
comparable organizational documents of Soft Plus or its Subsidiaries;
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8.1.1.4 acquire or agree to acquire by merging or consolidating
with, or by purchasing assets of, or by any other manner, any business or any
Person, other than purchases of or supplies in the ordinary course of business
consistent with past practice;
8.1.1.5 sell, lease, license, mortgage or otherwise encumber or
subject to any Lien or otherwise dispose of any of its properties or assets
(including securitizations), other than sales or licenses of finished goods or
services in the ordinary course of business consistent with past practice;
8.1.1.6 (x) unless approved in advance by the CFO of USI, which
consent shall not be unreasonably withheld, incur any indebtedness for borrowed
money or guarantee any such indebtedness of another Person which in the
aggregate with indebtedness for borrowed money or guarantees of any such
indebtedness for borrowed money of another Person exceeds the Soft Plus Debt
Ceiling, issue or sell any debt securities or warrants or other rights to
acquire any debt securities of Soft Plus or any of its Subsidiaries, guarantee
any debt securities of another Person, enter into any "keep well" or other
agreement to maintain any financial statement condition of another Person or
enter into any arrangement having the economic effect of any of the foregoing,
except for short-term borrowings incurred in the ordinary course of business (or
to refund existing or maturing indebtedness) consistent with past practice, or
(y) make any loans, advances or capital contributions to, or investments in, any
other Person other than expense reimbursement in the ordinary course of
business;
8.1.1.7 make or agree to make any new capital expenditure or
expenditures, or enter into any agreement or agreements providing for payments
except in the ordinary course of business and approved in advance by the CFO of
USI;
8.1.1.8 make any tax election that, individually or in the
aggregate, is would have an adverse effect on the tax liability of Soft Plus or
any of its Subsidiaries or settle or compromise any income tax liability;
8.1.1.9 pay, discharge, settle or satisfy any claims,
liabilities, obligations or litigation (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge,
settlement or satisfaction, in the ordinary course of business consistent with
past practice, or waive the benefits of, or agree to modify in any manner, any
standstill or similar agreement to which Soft Plus or any of its Subsidiaries is
a party;
8.1.1.10 except as required by law or contemplated hereby and
except for labor agreements negotiated in the ordinary course, enter into, adopt
or amend in any material respect or terminate any Soft Plus Benefit Plan or any
other agreement, plan or policy involving Soft Plus or its Subsidiaries, and one
or more of its directors, officers or employees, or change any actuarial or
other assumption used to calculate funding obligations with respect to any
pension plan, or change the manner in which contributions to any pension plan
are made or the basis on which such contributions are determined;
8.1.1.11 except for normal increases in the ordinary course of
business consistent with past practice or as contemplated hereby or by the terms
of any employment agreement in existence on the date hereof and disclosed to
USI, increase the cash compensation of any director, executive officer or other
key employee or pay any benefit or amount not required by a plan or arrangement
as in effect on the date of this Agreement and disclosed to USI to any such
Person;
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8.1.1.12 transfer or license to any Person or entity or otherwise
extend, amend or modify any rights to the Intellectual Property Rights of Soft
Plus and its Subsidiaries other than in the ordinary course of business
consistent with past practices;
8.1.1.13 enter into or amend any agreement pursuant to which any
Person is granted exclusive marketing, manufacturing or other rights with
respect to any Soft Plus service, process or technology; or
8.1.1.14 authorize, or commit or agree to take, any of the
foregoing actions.
8.2 No Solicitation by Soft Plus; No Revocation.
8.2.1 Soft Plus shall not, nor shall it permit any of its Subsidiaries
to, nor shall it authorize or permit any of its directors, officers or employees
or any investment banker, financial advisor, attorney, accountant or other
representative retained by it or any of its Subsidiaries to, directly or
indirectly through another Person, (a) solicit, initiate or encourage (including
by way of furnishing information), or take any other action designed to
facilitate, any inquiries or the making of any proposal or offer from any Person
relating to any direct or indirect acquisition or purchase of any portion of the
business or the assets of Soft Plus and its Subsidiaries, or of any class of
equity securities of Soft Plus or any of its Subsidiaries, or any tender offer
or exchange offer for any class of equity securities of Soft Plus or any of its
Subsidiaries, or any merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving Soft
Plus or any of its Subsidiaries, other than the transactions contemplated by
this Agreement (a "Soft Plus Takeover Proposal") or (b) participate in any
discussions or negotiations regarding any Soft Plus Takeover Proposal.
8.2.2 The Principal Shareholders shall take no action that would
revoke, rescind or otherwise invalidate the Majority Shareholder Consent.
8.3 Standstill Agreements; Confidentiality Agreements.
During the period from the date of this Agreement through the Closing Date,
neither Soft Plus nor USI shall terminate, amend, modify or waive any provision
of any confidentiality or standstill agreement to which it or any of its
respective Subsidiaries is a party. During such period, Soft Plus or USI, as the
case may be, shall enforce, to the fullest extent permitted under applicable
law, the provisions of any such agreement, including by obtaining injunctions to
prevent any breaches of such agreements and to enforce specifically the terms
and provisions thereof in any court of the United States of America or of any
state having jurisdiction.
8.4 Advise of Changes.
The Principal Shareholders and USI shall promptly advise the other party
orally and in writing to the extent it has knowledge of (i) any representation
or warranty made by it contained in this Agreement becoming untrue or inaccurate
in any respect where the failure of such representation to be so true, correct
and complete (without giving effect to any limitation as to "materiality" or
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"material adverse effect" set forth therein), individually or in the aggregate,
has had or is reasonably likely to have a material adverse effect on it, (ii)
the failure by it to comply with or satisfy in any material respect any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement and (iii) any change or event having, or which could have, a
material adverse effect on such party or on the truth of their respective
representations and warranties or the ability of the conditions set forth in
Article X to be satisfied; provided, however, that no such notification shall
affect the representations, warranties, covenants or agreements of the parties
(or remedies with respect thereto) or the conditions to the obligations of the
parties under this Agreement.
8.5 Fees and Expenses.
USI shall fund at the Closing the cost of all fees of attorneys,
accountants, consultants, finders or investment bankers or other expenses
incurred by or on behalf of Soft Plus or any of its Subsidiaries in connection
with the transactions contemplated by this Agreement and set forth on Schedule
5.14 ("Professional Fees"). Regardless of the Professional Fees set forth on
Schedule 5.14, USI shall pay and be liable for the entire fees, if any, due to
of First Albany Corporation in connection with the transactions contemplated
hereby.
8.6 Compliance with California Corporation Law and Section 280G of the
Code.
8.6.1 Promptly following the date hereof Soft Plus shall provide to the
Soft Plus Shareholders the notice, disclosure and documents required by its
bylaws, the CGCL and this Agreement in connection with the transactions
contemplated hereby, including without limitation notice of the Majority
Shareholder Consent and the rights of Soft Plus Shareholders with respect to
dissenters' rights under the CGCL.
8.6.2 In addition, promptly following the date hereof, and prior to the
Closing Date, Soft Plus shall comply in all material respect with section 280G
of the Code and the proposed regulations thereunder regarding Soft Plus
Shareholder approval in order that any payments to a "disqualified individual"
are not deemed to be "parachute payments" as defined by and in accordance with
section 280G of the Code.
8.6.3 Soft Plus shall provide copies of the foregoing materials to USI
and its counsel, and shall afford USI and its counsel the right to review and
comment on such materials prior to distribution to the Soft Plus Shareholders.
8.7 Additional Covenants.
Between the date hereof and the Closing Date, Soft Plus shall, and the
Principal Shareholders shall cause Soft Plus to:
8.7.1 Deliver the relevant Stock Option Plan to each Employee of Soft
Plus;
8.7.2 As of the Closing Date, terminate all employment agreements with
the Principal Shareholders;
8.7.3 Unless the parties otherwise agree, take such actions, file such
documents and amendments, redeploy or relocate and/or otherwise do all things
necessary and appropriate to comply with applicable laws, rules, regulations and
policies relating to the employment, engagement and/or deployment of the
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Employees of Soft Plus and its subsidiaries in the United States or elsewhere,
or other persons (i) who have rendered, are rendering, or will render services
for Soft Plus and its Subsidiaries in the United States and elsewhere, or (ii)
who have contracted to render services on behalf of Soft Plus and its
Subsidiaries in United States and elsewhere, including without limitation,
filing H-1B petitions with the Immigration Service containing, among other
matters, a statement as to where each Employee will be employed, amending H1
petitions for those Employees not at the sites indicated on the original
petition and processing new labor condition applications with the Department of
Labor; provided, however, Persons whose activities as they relate to Soft Plus
as described above in (i) and (ii) constitute "Employees" for purposes of this
Section 8.7.3 regardless of the internal classification by Soft Plus or its
Subsidiaries of such Persons;
8.7.4 File all notices and fulfill all requirements necessary and
appropriate to comply with applicable California securities laws relating to
issuance of shares of the Common Stock or Preferred Stock of Soft Plus, or any
right to acquire such shares;
8.7.5 Take such actions, file such documents and amendments and
otherwise do all things necessary and appropriate, including without limitation,
filing an Application for Removal of Conditions, to cause the restrictions
imposed on the transfer of certain of the of shares of the Common Stock or
Preferred Stock of Soft Plus, or any right to acquire such shares, to be
removed; and
8.7.6 Use its good faith best efforts to take all reasonable steps to
distribute to each of the Employees of Soft Plus and each of its Subsidiaries
other than the Principal Shareholders and obtain from each such Employee and
executed copy of USI's standard Non-Disclosure, Assignment of Developments,
Non-Solicitation and Non-Competition Agreement in the form of Exhibit N - 2
attached hereto.
Article IX. Additional Agreements.
9.1 Post-Closing Registration Rights.
9.1.1 At the Closing USI and all of the Soft Plus Shareholders shall
execute and deliver a Registration Rights Agreement, in the form attached hereto
as Exhibit J (the "Registration Rights Agreement"), granting to all Soft Plus
Shareholders not a director or employed by Soft Plus within 30 days prior to the
Closing Date, or controlled by an individual not a director or employed by Soft
Plus within 30 days prior to the Closing Date, the right to participate, subject
to determination by the underwriters that marketing factors require a limitation
of the number of shares to be underwritten and other conditions and/or
limitations set forth in the Registration Rights Agreement ("Registration
Limitations"), in the next firmly underwritten public offering by USI of its
Common Stock within 24 months following the Closing (the "First Post-Closing
Offering") with respect to not more than 30% of the shares of USI Common Stock
owned by such former Soft Plus Shareholder as of the date USI files a
registration statement with the SEC with respect to the First Post-Closing
Offering; provided, however, any Soft Plus Shareholder who receives 50,000 or
more shares of USI Common Stock in connection with the Merger that are fully
vested and not subject to repurchase shall not be entitled to become a party to
the Registration Rights Agreement unless and until such Soft Plus Shareholder
executes and delivers to USI a Lock-up and Market-out Agreement in the form
attached hereto as Exhibit K.
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9.1.2 The Registration Rights Agreement shall also grant to all Soft
Plus Shareholders the right to participate, at their respective Soft Plus
Closing Ratio and subject to the Registration Limitations, in the second firmly
underwritten public offering by USI of its Common Stock within 24 months
following the Closing (the "Second Post-Closing Offering") with respect to not
more than 35% of the shares of USI Common Stock owned by such former Soft Plus
Shareholder as of the date USI files a registration statement with respect to
such offering; provided, however, each Principal Shareholder's right to
participate in the Second Post-Closing Offering shall, in addition to the
Registration Limitations, be limited to not more than 15% of the shares of USI
Common Stock owned by such Principal Shareholder as of the date USI files a
registration statement with the SEC with respect to the Second Post-Closing
Offering.
9.1.3 Limited Registration of Shares. The restriction under the Lock-up
and Market-out Agreement on the Soft Plus Shareholders referenced on Schedule
10.2.19 shall lapse with respect to one-quarter of the share of USI Common Stock
subject thereto every six months beginning on a date six months following the
Closing Date (the "First Release Date"). The first such release of shares is
referred to as the "First Released Shares" herein. As soon as reasonably and
commercially possible following the First Release Date USI shall prepare and
file with the SEC a registration statement on Form S-3 to register the First
Released Shares, if, and only if, at such time USI is then qualified to register
such shares on such Form under the applicable rules and regulations of the SEC.
9.2 Registration of Soft Plus Options.
Within 90 days following the closing of the First Post-Closing Offering,
but in any event not later than 150 days following the Closing Date, USI shall
prepare and file with the SEC a registration statement on Form S-8 (or another
appropriate form) registering all of the Soft Plus Option Shares issuable upon
exercise of the Adjusted Options. Such registration statement shall be kept
effective (and the current status of the prospectus or prospectuses required
thereby shall be maintained) at least for so long as Adjusted Options granted
under any Soft Plus Options after the Closing Date remain outstanding.
9.3 Employee Benefit Plans; Existing Agreements.
On a date that shall be no later than the first anniversary of the Closing
Date (the "Benefits Date"), USI shall provide, or cause to be provided, employee
benefit plans, programs and arrangements to employees of Soft Plus that are no
less favorable in the aggregate than those made generally available to all
employees of USI. From the Closing Date to the Benefits Date (which the parties
acknowledge may occur on different dates with respect to different plans,
programs or arrangements of Soft Plus) (the "Continuation Period"), USI shall
provide, or cause to be provided, the employee benefit plans, programs and
arrangements of Soft Plus provided to employees of Soft Plus as of the date
hereof; provided that during the Continuation Period, employees of Soft Plus
shall be eligible at the discretion of USI for grants of stock options under
USI's stock option plans.
9.4 Lock-up and Market-out Agreement with Respect to USI Stock.
Each Principal Shareholder hereby agrees that during the period of duration
specified in the Lock-up and Market-out Agreement attached hereto as Exhibit K
he shall not without the prior written consent of USI directly or indirectly
sell, offer to sell, contract to sell (including, without limitation, any short
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sale), grant any option to purchase or otherwise transfer or dispose of (other
than to donees who agree to be similarly bound) any USI Common Stock held by him
at any time during such period specified in such Lock-up and Market-out
Agreement.
9.5 Post-Closing Audit.
During the 60-day period following the Closing Date, the regularly engaged
auditors of USI shall conduct an audit (the "Post-Closing Audit") of the 1999
Financial Statements and the financial statements of Soft Plus for the period
January 1, 2000, until the Closing Date for the purposes set forth in Section
3.1.4 above. Each Principal Soft Plus Shareholder and each former Director and
Officer of Soft Plus shall cooperate in connection with the Post-Closing Audit.
Any dispute with respect to the Post-Closing Audit shall be subject to the
dispute resolution provisions of Section 13.7.
9.6 Access to Information; Confidentiality.
Subject to the Nondisclosure Agreement dated, November 18, 1999, between
USI and Soft Plus (the "Confidentiality Agreement"), each of USI and Soft Plus
and the Principal Shareholders shall, and shall cause each of its respective
Subsidiaries to, afford to the other party and to the officers, employees,
accountants, counsel, financial advisors and other representatives of such other
party, reasonable access during normal business hours during the period prior to
the Closing Date to all their respective properties, books, contracts,
commitments, personnel and records and, during such period, each of Soft Plus
and USI shall, and shall cause each of its respective Subsidiaries to, furnish
promptly to the other party (a) a copy of each report, schedule, registration
statement and other document filed by it during such period pursuant to the
requirements of federal or state securities laws and (b) all other information
concerning its business, properties and personnel as such other party may
reasonably request. Neither USI nor Soft Plus nor the Principal Shareholders
shall be required to provide access to or disclose information where such access
or disclosure would contravene any law, rule, regulation, order or decree. No
review pursuant to this Section 9.6 shall have an effect for the purpose of
determining the accuracy of any representation or warranty given by either party
hereto to the other party hereto. Each of the Principal Shareholders, Soft Plus
and USI will hold, and in the case of USI and Soft Plus, will cause its
respective officers, employees, accountants, counsel, financial advisors and
other representatives and affiliates to hold, any nonpublic information in
accordance with the terms of the Confidentiality Agreement.
9.7 Commercially Reasonable Best Efforts.
9.7.1 Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use commercially reasonable best
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement, including (a) the obtaining of all necessary
actions or non-actions, waivers, consents and approvals from Governmental
Entities and the making of all necessary registrations and filings and the
taking of all steps as may be necessary to obtain an approval or waiver from, or
to avoid an action or proceeding by, any Governmental Entity, (b) the obtaining
of all necessary consents, approvals or waivers from third parties, (c) the
defending of any lawsuits or other legal proceedings, whether judicial or
administrative, challenging this Agreement or the consummation of the
transactions contemplated by this Agreement, including seeking to have any stay
or temporary restraining order entered by any court or other Governmental Entity
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vacated or reversed, (d) the execution and delivery of any additional
instruments necessary to consummate the transactions contemplated by, and to
carry out fully the purposes of, this Agreement and (e) filing the Certificate
of Merger with the Secretary of State of Delaware and the Secretary of State of
California, and such other certificates and documents as are necessary to be
filed and/or recorded with such office. .
9.7.2 In connection with and without limiting the foregoing, if any
state or foreign takeover statute or similar statute or regulation becomes
applicable to the Merger, this Agreement, or any other transaction contemplated
by this Agreement, USI, Soft Plus and the Principal Shareholders shall take all
action necessary to ensure that the Merger and the other transactions
contemplated by this Agreement may be consummated as promptly as practicable on
the terms contemplated by this Agreement and otherwise to minimize the effect of
such statute or regulation on the Merger and the other transactions contemplated
by this Agreement.
9.8 Public Announcements.
USI and Soft Plus will consult with each other before issuing, and provide
each other the opportunity to review, comment upon and concur with, any press
release or other public statements with respect to the transactions contemplated
by this Agreement, including the Merger, and shall not issue any such press
release or make any such public statement prior to such consultation, except as
either party may determine is required by applicable law, court process or by
obligations pursuant to any listing agreement with any national securities
exchange or national trading system. The parties agree that the initial press
release to be issued with respect to the transactions contemplated by this
Agreement shall be in the form as agreed to by the parties.
9.9 Tax Treatment.
Each of USI, Acquisition and Soft Plus shall use reasonable efforts to
cause the Merger to qualify as a reorganization under the provisions of section
368 of the Code, and none of USI, Acquisition or Soft Plus has taken or will
take any reasonable action, or fail to take any reasonable action, that could
reasonably be expected to cause the Merger to fail to qualify as a
reorganization.
9.10 Resignation of Soft Plus Board of Directors.
Soft Plus shall obtain written letters of resignation from each of the
current members of the Soft Plus Board of Directors and Officers, in each case
effective on the Closing Date.
9.11 Deliver of Books and Records.
On or before the Closing Date Soft Plus shall deliver to USI all tax
records of Soft Plus and its Subsidiaries and all corporate books and records of
Soft Plus and its Subsidiaries.
9.12 Blue Sky Laws.
If the securities USI shall issue in connection with the Merger are not
otherwise exempt, USI shall take such reasonable steps as may be necessary to
comply in all material respects with the "blue sky" laws of such other
jurisdictions in the United State which are applicable to the issuance of the
USI Common Stock in connection with the Merger, and Soft Plus agrees to use
commercially reasonable efforts to assist USI as may be necessary to comply with
the securities and blue sky laws of all jurisdictions which are applicable in
connection with the issuance of USI Common Stock in connection with the Merger.
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9.13 Listing of Additional Shares.
Prior to the Effective Time, USI shall file with the Nasdaq National Market
a Notification Form for Listing of Additional Shares with respect to the shares
of USI Common Stock issuable in the Merger and upon exercise of the Soft Plus
Options assumed by USI.
9.14 USI Board Vacancy Appointment.
9.14.1 Effective as of the Closing Date, and conditioned on conclusion
of the Closing, the Board of Directors of USI shall appoint Mohan Uttarwar to
fill the unexpired term of the vacancy on the USI Board of Directors ending on
the date of the annual meeting of the USI Stockholders in 2001.
9.14.2 Prior to the Effective Time, USI shall take such action as
required under the No-Action Letter (as hereinafter defined) to cause any
acquisitions by Mohan Uttarwar of USI Common Stock (including derivative
securities with respect to USI Common Stock) through the conversion of Soft Plus
equity securities (including Soft Plus Options) in connection with the Merger to
be, in the view of the staff of the SEC, exempt under Rule 166-3 under the
Exchange Act. (USI makes no representations, express or implied, regarding the
status of any such acquisitions under Section 16(b) of the Exchange Act.) The
term "No-Action Letter" means the no-action letter dated January 12, 1999,
issued by the SEC to Skadden, Arps, Slate, Meagher & Flom, LLP.
9.15 Indemnification of Officers and Directors.
9.15.1 All rights to indemnification existing in favor of those
Persons who are or have been officers and directors of Soft Plus (the
"Indemnified Persons") for acts and omissions occurring prior to the Effective
Time, as provided in Soft Plus's articles of incorporation and bylaws (to the
extent they are consistent with applicable California law), shall survive the
Merger and shall be observed following the Merger by the Surviving Company to
the fullest extent available under California law. USI hereby agrees to assume,
effective at the Effective Time, all of the obligations of the Surviving Company
with respect to such rights to indemnification.
9.15.2 USI hereby agrees to assume and accept those certain
indemnification agreements with the individuals listed on Schedule 9.15.2, if
and only to the extent that the terms of such indemnification agreements are
consistent with the bylaws of Soft Plus and applicable California law.
9.15.3 This Section 9.15 shall survive the consummation of the Merger,
is intended to benefit the Indemnified Persons, shall be binding upon all
successors and assignees of the Surviving Company and USI and shall be
enforceable by the Indemnified Persons.
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Article X. Conditions Precedent.
10.1 Conditions to Each Party's Obligation To Effect the Merger.
The respective obligation of each party to effect the Merger is subject to
the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
10.1.1 No Litigation. No judgment, order, decree, statute, law,
ordinance, rule, injunction or other order, decree, ruling or regulation,
entered, enacted, promulgated, enforced or issued by any Governmental Entity of
competent jurisdiction or other legal restraint or prohibition (collectively,
"Restraints") shall be in effect, and there shall not be pending any suit,
action or proceeding by any Governmental Entity (i) preventing the consummation
of the Merger or (ii) which otherwise is reasonably likely to have a material
adverse effect on Soft Plus, its Subsidiaries or USI, as applicable; provided,
however, that each of the parties shall have used its reasonable efforts to
prevent the entry of any such Restraints and to appeal as promptly as possible
any such Restraints that may be entered.
10.1.2 Government Approvals. All necessary government or regulatory
approvals shall have been obtained.
10.2 Conditions to Obligations of USI and Acquisition.
The obligation of USI and Acquisition to effect the Merger is further
subject to satisfaction or waiver of the following conditions:
10.2.1 Representations and Warranties. The representations and
warranties of the Principal Shareholders set forth herein shall be true and
correct when made and at and as of the Closing Date with the same effect as
though such representations and warranties were made on and as of the Closing
Date, except (i) that those representations and warranties which address matters
only as of a particular date shall remain true and correct as of such date, (ii)
that any inaccuracies in such representations and warranties shall be
disregarded if the circumstances giving rise to all such inaccuracies,
considered collectively, do not constitute, and would not reasonably be expected
to have, a material adverse effect on Soft Plus; and (iii) for changes in the
ordinary and usual course of business and permitted by this Agreement.
10.2.2 Third-Party Consents. All consents of third parties necessary
for USI, Acquisition and Soft Plus to enter this Agreement and to consummate the
transactions contemplated hereby that are set forth on Schedule 10.2.2 shall
have been obtained, including consents of all Governmental Entities with respect
to Soft Plus Permits.
10.2.3 Performance of Obligations.
10.2.3.1 Each of the agreements, covenants and undertakings of
Soft Plus contained in this Agreement, except for those calling for performance
after Closing, will have been fully performed and complied with both
individually and collectively in all material respects at or before Closing.
10.2.3.2 Each of the agreements, covenants and undertakings of
the Principal Shareholders contained in this Agreement, except for those calling
for performance after Closing, will have been fully performed and complied with
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both individually and collectively in all material respects at or before
Closing.
10.2.3.3 Soft Plus and/or its Subsidiaries shall have delivered
to USI a written consent to the transfer of ownership and/or an assignment of
all rights of Soft Plus and/or its Subsidiaries in all service marks, trademarks
and other intellectual property owned or licensed by Soft Plus and its
Subsidiaries to the extent such assignment and consent is required as a result
in a "change in control" of Soft Plus or otherwise required by applicable law.
10.2.4 Soft Plus Certificate. Acquisition and USI shall have received
a certificate dated the Closing Date and signed by the President of Soft Plus
and the Principal Shareholders certifying that the conditions specified in
Sections 10.2.1 and 10.2.2 have been fulfilled, together with true, correct and
complete Schedules updated as of the Closing Date and a statement regarding the
matters in Sections 5.3.1, 5.3.3, 5.14, 5.22, 5.23 and 5.24.1 as of the Closing
Date.
10.2.5 Certificates. Acquisition and USI shall have been furnished
with certificates dated the Closing Date and signed by the Secretary of Soft
Plus setting forth (i) the names, signatures and positions of the officers of
Soft Plus who have executed this Agreement or any other document executed as a
Closing document hereunder, and (ii) a copy of the resolutions adopted by the
Board of Directors of Soft Plus, together with a copy of the Majority
Shareholder Consent and notice thereof to the remaining Soft Plus Shareholders,
authorizing the execution, delivery and performance of this Agreement and all
documents referred to herein.
10.2.6 Good Standing Certificate. A "good standing" certificate from
California with respect to Soft Plus, and from each jurisdiction of formation of
each Subsidiary with respect to each of its Subsidiaries, or such other evidence
of the existence and "good standing" of each such Subsidiary from the applicable
jurisdiction of formation, to the reasonable satisfaction of USI, each dated as
of a date within ten (10) days prior to the Closing Date
10.2.7 Tax Opinion. USI shall have received from Dilworth Paxson LLP,
counsel to USI, an opinion dated the Closing Date stating that the Merger will
qualify for U.S. federal income tax purposes as a reorganization within the
meaning of section 368(a) of the Code. The issuance of such opinion shall be
conditioned up the receipt by such tax counsel of customary representation
letters from SoftPlus, USI and Acquisition in form and substance reasonably
satisfactory to such tax counsel.
10.2.8 Consent and Acknowledgment. Soft Plus shall have delivered to
all Soft Plus Shareholders a Consent and Acknowledgment in the form of Exhibit L
and USI shall have received an executed Consent and Acknowledgment in the form
of Exhibit L from the Soft Plus Shareholders who have tendered their shares
pursuant to Section 10.2.18 hereof and delivered a Letter of Transmittal
pursuant to Section 10.2.18 hereof.
10.2.9 Opinion of Counsel. Acquisition and USI shall have received the
written opinion, substantially in the form of Exhibit M and attached hereto,
dated the Closing Date of Venture Law Group, counsel to Soft Plus, and the
written opinion of counsel to the Principal Shareholders, as provided therein.
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10.2.10 No Material Adverse Change. At any time after the date of this
Agreement there shall not have occurred any material adverse change relating to
Soft Plus, or its Subsidiaries. At the Closing USI shall have received a
certificate dated the Closing Date and signed by the President of Soft Plus and
the Principal Shareholders certifying that there has not occurred any material
adverse change relating to Soft Plus, or its Subsidiaries between the date
hereof and the Closing Date.
10.2.11 Resignation of Soft Plus Board of Directors and Officers. Soft
Plus and each of its Subsidiaries shall have received written letters of
resignation from each of the current members of the Board of Directors and all
of Officers of Soft Plus and each of its Subsidiaries, in each case effective as
of the Closing Date.
10.2.12 USI Common Stock Price Floor. The USI Closing Date Price is
not less than $14.
10.2.13 Termination of Authority. Soft Plus and its Subsidiaries shall
have canceled the authority of all persons permitted to (a) draw on Soft Plus's
and its Subsidiaries' bank accounts, (b) charge on Soft Plus's and its
Subsidiaries' credit cards, (c) have access to Soft Plus's and its Subsidiaries'
safe deposit boxes, and (d) exercise a power of attorney to act on behalf of
Soft Plus and its Subsidiaries, all effective as of the Closing Date.
10.2.14 Employees. The Principal Shareholders shall have executed and
delivered to USI the Non-Disclosure, Assignment of Developments,
Non-Solicitation and Non-Competition Agreement substantially in the form of
Exhibit N - 1 attached hereto.
10.2.15 No Liens. The Principal Shareholders shall have delivered an
executed Spousal Consent, substantially in the form of Exhibit O attached
hereto.
10.2.16 Closing Agreements.
10.2.16.1 Acquisition, the Escrow Agent and the Soft Plus
Shareholder Agent shall have executed the Escrow Agreement and delivered a
fully-executed original to Acquisition or USI.
10.2.16.2 The Surviving Company, the Principal Shareholders,
and the Soft Plus Shareholder Agent shall have executed the Soft Plus
Shareholder Agent Agreement and delivered a fully-executed original to
Acquisition or USI.
10.2.17 Deferred Stock Purchase Notes. All notes or other indebtedness
due Soft Plus for the payment of its securities under those Restricted Stock
Purchase Agreements ("Deferred Stock Purchase Notes") are paid at the Closing or
canceled and accounted for appropriately, or if the Deferred Stock Purchase
Notes are not paid at the Closing, then the shares of Soft Plus Common Stock
subject to such Agreements are pledged to USI as collateral until the Deferred
Stock Purchase Notes are paid in full in accordance with their terms.
10.2.18 Shareholder Tender. The holders of not less than ninety (90%)
percent of the Soft Plus Common Stock and of ninety (90%) percent of the Soft
Plus Preferred Stock and the Warrant shall have tendered their shares in
accordance with the terms of this Merger Agreement; by executing and delivering
an executed Letter of Transmittal substantially in the form of Exhibit I and
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their shares of Soft Plus Common Stock and Soft Plus Preferred Stock in
accordance with the terms of this Merger Agreement and the Letter of
Transmittal.
10.2.19 Lock up and Market Out Agreements. Receipt of lock up
agreements and market out agreements in the form of Exhibit K from each Soft
Plus Shareholder who receives 50,000 or more shares of USI Common Stock in
connection with the Merger that are fully vested and not subject to repurchase
all of whom are listed on Schedule 10.2.19.
10.2.20 Investment Representation Letters. An investment
representation letter from 90% of the Soft Plus Shareholder[s] and such other
documents or instruments from 90% of the Soft Plus Shareholders required to
comply with applicable federal and state securities laws in form and substance
satisfactory to USI and its counsel.
10.2.21 Agreement to Purchase Minority Interest. Receipt by Soft Plus
to all right, title and interest in and of the minority shareholders of Soft
Plus Systems Private Limited (India), or evidence to the reasonable satisfaction
of USI of a binding obligation of such minority shareholders to transfer all of
their right, title and interest in Soft Plus Systems Private Limited (India) on
terms and conditions acceptable to USI.
10.3 Conditions to Obligations of Soft Plus.
The obligation of Soft Plus to effect the Merger is further subject to
satisfaction or waiver of the following conditions:
10.3.1 Representations and Warranties. The representations and
warranties of USI and Acquisition set forth herein shall be true and correct
when made and at and as of the Closing Date with the same effect as though such
representations and warranties were made on and as of the Closing Date, except
(i) that those representations and warranties which address matters only as of a
particular date shall remain true and correct as of such date, (ii) that any
inaccuracies in such representations and warranties shall be disregarded if the
circumstances giving rise to all such inaccuracies, considered collectively, do
not constitute, and would not reasonably be expected to have, a material adverse
effect on USI; and (iii) for changes in the ordinary and usual course of
business and permitted by this Agreement.
10.3.2 Third-Party Consents. All consents of third parties necessary
for USI, Acquisition and Soft Plus to enter this Agreement and to consummate the
transactions contemplated hereby that are listed on Schedule 10.3.2 shall have
been obtained.
10.3.3 Performance of Obligations of USI and Acquisition. Each of the
agreements, covenants and undertakings of USI and Acquisition contained in this
Agreement, except for those calling for performance after Closing, will have
been fully performed and complied with both individually and collectively in all
material respects at or before Closing.
10.3.4 Tax Opinion. Soft Plus shall have received from Venture Law
Group, counsel to Soft Plus, an opinion to its reasonable satisfaction, dated
the Closing Date, stating that the Merger will qualify for U.S. federal income
tax purposes as a reorganization within the meaning of section 368(a) of the
Code. The issuance of such opinion shall be conditioned up the receipt by such
tax counsel of customary representation letters from USI, Acquisition and Soft
Plus in form and substance reasonably satisfactory to such tax counsel.
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10.3.5 USI Common Stock Price Floor. The USI Closing Date Price is not
less than $14.
10.3.6 USI and Acquisition Certificates. Soft Plus shall have received
a certificate dated the Closing Date and signed by the President of each of
Acquisition and USI certifying that the conditions specified in Sections 10.3.1
and 10.3.3 have been fulfilled.
10.3.7 Certificates. Soft Plus shall have been furnished with
certificates dated the Closing Date and signed by the Secretary of each of
Acquisition and USI setting forth (i) the names, signatures and positions of the
officers of Acquisition and USI who have executed this Agreement or any other
document executed as a Closing document hereunder, and (ii) a copy of the
resolutions adopted by the Board of Directors of each of Acquisition and USI
authorizing the execution, delivery and performance of this Agreement and all
documents referred to herein.
10.3.8 Opinion of Counsel. The Soft Plus Shareholder Agent shall have
received the written opinion, substantially in the form of Exhibit P and
attached hereto, addressed to Soft Plus and the Principal Shareholders dated the
Closing Date of Dilworth Paxson LLP, counsel to USI and Acquisition, as provided
therein.
10.3.9 No Material Adverse Change. At any time after the date of this
Agreement there shall not have occurred any material adverse change relating to
USI.
10.3.10 Employment Agreement for Mohan Uttarwar. USI and Mohan
Uttarwar shall have executed and delivered the Employment Agreement in the form
of Exhibit Q attached hereto.
10.3.11 Listing of Additional Shares. The filing with the Nasdaq
National Market of a Notification Form for Listing of Additional Shares with
respect to the shares of USI Common Stock issuable in the Merger and upon
exercise of the options under the Soft Plus Stock Option Plans assumed by USI
hereunder shall have been made.
10.3.12 Consents with Respect to Registration Rights USI shall have
received the necessary consents of the USI Stockholder pursuant to USI's
existing Investor's Rights Agreement with respect to USI's undertaking with
respect to registration of USI Common Stock as contemplated herein.
10.4 Frustration of Closing Conditions.
Neither USI, Acquisition nor Soft Plus may rely on the failure of any
condition set forth in Sections 10.1, 10.2 and 10.3, as the case may be, to be
satisfied if such failure was caused by such party's failure to use reasonable
efforts to consummate the Merger and the other transactions contemplated by this
Agreement, as required by and subject to Section 0.
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Article XI. Termination, Amendment and Waiver.
11.1 Termination.
This Agreement may be terminated at any time prior to the Closing Date:
11.1.1 by mutual written consent of USI, Acquisition and Soft Plus;
11.1.2 by either USI or Soft Plus:
11.1.2.1 if the Merger shall not have been consummated by April
30, 2000 (the "Termination Date"); provided, however, that the right to
terminate this Agreement pursuant to this Section 11.1.2.1 shall not be
available to any party whose failure to perform any of its obligations under
this Agreement results in the failure of the Merger to be consummated by such
time; or
11.1.2.2 if any Restraint having any of the effects set forth
in Section 10.1.1 shall be in effect and shall have become final and
non-appealable; provided that the party seeking to terminate this Agreement
pursuant to this Section 11.1.2.2 shall have used reasonable efforts to prevent
the entry of and to remove such Restraint;
11.1.3 by USI, if Soft Plus shall have breached or failed to
perform in any material respect any of its representations, warranties,
covenants or other agreements contained in this Agreement, which breach or
failure to perform (a) would give rise to the failure of a condition of USI to
close pursuant to Article X, and (b) is incapable of being cured, or is not
cured, by Soft Plus within 30 calendar days following receipt of notice of such
default and in any event prior to the Termination Date; or
11.1.4 by Soft Plus if USI shall have breached or failed to
perform in any material respect any of its representations, warranties,
covenants or other agreements contained in this Agreement, which breach or
failure to perform (a) would give rise to the failure of a condition set forth
in pursuant to Article X, and (b) is incapable of being cured, or is not cured,
by USI within 30 calendar days following receipt of notice of such default and
in any event prior to the Termination Date.
11.2 Effect of Termination.
In the event of termination of this Agreement by either Soft Plus or USI as
provided in Section 11.1, this Agreement shall forthwith become void and have no
effect, without any liability or obligation on the part of USI, Acquisition or
Soft Plus except to the extent that such termination results from the willful
and material breach by a party of any of its representations, warranties,
covenants or agreements set forth in this Agreement; provided that, the
provisions of Section 9.6 with respect to Confidentiality and this Section 11.2
shall remain in full force and effect and survive any termination of this
Agreement.
11.3 Extension; Waiver.
At any time prior to the Closing Date, a party may
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11.3.1 extend the time for the performance of any of the obligations
or other acts of the other parties,
11.3.2 waive any inaccuracies in the representations and warranties of
the other parties contained in this Agreement or in any document delivered
pursuant to this Agreement or
11.3.3 subject to Section 4.3, waive compliance by the other party
with any of the agreements or conditions contained in this Agreement. Any
agreement on the part of a party to any such extension or waiver shall be valid
only if set forth in an instrument in writing signed on behalf of such party.
The failure of any party to this Agreement to assert any of its rights under
this Agreement or otherwise shall not constitute a waiver of such rights.
11.4 Procedure for Termination, Amendment, Extension or Waiver.
A termination of this Agreement pursuant to Section 11.1, an amendment of
this Agreement pursuant to Section 4.3 or an extension or waiver pursuant to
Section 11.3 shall, in order to be effective, require, in the case of USI or
Soft Plus, action by its Board of Directors or, with respect to any amendment to
this Agreement, the duly authorized committee of its Board of Directors to the
extent permitted by law.
Article XII. Indemnification.
12.1 Survival of Representations and Warranties.
All covenants to be performed prior to the Effective Time, and all
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Closing and consummation of the
Merger and continue until one year after the Closing Date (the "Escrow
Termination Date"); provided that if any claims for indemnification have been
asserted with respect to any such representations and warranties prior to the
Escrow Termination Date, the representations and warranties on which any such
claims are based shall continue in effect until final resolution of any claims.
All covenants to be performed after the Effective Time shall continue
indefinitely.
12.2 Escrow Fund.
12.2.1 As soon as practicable after the Effective Time, the Escrow
Shares shall, without any act of any Soft Plus Shareholder, be registered in the
name of, and be deposited with, the Escrow Agent (or such other institution
selected by USI with the reasonable consent of Soft Plus), such deposit to
constitute the escrow fund (the "Escrow Fund") and to be governed by the terms
set forth herein and in the Escrow Agreement attached hereto as Exhibit H (the
"Escrow Agreement"). In the event that any Damages (as defined below) arise, the
Escrow Fund shall be available to compensate the Indemnified Persons (defined
below) pursuant to the indemnification obligations of the Soft Plus Shareholders
pursuant to Section 12.3 and in accordance with the Escrow Agreement. The cost
and expense of such escrow and the Escrow Agent shall be borne equally by USI
and the Principal Shareholders. If USI pays the full cost of such fees and
expenses, it may set-off against the principal amount of the USI Note, or make a
claim against the Escrow Fund, as USI may elect, the share of such fees and
expenses of the Principal Shareholders.
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12.3 Indemnification.
12.3.1 Indemnification by the Soft Plus Shareholders. Subject to the
limitations set forth in this Article XII, from and after the Effective Time,
the Principal Shareholders and the other Soft Plus Shareholders shall protect,
defend, indemnify and hold harmless USI and Acquisition and their respective
affiliates, officers, directors, employees, representatives and agents (USI,
Acquisition and each of the foregoing persons or entities is hereinafter
referred to individually as an "Indemnified Person" and collectively as
"Indemnified Persons") from, against, for and in respect of, and shall pay all
damages, losses, obligations, liabilities, claims, encumbrances, deficiencies,
costs and expenses, including, without limitation, reasonable attorneys' fees
and other costs and expenses, incident to any action, investigation, claim or
proceeding (all hereinafter individually referred to as a "Damage" and
collectively as "Damages") in excess of the Indemnity Threshold suffered,
sustained, incurred or required to be paid by any of the Indemnified Persons
with respect to any claim, demand, action or cause of action during the Escrow
Period (defined below) by reason of, in connection with, arising from or
relating to any misrepresentation, breach of, or default in connection with, any
of the representations, warranties, covenants or agreements of Soft Plus and/or
the Principal Shareholders contained in this Agreement or any certificate
delivered hereunder, including any exhibits or schedules attached hereto, if
any, and the Certificate of Merger, which breach becomes known to an Indemnified
Person and is asserted in writing to the Principal Shareholders and the other
Soft Plus Shareholders through the Soft Plus Shareholder Agent on or before the
Escrow Termination Date, at which date this indemnification provision shall
terminate. Damages in each case shall be net of the amount of any insurance
proceeds and indemnity and contribution actually recovered by USI or
Acquisition.
12.3.2 Exclusive Contractual Remedy and Limitations. Resort to the
Escrow Fund and rights of set-off as provided in the USI Note, as USI may elect,
shall be the exclusive contractual remedy of USI and Acquisition for any Damages
hereunder. In no event shall the obligation of the Principal Shareholders and
the other Soft Plus Shareholders hereunder to indemnify an Indemnified Person
for Damages in excess of the Indemnity Threshold exceed an amount in the
aggregate equal to the Indemnity Damages Limit, at which time the limitation of
this Section 12.3.2 shall be the Indemnity Damages Limit alone. Nothing in this
Section 12.3.2 shall limit the liability of any officer or Principal
Shareholder, in his capacity as an officer, director or shareholder, for such
person's or fraud or intentional misrepresentation of any representations,
warranties, covenants or agreements under this Agreement.
12.3.3 Exclusion for Immigration Laws Violations; Claims Under Verbal
Options. Notwithstanding any other provision set forth herein, the Indemnity
Threshold shall not apply to Damages arising from, relating to or in connection
with (a) any failure by Soft Plus or any of its Subsidiaries to comply with any
applicable law, rule, regulation, permit, license, variance, exemption, order,
registration, approval, work permit and/or visa of any Governmental Entities
required for the employment, engagement or deployment of its and their employees
and the operation of the businesses of Soft Plus and its Subsidiaries, or (b)
any claim arising from or relating to any verbal offer, commitment,
understanding or agreement to issue any equity interest in Soft Plus to any
Person not otherwise satisfied in accordance with Section 3.2.8.3.
12.3.4 Effect of Investigation. All statements contained in any
certificate, Schedule or other instrument delivered by or on behalf of USI or
Acquisition pursuant to this Agreement or in connection with the transactions
contemplated hereby shall be deemed representations and warranties by USI or
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Acquisition hereunder, and no such representations or warranties, whether stated
herein or in any certificate, Schedule or other instrument delivered by or on
behalf of USI or Acquisition pursuant to this Agreement or in connection with
the transactions contemplated hereby, shall be deemed waived or otherwise
affected by any investigation on the part of any Soft Plus Indemnitee (defined
below).
12.4 Claims in Excess of the Indemnity Threshold.
Notwithstanding the foregoing, USI may not receive any amount of the Escrow
Shares from the Escrow Fund unless and until a certificate signed by an officer
of USI (an "Officer's Certificate") identifying Damages in the aggregate amount
in excess of the Indemnity Threshold has been delivered to the Escrow Agent and
the Soft Plus Shareholder Agent in accordance with the Escrow Agreement, in
which case USI shall receive Escrow Shares (valued at the USI Closing Date
Price) equal to the full amount of such Damages in excess of the Indemnity
Threshold in accordance with the terms and conditions of the Escrow Agreement.
If the USI Note is unpaid, and USI desires to make a claim of set-off against.
USI and the Soft Plus Shareholder Agent shall follow the procedures for notice
and dispute resolution set forth in the Escrow Agreement.
12.5 Escrow Period.
Subject to the following requirements, the Escrow Fund shall remain in
existence until the Escrow Termination Date (the "Escrow Period"). Upon the
expiration of the Escrow Period, the Escrow Fund shall terminate with respect to
all Escrow Shares; provided, however, that the number of Escrow Shares, which,
in the reasonable judgment of USI, subject to the objection of the Soft Plus
Shareholder Agent and the subsequent arbitration of the claim in the manner
provided in the Escrow Agreement, are necessary to satisfy any unsatisfied
claims specified in any Officer's Certificate delivered to the Escrow Agent
prior to the expiration of such Escrow Period with respect to facts and
circumstances existing on or prior to the Escrow Termination Date shall remain
in the Escrow Fund (and the Escrow Fund shall remain in existence) until such
claims have been resolved. As soon as all such claims have been resolved, the
Escrow Agent shall deliver to the Soft Plus Shareholders all Escrow Shares and
other property remaining in the Escrow Fund and not required to satisfy such
claims. Escrow Shares delivered to the Soft Plus Shareholder Agent pursuant to
this Section 12.5 for distribution to the Soft Plus Shareholders in proportion
to their respective interests may appear.
12.6 Distributions; Voting.
12.6.1 Any shares of USI Common Stock or other equity securities
issued or distributed by USI (including shares issued upon a stock split) ("New
Shares") in respect of the Escrow Shares that have not been released from the
Escrow Fund shall be added to the Escrow Fund and become a part thereof. When
and if cash dividends on Escrow Shares in the Escrow Fund shall be declared and
paid, they shall be distributed as soon as reasonably practicable to the
beneficial owners of the Escrow Shares. The beneficial owners of the Escrow
Shares shall pay any taxes on such dividends.
12.6.2 Each Soft Plus Shareholder shall have voting rights with
respect to that number of Escrow Shares allocated to such Soft Plus Shareholder
in the Escrow Fund (and on any voting securities added to the Escrow Fund in
respect of such Escrow Shares) so long as such Escrow Shares or other voting
securities are held in the Escrow Fund. As the record holder of such shares, the
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Escrow Agent shall vote such shares in accordance with the instructions of the
Soft Plus Shareholders having the beneficial interest therein and shall promptly
deliver copies of all proxy solicitation materials to such stockholders. USI
shall show the USI Common Stock contributed to the Escrow Fund as issued and
outstanding on its balance sheet.
12.7 Method of Asserting Claims.
All claims for indemnification by the Soft Plus Indemnitees or any other
Indemnified Person pursuant to this Article XII shall be made in accordance with
the provisions of the Escrow Agreement.
12.8 Soft Plus Shareholder Agent; Power of Attorney.
As of the Closing Date the Soft Plus Shareholder Agent shall be appointed
as agent and attorney-in-fact for each Soft Plus Shareholder (except such Soft
Plus Shareholders, if any, as shall have perfected their dissenters' rights
under California law), for and on behalf of Soft Plus Shareholders, to give and
receive notices and communications on behalf of the Soft Plus Shareholders, to
enter into and perform the Escrow Agreement, to authorize delivery to USI of the
Escrow Shares or other property from the Escrow Fund in satisfaction of claims
by USI or any other Indemnified Person, to object to such deliveries, to agree
to, negotiate, enter into settlements and compromises of, and demand arbitration
and comply with orders of courts and awards of arbitrators with respect to such
claims, and to take all actions necessary or appropriate in the judgment of the
Soft Plus Shareholder Agent for the accomplishment of the foregoing.
12.9 Waiver of Contribution.
The Principal Shareholders and the other Soft Plus Shareholders hereby
waive and disclaim any right of contribution or indemnity, whether under
contract or at law or in equity, against Acquisition or Soft Plus in connection
with any obligation of indemnification hereunder.
12.10 Indemnity by USI.
12.10.1 Subject to the limitations set forth in this Article XII,
from and after the Effective Time, USI agrees to indemnify and hold harmless
Soft Plus, and its affiliates, officers, directors, employees, representatives
and agents, acting in such capacity (each a "Corporate Soft Plus Indemnitee")
and each of the Soft Plus Shareholders, the Soft Plus Optionholders and the Soft
Plus Warrantholders (each a "Soft Plus Equity Holder Indemnitee," and together
with each Corporate Soft Plus Indemnitee hereafter referred to as a Soft Plus
Indemnitee) from, against, for and in respect of, and shall pay all Damages in
excess of the Indemnity Threshold suffered, sustained, incurred or required to
be paid by a Soft Plus Indemnitee with respect to any claim, demand, action or
cause of action during the Escrow Period by reason of, in connection with,
arising from or relating to any misrepresentation, breach of, or default in
connection with, any of the representations, warranties, covenants or agreements
of USI contained in this Agreement or any certificate delivered hereunder,
including any exhibits or schedules attached hereto, if any, and the Certificate
of Merger, but with respect to a Soft Plus Equity Holder only if such
representation, warranty, covenant or agreement of USI was made to such Soft
Plus Equity Holder Indemnitee, which breach becomes known to an Soft Plus
Indemnitee and is asserted in writing to USI on or before the Escrow Termination
Date, at which date this indemnification provision shall terminate. USI
hereunder shall have the right to satisfy Damages of a Soft Plus Indemnitee in
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excess of the Indemnity Threshold by delivering shares of USI Common Stock
(valued at the USI Closing Date Price or cash, as USI elects, to the full amount
of such Damages in excess of the Indemnity Threshold.
12.10.2 Damages of a Soft Plus Indemnitee in each case shall be net
of the amount of any insurance proceeds and indemnity and contribution actually
recovered by a Soft Plus Indemnitee.
12.10.3 In no event shall USI's obligation hereunder to indemnify a
Soft Plus Indemnitee for Damages in excess of the Indemnity Threshold exceed an
amount in the aggregate equal to (X) the Indemnity Damages Limit, plus (Y) the
principal amount of the USI Note until such time that the USI Note is paid in
full, at which time the limitation of this Section 12.10.3 shall be the
Indemnity Damages Limit alone. Nothing in this Section 12.10.3 shall limit the
liability of USI for fraud or intentional misrepresentation of any
representations, warranties, covenants or agreements under this Agreement.
12.11 Effect of Investigation.
All statements contained in any certificate, Schedule or other instrument
delivered by or on behalf of the Principal Shareholders pursuant to this
Agreement or in connection with the transactions contemplated hereby shall be
deemed representations and warranties by the Principal Shareholders hereunder,
and no such representations or warranties, whether stated herein or in any
certificate, Schedule or other instrument delivered by or on behalf of the
Principal Shareholders pursuant to this Agreement or in connection with the
transactions contemplated hereby, shall be deemed waived or otherwise affected
by any investigation on the part of USI or Acquisition.
12.12 Notice to the Indemnitor.
Promptly after the assertion of any claim by a third-party or occurrence of
any event which may give rise to a claim for indemnification from a party
obligated to provide indemnification under this Article XII (an "Indemnitor"),
the party entitled to indemnification under this Article XII (the "Indemnified
Party") shall notify the Indemnitor in writing of such claim and advise the
Indemnitor of the estimated claim and whether the Indemnified Party intends to
contest the same (the "Indemnification Notice"), but the failure to give or
delay in giving such notice shall not affect the obligations of the Indemnitor
hereunder except to the extent the Indemnitor has been actually prejudiced
thereby.
12.13 Rights of Parties to Settle or Defend.
The Indemnified Party will permit the Indemnitor to assume the defense of
any such claim, or any litigation resulting therefrom. Counsel for the
Indemnitor, which will conduct the defense of such claim or litigation, must be
approved by the Indemnified Party, whose approval will not be unreasonably
withheld, and the Indemnified Party may participate in such defense at the
Indemnified Party's expense. If the Indemnitor determines not to contest such
claim within ten days of receiving the Indemnification Notice, the Indemnified
Party shall have the right, at the cost and expense of the Indemnitor, to
contest and defend against such claim. If the Indemnitor determines to contest
such claim, the Indemnified Party shall have the right to be represented, at its
own expense by its own counsel and accountants, their participation to be
subject to the reasonable direction of the Indemnitor. In either case, the
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Indemnified Party shall make available to the Indemnitor and its attorneys and
accountants, at all reasonable times during normal business hours, all books,
records, and other documents in its possession relating to such claim. Any party
hereto contesting any such claim shall be furnished all reasonable assistance in
connection therewith by the other party hereto. If the Indemnitor fails to
undertake the defense of or settle or pay any such third-party claim within ten
days after receipt of an Indemnification Notice advising that the Indemnified
Party does not intend to contest such claim, or if the Indemnitor, after having
received such notification from the Indemnified Party, fails forthwith to
defend, settle or pay such claim, then the Indemnified Party may take any and
all necessary action to dispose of such claim, including, without limitation,
the settlement or full payment thereof upon such terms as it shall deem
appropriate, in its sole discretion, subject to Section 12.14 with respect to
any proposed settlement thereof.
12.14 Settlement Proposals.
If the Indemnified Party desires to settle any such third-party claim
(whether or not contested by the Indemnitor), the Indemnified Party shall advise
the Indemnitor of the amount it proposes to pay in settlement thereof (the
"Proposed Settlement"). If such Proposed Settlement is unsatisfactory to the
Indemnitor, it shall have the right, at its expense, to contest such claim by
giving written notice of such election to the Indemnified Party within ten days
after the Indemnitor has been advised of the Proposed Settlement. If the
Indemnitor does not deliver such written notice within ten days after the
Indemnitor has been advised of the Proposed Settlement, the Indemnified Party
may offer the Proposed Settlement to the third party making such claim. If the
Proposed Settlement is not accepted by the party making such claim, any new
Proposed Settlement that the Indemnified Party may wish to present to the party
making such claim shall first be presented to the Indemnitor who shall have the
right, subject to the conditions set forth in this Section 12.14, to contest
such claim. In all such events, the Indemnitor shall indemnify the Indemnified
Party and hold it harmless against and from any and all costs of defense,
payment or settlement, including reasonable attorneys' fees incurred in
connection therewith.
Article XIII. General Provisions.
13.1 Notices.
All notices, requests, claims, demands and other communications under this
Agreement shall be in writing and shall be deemed given if delivered personally,
telecopied (which is confirmed) or sent by overnight courier (providing proof of
delivery) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
13.1.1 in the case of USI or Acquisition, to
U.S. Interactive, Inc.
2012 Renaissance Boulevard
King of Prussia, PA 19406
Attention: Lawrence S. Shay, Esquire
Senior Vice President and General Counsel
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with a copy to:
Dilworth Paxson LLP
3200 Mellon Bank Center
1735 Market Street
Philadelphia, PA 19103-7595
Attention: Michael D. Ecker, Esquire
13.1.2 in the case of Soft Plus, to
Soft Plus, Inc.
18900 Stevens Creek Boulevard
Suite 101
Cupertino, CA 95014
Attention: Mohan Uttarwar
with a copy to:
Venture Law Group
2775 Sand Hill Road
Menlo Park, CA 94025
Attention: Tae Hea Nahm, Esquire
or, in case of Mohan Uttarwar
with a copy to:
Orrick, Herrington & Sutcliffe LLP
1020 Marsh Road
Menlo Park, California 94025
Attention: Robert S. Shwarts, Esquire
or, in case of Vijay Uttarwar
or, in case of or, in case of Vinay Deshpande
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or, in case of O.P. Srinivasan
in each case, with a copy to:
13.2 Interpretation.
When a reference is made in this Agreement to an Article, Section or
Exhibit, such reference shall be to an Article or Section of, or an Exhibit 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." The words "hereof,"
"herein" and "hereunder" and words of similar import when used in this Agreement
shall refer to this Agreement as a whole and not to any particular provision of
this Agreement. All terms defined in this Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein. The definitions contained in
this Agreement are applicable to the singular as well as the plural forms of
such terms and to the masculine as well as to the feminine and neuter genders of
such term. Any agreement, instrument or statute defined or referred to herein or
in any agreement or instrument that is referred to herein means such agreement,
instrument or statute as from time to time amended, modified or supplemented,
including (in the case of agreements or instruments) by waiver or consent and
(in the case of statutes) by succession of comparable successor statutes and
references to all attachments thereto and instruments incorporated therein.
References to a Person are also to its permitted successors and assigns.
13.3 Further Assurances.
From and after the Closing, all of the parties to this Agreement agree to
execute and deliver such further documents and instruments and to do such other
acts and things as any other party, as the case may be, may reasonably request
in order to effectuate the transactions contemplated by this Agreement. In the
event any party shall be involved in litigation, threatened litigation or
government inquiries with respect to a matter involving any of them, the other
parties shall also make available to such first party, at reasonable times and
subject to the reasonable requirements of its or his own business, such of its
or his personnel as may have information relevant to the matters provided such
first party shall reimburse the providing party for its or his reasonable costs
for employee time incurred in connection therewith if more than one business day
is required. Following the Closing, the parties will cooperate with each other
in connection with tax audits and in the defense of any legal proceedings,
consistent with the other provisions for defense of claims provided in Article
XII, to the extent such cooperation does not cause unreasonable expense, unless
such expense is borne by the requesting party.
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13.4 Counterparts.
This Agreement may be executed in one or more counterparts, all of which
shall be considered one and the same agreement and shall become effective when
one or more counterparts have been signed by each of the parties and delivered
to the other parties.
13.5 Entire Agreement; No Third-Party Beneficiaries.
This Agreement (including the documents and instruments referred to herein)
constitute the entire agreement, and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement hereof and is not intended to confer upon any
Person other than the parties hereto, the Soft Plus Shareholders and the Soft
Plus Optionholders any rights or remedies.
13.6 Governing Law.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Delaware, regardless of the laws that might otherwise
govern under applicable principles of conflict of laws thereof.
13.7 Dispute Resolution
13.7.1 Informal Dispute Resolution. Any controversy between the
parties hereto ("Dispute") shall be resolved as follows:
13.7.1.1 Upon written request of either party, the Soft Plus
Shareholder Agent and a representative of USI will be to meet for the purpose of
endeavoring to resolve such Dispute. Each such designated representative shall
meet as often as the parties reasonably deem necessary to discuss the problem in
an effort to resolve the Dispute without the necessity of any formal proceeding.
13.7.1.2 If representatives of the parties are unable to
resolve the Dispute within 45 days after the Dispute is submitted to them, or if
after ten days either party determines in good faith prior to the expiration of
such period that such representatives are unlikely to be able to resolve such
matter, the Dispute shall be submitted to arbitration in accordance with Section
13.7.2.
13.7.2 Arbitration. If the parties are unable to resolve the Dispute
as contemplated by Section 13.7.1 hereof, such Dispute shall be submitted to
mandatory and binding arbitration at the election of either party (the
"Disputing Party"), in such locale as the parties may agree, and if the parties
cannot agree, then in the City of St. Louis, MO. Except as otherwise provided in
this Section 13.7, the arbitration shall be pursuant to the Commercial
Arbitration Rules of the AAA. Within 15 days after a party delivers a written
demand for arbitration to the other party, the Soft Plus Shareholder Agent or
USI shall each select one arbitrator. The third arbitrator shall be selected as
soon as practicable by agreement of the first two arbitrators or, failing such
agreement, by the American Arbitration Association. The written decision of a
majority of the three arbitrators shall be binding and conclusive upon the
parties to this Agreement. The arbitrators shall award reimbursement to the
prevailing party in the arbitration of its reasonable expenses of the
arbitration (including costs and reasonable attorneys' fees). The award of the
arbitrators shall be the sole and exclusive monetary remedy of the parties and
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shall be enforceable in any court of competent jurisdiction. Notwithstanding the
foregoing, any party shall be entitled to seek injunctive relief or other
equitable remedies from any court of competent jurisdiction.
13.8 Assignment.
Neither this Agreement nor any of the rights, interests or obligations
under this Agreement shall be assigned, in whole or in part, by operation of law
or otherwise by any of the parties hereto without the prior written consent of
the other parties. Any assignment in violation of the preceding sentence shall
be void. Subject to the preceding two sentences, this Agreement will be binding
upon, inure to the benefit of, and be enforceable by, the parties and their
respective successors and assigns.
13.9 Enforcement.
The parties agree that irreparable damage would occur and that the parties
would not have any adequate remedy at law in the event that any of the
provisions of this Agreement were not performed in accordance with their
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
this Agreement and to enforce specifically the terms and provisions of this
Agreement in any federal court located in the State of Delaware or in Delaware
state court, this being in addition to any other remedy to which they are
entitled at law or in equity. In addition, each of the parties hereto
13.9.1 consents to submit himself or itself to the personal
jurisdiction of any federal court located in the State of Delaware or any
Delaware state court in the event any dispute arises out of this Agreement or
any of the transactions contemplated by this Agreement,
13.9.2 agrees that it will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court, and
13.9.3 agrees that it will not bring any action relating to this
Agreement or any of the transactions contemplated by this Agreement in any court
other than a federal court sitting in the State of Delaware or a Delaware state
court subject to the provisions of Section 13.7.
13.10 Headings.
The headings contained in this Agreement are for reference purposes only
and shall not affect in any way the meaning or interpretation of this Agreement.
13.11 Severability.
If any term or other provision of this Agreement is held by a court of
competent jurisdiction or other Governmental Entity to be invalid, illegal or
incapable of being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect. Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible to the fullest extent permitted by
applicable law in an acceptable manner to the end that the transactions
contemplated hereby are fulfilled to the extent possible.
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13.12 Time of the Essence.
Each of the parties hereto hereby agrees that, with regard to all dates and
time periods set forth or referred to in this Agreement, time is of the essence.
13.13 Exhibits and Schedules.
The Exhibits and Schedules to this Agreement are a part of this Agreement
as if set forth in full herein. The Schedules to this Agreement, regardless of
the Person who actually prepared all or any portion of any such Schedule, is and
shall be the joint and several responsibility of the Principal Shareholders.
IN WITNESS WHEREOF, the parties hereto have executed or have caused this
Agreement to be executed by their respective officers thereunto duly authorized,
all on the date first written above.
U.S. INTERACTIVE, INC.
By:____________________________
Title:_________________________
FIRST ACQUISITION CO.
By:____________________________
Title:_________________________
SOFT PLUS, INC.
By:____________________________
Title:_________________________
_______________________________
MOHAN UTTARWAR
_______________________________
VIJAY UTTARWAR
_______________________________
VINAY DESHPANDE
_______________________________
O.P. SRINIVASAN
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LIST OF SCHEDULES AND EXHIBITS
Schedules
- ---------
Schedule 3.2.3 - Soft Plus Shareholder table for distribution of USI Common
Stock.
Schedule 5.2 - Subsidiaries.
Schedule 5.3.1 - Capitalization Table.
Schedule 5.3.3 - Option Table.
Schedule 5.3.6 - Soft Plus Shares issued without exemption or registration.
Schedule 5.3.7 - Other Securities
Schedule 5.5.1 - Financial Statement Adjustments.
Schedule 5.6 - Undisclosed Liabilities.
Schedule 5.7 - Changes since Balance Sheet Date.
Schedule 5.8.1 - Litigation.
Schedule 5.10.1 - Soft Plus Benefit Plans.
Schedule 5.11.1 - List of Employees.
Schedule 5.11.2 - Employment Agreements.
Schedule 5.11.3 - Bonuses and Deferred Compensation.
Schedule 5.11.5 - Additional Compensation for Employees.
Schedule 5.11.6 - Work Permits and Visas.
Schedule 5.11.7 - Confidentiality Agreements.
Schedule 5.14 - Merger-related Expenses.
Schedule 5.15 - Machinery and Equipment.
Schedule 5.16 - Inventory.
Schedule 5.17 - Leases.
Schedule 5.19 - Insurance.
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Schedule 5.20.1 - Intellectual Property.
Schedule 5.20.4 - Software Applications that are not Year 2000 Compliant.
Schedule 5.21 - Bank Accounts.
Schedule 5.22 - Accounts and Notes Receivable.
Schedule 5.23 - Accounts Payable.
Schedule 5.24 - Customers, Suppliers, Licensees and Consulting Agreements.
Schedule 5.25 - Undisclosed Defaults.
Schedule 10.2.2 - Third-Party Consents (Soft Plus).
Schedule 10.2.19 - Lock up and Market Out Agreements.
Schedule 10.3.2 - Third-Party Consents (USI)
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NOTE:
NOT ALL OF THE FOLLOWING AGREEMENTS HAVE BEEN FINALIZED
AND ARE SUBJECT TO THE GOOD FAITH NEGOTIATIONS OF THE PARTIES
Exhibits
- --------
Exhibit A - Form of Soft Plus Shareholder Agent Agreement
Exhibit B - Form of USI Note
Exhibit C - Form of Delaware Certificate of Merger
Exhibit D - Form of Articles of Incorporation of Surviving Company.
Exhibit E - INTENTIONALLY OMITTED
Exhibit F - Form of Bylaws of Surviving Company.
Exhibit G - Copies of each instrument creating a Soft Plus Option
Exhibit H - Form of the Escrow Agreement
Exhibit I - Form of Transmittal Letter
Exhibit I-1 - Form of memorandum of understanding to repurchase the Indian
Subsidiary Minority Interest
Exhibit J - Form of Registration Rights Agreement
Exhibit K - Forms of Lock-up and Market-out Agreement
Exhibit L - Form of Consent and Acknowledgment
Exhibit M - Form of Opinion of Counsel for Soft Plus and the Principal
Shareholders.
Exhibit N-1 - Form of Non-Disclosure, Assignment of Developments,
Non-Solicitation and Non-Competition Agreement
Exhibit N-2 - Form of Non-Disclosure, Assignment of Developments,
Non-Solicitation and Non-Competition Agreement (USI standard)
Exhibit O - Form of Spousal Consent
Exhibit P - Form of Opinion of Counsel for USI and Acquisition
Exhibit Q - Form of Employment Agreement for Mohan Uttarwar
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NON-NEGOTIABLE NOTE
$80,000,000 Date: March 8, 2000
FOR VALUE RECEIVED, U.S. Interactive, Inc., a Delaware corporation (the
"Company"), promises to pay to Mohan Uttarwar as Soft Plus Shareholder Agent
under the Merger Agreement referred to below (the "Payee"), the principal sum of
Eighty Million Dollars ($80,000,000) lawful money of the United States of
America, as such principal sum may be reduced by application of Company's right
of set-off hereunder, together with interest on the principal sum, as the
principal sum may be reduced hereunder, at the rate of six and two tenths
percent (6.20%) per annum, the U.S. Internal Revenue Service applicable federal
rate. Interest shall be calculated based on a year of 365 or 366 days, as the
case may be, counting the actual number of days elapsed.
The unpaid principal of and all unpaid accrued interest on this Note
shall be due and payable by the Company to the Payee on the earlier of (i) the
receipt by the Company of not less than $80,000,000 from the net proceeds of a
public offering by the Company of its capital stock after the date of this Note
or (ii) the first anniversary of the date of this Note.
This Note is issued pursuant to an Agreement and Plan of Merger dated
February 1, 2000 (the "Merger Agreement") among the Company; First Acquisition
Co., a Delaware corporation; Soft Plus, Inc., a California corporation ("Soft
Plus"); and certain shareholders of Soft Plus signatory thereto. All payments
hereunder shall be made by the Company to the Payee at its address listed in the
Merger Agreement or at such other place as the Payee may from time to time
designate in writing. Company shall have the right to set-off against the
principal amount of this Note any and all amounts due to the Company as provided
in the Merger Agreement.
The Company shall have the right to prepay the principal of this Note
in whole or in part at any time without penalty or premium.
An "Event of Default" hereunder shall occur if:
(1) Payment of principal or interest due hereunder shall not be
made when and as the same shall become due and payable, and
such default shall continue for ten (10) days;
(2) The Company shall fail in any material respect to perform any
of its other covenants, obligations or agreements contained in
this Note or the Merger Agreement and related agreements and
such failure shall continue for ten (10) business days after
written notice thereof by the Soft Plus Shareholder Agent;
provided, however, if cure of such default shall require more
than ten (10) business days, and the Company shall have
commenced cure within such time, then the Company shall have
us to thirty (30) business days to effect such cure.
<PAGE>
(3) The Company shall be in default in any payment of principal
or interest on any obligations of the Company for borrowed
money in excess of $10,000,000 or in the performance of any
other material term, condition or covenant of any such
obligation or in any agreement under which any such obligation
is created, the effect of which default is to cause such
obligation to become due prior to its stated maturity, and the
time for such payment shall not have been effectively extended
or such default shall not have been effectively cured or
waived within the applicable grace period, if any, specified
in any agreement under which such obligation is created; or
(4) If (a) any court of competent jurisdiction shall enter an
order adjudicating the Company a bankrupt, (b) any court of
competent jurisdiction shall make an order not vacated or
stayed within sixty (60) days from the date of entry thereof
(i) appointing a trustee or receiver of the Company or of any
substantial part of the property of the Company, or (ii)
approving a petition for, or effecting an arrangement in
bankruptcy, a reorganization pursuant to the federal
bankruptcy laws or any other judicial modifications or
alteration of the rights of the holders of this Note or of
other creditors of the Company, (c) the Company shall itself
file any petition or take or consent to any other action
seeking any such judicial order, (d) the Company shall make an
assignment for the benefit of its creditors, or (e) the
Company shall admit in writing its inability to pay its debts
generally as they become due.
If an Event of Default shall occur and be continuing, (i) the unpaid
principal and accrued interest owing or payable shall automatically become
immediately due and payable, without presentment, demand, protest or any other
notice of any kind, all of which are hereby expressly waived by Company, and
(ii) the Payee may pursue any available remedy by proceeding at law or in equity
to collect the payment of such principal and interest.
Any failure or delay of the Payee to exercise any right hereunder shall
not be construed as a waiver of the right to exercise the same or any other
right at any other time or times. The waiver by the Payee of a breach or default
of any provisions of this Note shall not operate or be construed as a waiver of
any subsequent breach or default thereof.
This Note shall be construed according to, and shall be governed by,
the laws of the State of Delaware. The Company and the Payee agree that any
legal action or proceeding against the Company under, arising out of or in any
manner relating to this Note or any other document delivered in connection
herewith shall be brought in any court of the State of Delaware or in the United
States District Court for the District of Delaware, and the parties hereby
irrevocably consent to the jurisdiction of such court.
The Company agrees to pay on demand all reasonable costs and expenses
of Payee, and the reasonable fees and disbursements of counsel, in connection
with the enforcement or attempted enforcement of, and preservation of any rights
or interests under, this Note and Agreement, including in any out-of-court
workout or other refinancing or restructuring or in any bankruptcy case. Any
amounts payable to Payee pursuant to this paragraph if not paid upon demand
shall bear interest from the date of such demand until paid in full, at the rate
of interest set forth herein in respect of principal outstanding hereunder.
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The Company and the Payee hereby waive any right which either of them
may have to a jury trial in connection with any action, suit or proceeding
arising out of or related in any way to this Note or any document delivered in
connection herewith.
The provisions of this Note shall be deemed severable, so that if any
provision hereof is declared invalid under the laws of any state where it is in
effect, or of the United States, all other provisions of this Note shall
continue in full force and effect. This Note may be amended only by a writing
signed on behalf of each party.
This Note shall not be assigned or transferred by the Payee to any
other party without the prior written consent of the Company, and any such
purported assignment or transfer shall be null and void. This Note shall be
binding upon and inure to the benefit of the successors and permitted assigns of
the Company and the Payee. This Note shall be enforceable solely by the Payee
and no other party (including without limitation any former shareholder of Soft
Plus) shall have any right to enforce the terms of this Note.
IN WITNESS WHEREOF, the undersigned authorized officers have duly
executed and delivered this Note on behalf of the Company on the day and year
first above written.
Attest: US INTERACTIVE, INC.
__________________________ By:__________________________
Title: Title:
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REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated March 8, 2000, is made by and
between U.S. INTERACTIVE, INC., a Delaware corporation (the "Company"), and the
stockholders of the Company listed on Schedule A hereto (the "Stockholders").
RECITALS
WHEREAS, concurrently with this execution of this Agreement, Soft Plus,
Inc., a California corporation ("Soft Plus"), has merged (the "Merger") with and
into First Acquisition Co., a Delaware corporation and a wholly owned subsidiary
of the Company ("Acquisition Co."), pursuant to an Agreement and Plan of Merger
dated February 1, 2000 (the "Merger Agreement"), among the Company, Acquisition
Co., Soft Plus and the stockholders of Soft Plus signatory thereto;
WHEREAS, pursuant to the Merger, each of the Stockholders will receive
shares of the Company's common stock, $.001 par value (the "Common Stock"), in
the amounts set forth opposite the names of the Stockholders on Schedule A
hereto;
WHEREAS, pursuant to Section 9.1 of the Merger Agreement, the Company
and the Stockholders are entering into this Agreement to provide certain
piggyback and S-3 registration rights to the Stockholders with respect to
certain of the shares of Common Stock to be received by such Stockholders
pursuant to the Merger, subject to the limitations and conditions set forth
herein.
NOW, THEREFORE, in consideration of the foregoing premises and
intending to be legally bound, the parties hereby agree as follows:
1. Definitions
As used in this Agreement, the following terms shall have the meanings
set forth below, and the definitions shall be equally applicable to the singular
and the plural:
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Excluded Registration" shall mean (i) a registration in connection
with a merger, reorganization or exchange offer involving the issuance of the
Company's securities, including without limitation a registration on Form S-4 or
any successor form adopted by the SEC, or (ii) a registration in connection with
a stock option or stock purchase plan or other employee benefit plan of the
Company, including without limitation a registration pursuant to Form S-8 or any
successor form adopted by the SEC.
"Insider Stockholder" shall mean any Stockholder designated as an
"Insider Stockholder" on Schedule A hereto.
"Outside Stockholder" shall mean any Stockholder who is not an Insider
Stockholder or a Principal Stockholder.
<PAGE>
"Principal Stockholder" shall mean any Stockholder designated as a
"Principal Stockholder" on Schedule A hereto.
"Register", "registered", and "registration" refer to a registration
effected by preparing and filing a registration statement or similar document in
compliance with the Securities Act and the declaration or ordering of
effectiveness of such registration statement or document by the SEC.
"Registrable Shares" shall have the meaning set forth in Section 2
hereof.
"Securities Act" means the Securities Act of 1933, as amended.
"SEC" means the Securities and Exchange Commission.
2. Piggyback Registration Rights
(a) If the Company proposes to register any of its Common Stock under the
Securities Act (other than an Excluded Registration) in connection with
a firm underwritten public offering of such Common Stock at any time
after the date hereof and prior to the second anniversary hereof (a
"Post-Closing Offering"), then the Stockholders shall have the right,
subject to the limitations and conditions set forth in this Agreement
(including without limitation the underwriting requirements set forth
in Section 6 hereof), to have the following shares of Common Stock
owned by them (such Stockholder's "Registrable Shares") registered
under such registration statement (the "piggyback registration
rights"):
(b) In connection with the Company's first Post-Closing Offering, if any,
after the date hereof and prior to the second anniversary hereof (the
"First Post-Closing Offering"), each Outside Stockholder shall have
piggyback registration rights with respect to thirty percent (30%) of
the lesser of (i) the number of shares of Common Stock issued to such
Outside Stockholder pursuant to the Merger as set forth on Schedule A
hereto which are Registrable Shares, or (ii) the number of shares of
Common Stock owned by such Outside Stockholder which are Registrable
Shares on the date on which the Company files a registration statement
in connection with such First Post-Closing Offering. No Stockholder
other than the Outside Stockholders shall have piggyback registration
rights in connection with a First Post-Closing Offering.
(c) In connection with the Company's second Post-Closing Offering, if any,
after the date hereof and prior to the second anniversary hereof (the
"Second Post-Closing Offering"), (a) each Stockholder (other than a
Principal Stockholder) shall have piggyback registration rights with
respect to thirty-five percent (35%) of the lesser of (i) the number of
shares of Common Stock issued to such Stockholder pursuant to the
Merger as set forth on Schedule A hereto, less any shares of Common
Stock of such Stockholder registered in connection with the First
Post-Closing Offering, which are Registrable Shares or (ii) the number
of shares of Common Stock owned by such Stockholder which are
Registrable Shares on the date on which the Company files a
registration statement in connection with such Second Post-Closing
Offering; and (b) each Principal Stockholder shall have piggyback
registration rights with respect to fifteen percent (15%) of the lesser
of (i) the number of shares of Common Stock issued to such Principal
Stockholder pursuant to the Merger as set forth on Schedule A hereto,
which are Registrable Securities, or (ii) the number of shares of
Common Stock owned by such Principal Stockholder which are Registrable
Securities on the date on which the Company files a registration
statement in connection with such Second Post-Closing Offering.
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(d) A share of Common Stock shall cease to be a Registrable Share when (i)
a registration statement covering such share has been declared
effective by the SEC and such share has been disposed of by a
Stockholder pursuant to such effective registration statement, (ii)
such share is held by the Company or one of its subsidiaries or
otherwise ceases to be outstanding, or (iii) such share may be sold
pursuant to paragraph (k) of Rule 144 of the SEC, if applicable.
(e) If the Company intends to undertake a First Post-Closing Offering or a
Second Post-Closing Offering, the Company shall give written notice of
such intention to each Stockholder owning Registrable Shares with
respect to such Post-Closing Offering by registered or certified mail
at least thirty (30) days prior to the filing of the registration
statement for such Post-Closing Offering. If any such Stockholder
desires to have some or all of his or her Registrable Shares included
in such proposed registration statement, such Stockholder shall make a
written request to the Company not more than twenty (20) days after the
Stockholder's receipt of the notice from the Company. Upon receipt of
timely notice from any such Stockholder, the Company shall afford such
Stockholder the opportunity to have the Registrable Shares of such
Stockholder registered under such registration statement, subject to
the limitations and conditions set forth in this Agreement.
(f) Notwithstanding any provision in this Agreement, the Merger Agreement
or any other agreement to the contrary: (i) the Company shall have no
obligation whatsoever to attempt or undertake any Post-Closing
Offering; (ii) the Company shall have the right at any time after it
has given notice to any Stockholder of its intention to undertake a
Post-Closing Offering, irrespective of whether such Stockholder has
made a written request for inclusion of any of his or her Registrable
Shares, to elect not to file any proposed registration statement or to
withdraw the same after the filing but prior to the effective date
thereof; and (iii) the Stockholders shall not have any piggyback
registration rights with respect to any registration of the Company's
securities other than in connection with a First Post-Closing Offering
or a Second Post-Closing Offering.
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3. Form S-3 Registration
On the sixth month anniversary after the Merger, or soon as reasonably
practicable thereafter, the Company shall effect a registration on Form S-3 of
all First Released Shares (as defined in the Merger Agreement) and any related
qualification or registration required for the offering and sale of such shares
under the securities or blue sky law of states to the extent required by Section
4(e) below. The Company will:
(a) effect such registration and all such qualifications and registrations
as would permit or facilitate the sale and distribution of all First
Released Shares, provided, however, that the Company shall not be
obligated to effect any such registration, qualification or compliance,
pursuant to this Section 3(a): (i) if Form S-3 is not available for
such offering by the Holders; (ii) if the Company shall furnish to the
Holders a certificate signed by the President of the Company stating
that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its
stockholders for such Form S-3 Registration to be effected at such
time, in which event the Company shall have the right to defer the
filing of the Form S-3 registration statement for a period of not more
than 120 days; provided, however, that the Company shall not utilize
this right more than once in any twelve month period; and
(b) pay all costs (excluding any transfer taxes, fees and expenses of any
Stockholder's counsel, and any underwriting discounts or selling
commissions or other charges of any broker-dealer acting on behalf of
any Stockholder), fees and expenses in connection with all registration
statements filed pursuant to this Section 3 hereof, including without
limitation the Company's legal and accounting fees and expenses,
printing expenses and blue sky fees and expenses.
4. Covenants of the Company with Respect to Registration
In connection with any registration under Section 2 hereof, the Company
covenants and agrees as follows:
(a) The Company shall prepare and file with the SEC a registration
statement with respect to the Registrable Shares and use its best
efforts to cause such registration statement to become effective, and
upon the request of the holders of a majority of the Registrable Shares
registered thereunder, use its best efforts to cause any registration
statement to keep such registration statement effective for up to one
hundred twenty (120) days.
(b) The Company shall prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to
comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement.
4
<PAGE>
(c) The Company shall furnish the Stockholders such number of prospectuses
and such other documents as they may reasonably request in order to
facilitate the disposition of the Registrable Shares owned by them and
all material correspondence with the SEC relating to such registration.
(d) The Company shall pay all costs (excluding any transfer taxes, fees and
expenses of any Stockholder's counsel, and any underwriting discounts
or selling commissions or other charges of any broker-dealer acting on
behalf of any Stockholder), fees and expenses in connection with all
registration statements filed pursuant to Section 2 hereof, including
without limitation the Company's legal and accounting fees and
expenses, printing expenses and blue sky fees and expenses.
(e) The Company will take all necessary action which may be required in
connection with qualifying or registering the Registrable Shares
included in a registration statement for offering and sale under the
securities or blue sky laws of such states as reasonably are requested
by the Stockholders, provided that the Company shall not be obligated
to qualify as a foreign corporation to do business under the laws of
any such jurisdiction.
(f) Use its best efforts to furnish, on the date that the registration
statement with respect to any Registrable Shares becomes effective, (i)
an opinion, dated such date, of the counsel representing the Company
for the purposes of such registration, in form and substance as is
customarily given to underwriters in an underwritten public offering,
addressed to the underwriters, if any, and to the Stockholders
requesting registration of Registrable Shares and (ii) a letter dated
such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the
Stockholders requesting registration of Registrable Shares.
(g) The Company shall notify each Stockholder owning Registrable Shares
covered by such registration statement at any time when a prospectus
relating thereto is required to be delivered under the Securities Act
of the happening of any event as a result of which the prospectus
included in such registration statement, as then in effect, includes an
untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
5. Obligations of the Stockholders
(a) It shall be a condition precedent to the obligations of the Company to
take any action pursuant to this Agreement with respect to the
Registrable Shares of any Stockholder that such Stockholder shall
furnish to the Company such information regarding him, her or itself,
the Registrable Shares held by him, her or it, and the intended method
of disposition of such Registrable Shares as shall be requested by the
Company to effect the registration of such Registrable Shares.
(b) No Stockholder shall have any right to obtain or seek an injunction
restraining or otherwise delaying any registration or offering of the
Company's securities as the result of any controversy that might arise
with respect to the interpretation or implementation of this Agreement.
5
<PAGE>
6. Underwriting Requirements
Notwithstanding any provision in this Agreement to the contrary, the
Company shall not be required to include the Registrable Shares of any
Stockholder in any underwriting unless such Stockholder accepts the terms of the
underwriting as agreed upon between the Company and the underwriters selected by
it (or by other persons entitled to select the underwriters), and then only in
such quantity as the underwriters determine in their sole discretion would not
be reasonably likely to jeopardize the success of the offering by the Company.
If the total amount of shares, including the Registrable Shares, requested by
the Company's stockholders to be included in such offering exceeds the amount of
shares that the underwriters determine in their sole discretion is compatible
with the success of the offering, then the Company shall be required to include
in the offering only that number of such shares, including Registrable Shares,
if any, which the underwriters determine in their sole discretion would not be
reasonably likely to jeopardize the success of the offering. Any reduction with
respect to a selling Stockholder shall be pro-rata with all other selling
Stockholders based upon the aggregate amount of Registrable Shares requested to
be included in such registration owned by all selling Stockholders.
7. Indemnification Rights
(a) The Company shall indemnify each Stockholder and each person, if any,
who controls any such Stockholder within the meaning of Section 15 of
the Securities Act or Section 20(a) of the Exchange Act, against all
loss, claim, damage, expense or liability (including all expenses
reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the
Securities Act, the Exchange Act or any other statute, common law or
otherwise, arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained (x) in such registration
statement (as from time to time amended and supplemented); (y) in any
post effective amendment or amendments or (z) in any application or
other document or written communication (in this Section 7 collectively
referred to herein as an "application") executed by the Company or
based upon written information furnished by the Company filed in any
jurisdiction in order to qualify the Registrable Shares under the
securities laws thereof or filed with the SEC, any state securities
commission or agency, the National Association of Securities Dealers,
Inc., the Nasdaq Stock Market or any securities exchange, or the
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements contained therein
not misleading, unless such statement or omission was made in reliance
upon and in conformity with written information furnished to the
Company by a Stockholder expressly for use in such registration
statement, any amendment or supplement thereto or any application, as
the case may be. If any action is brought against any Stockholder or
any controlling person of such Stockholder in respect of which
indemnity may be sought against the Company pursuant to this Section
7(a), such Stockholder or such controlling person shall, within sixty
6
<PAGE>
(60) days after the receipt of a summons or complaint, notify the
Company in writing of the institution of such action and the Company
shall assume the defense of such action, including the employment and
payment of fees and expenses of counsel, but the failure to give such
notice shall not affect such indemnified person's right to
indemnification hereunder except to the extent that the Company's
defense of such action was materially adversely affected thereby. Such
Stockholder or such controlling person shall have the right to employ
its or their own counsel in any such case, but the fees and expenses of
such counsel shall be at the expense of such Stockholder or such
controlling person unless the employment of such counsel shall have
been authorized in writing by the Company in connection with the
defense of such action, or the Company shall not have employed counsel
to have charge of the defense of such action or such indemnified party
or parties shall have reasonably concluded that there may be defenses
available to it or them which are different from or additional to those
available to the Company (in which case the Company shall not have the
right to direct the defense of such action on behalf of the indemnified
party or parties), in any of which events the fees and expenses for all
of such Stockholder and/or such controlling person shall be borne by
the Company. Except as expressly provided in the previous sentence, in
the event that the Company shall have assumed the defense of any such
action or claim, the Company shall not thereafter be liable to such
Stockholder or such controlling person in investigating, preparing or
defending any such action or claim. The Company agrees to notify within
sixty (60) days a Stockholder of the commencement of any litigation or
proceedings against the Company or any of its officers, directors or
controlling persons in connection with the offering and sale of the
Registrable Shares or in connection with such registration statement.
The Company further agrees that upon demand by an indemnified person,
at any time or from time to time, it will promptly reimburse such
indemnified person for any loss, claim, damage, liability, cost or
expense actually and reasonably paid by the indemnified person as to
which the Company has indemnified such person pursuant hereto.
Notwithstanding the foregoing provisions of this Section 7, any such
payment or reimbursement by the Company of fees, expenses or
disbursements incurred by an indemnified person in any proceeding in
which a final judgment by a court of competent jurisdiction (after all
appeals or the expiration of time to appeal) is entered against a
Stockholder or such indemnified person as a direct result of a
Stockholder or such person's gross negligence or willful misfeasance
will be promptly repaid to the Company.
7
<PAGE>
(b) Each selling Stockholder shall indemnify the Company, its officers and
directors and each other stockholder registering shares in such
registration statement and each person, if any, who controls the
Company or any such stockholder within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Exchange Act, against all loss,
claim, damage, expense or liability (including all expenses reasonably
incurred in investigating, preparing or defending against any claim
whatsoever) to which they may become subject under the Securities Act,
the Exchange Act or any other statute, common law or otherwise, arising
from written information furnished by or on behalf of such Stockholder,
expressly for use in such registration statement. Each selling
Stockholder further agrees that upon demand by an indemnified person,
at any time or from time to time, such selling Shareholder will
promptly reimburse such indemnified person for any loss, claim, damage,
liability, cost or expense actually and reasonably paid by the
indemnified person as to which the Stockholder have indemnified such
person pursuant hereto. Notwithstanding the foregoing provisions of
this Section 7(b), any such payment or reimbursement by the selling
Stockholder of fees, expenses or disbursements incurred by an
indemnified person in any proceeding in which a final judgment by a
court of competent jurisdiction (after all appeals or the expiration of
time to appeal) is entered against the Company or such indemnified
person as a direct result of the Company or such person's gross
negligence or willful misfeasance will be promptly repaid to the
selling Stockholder.
(c) If the indemnification provided in this Section 7 is held by a court of
competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or
payable by such indemnified party as a result of such loss, liability,
claim, damage, or expense in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand
and of the indemnified party on the other in connection with the
statements or omissions that resulted in such loss, liability, claim,
damage, or expense as well an any other relevant equitable
consideration. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact
relates to information supplied by the indemnifying party or by the
indemnified party and the parties' relative intent, knowledge, access
to information, and opportunity to correct or prevent such statement or
omission. In no event shall a person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) be
entitled to contribution from any person or entity who was not guilty
of fraudulent misrepresentation. Notwithstanding the foregoing, in no
event shall any contribution by a Stockholder exceed the net proceeds
from the offering received by such Stockholder, except in the case of
willful fraud by such Holder.
8
<PAGE>
(d) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public
offering are in conflict with the foregoing provisions, the provisions
in the underwriting agreement shall control.
(e) The obligations of the Company and Stockholders under this Section 7
shall survive the completion of any offering of Registrable Shares in a
registration statement under this Agreement.
8. General Provisions
(a) Neither this Agreement nor any provisions hereof shall be modified,
discharged or terminated except by an instrument in writing signed by
the party against whom any waiver, change, discharge or termination is
sought.
(b) Any notice, demand or other communication which any party hereto may be
required, or may elect, to give to anyone interested hereunder shall be
sufficiently given if: (a) deposited, postage prepaid, in a United
States mail letter box, registered or certified mail, return receipt
requested, addressed to such address as set forth next on Schedule A
hereto, or (b) delivered personally at such address.
(c) This Agreement may be executed through the use of separate signature
pages or in any number of counterparts, and each of such counterparts
shall, for all purposes, constitute one agreement binding on all
parties, notwithstanding that all parties are not signatories to the
same counterpart.
(d) Except as otherwise provided herein, this Agreement shall be binding
upon and inure to the benefit of the parties and their heirs,
executors, administrators, successors, legal representatives and
assigns.
(e) This Agreement and the documents referenced herein contain the entire
agreement of the parties and there are no representations, covenants or
other agreements except as stated or referred to herein and therein.
(f) This Agreement and the rights of the Stockholders hereunder shall not
be transferable or assignable by any Stockholder.
(g) This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware, without giving effect to the
conflicts of law principles thereof.
(h) The use herein of the masculine pronouns "him" or "his" or similar
terms shall be deemed to include the feminine and neuter genders as
well and the use herein of the singular pronoun shall be deemed to
include the plural as well.
9
<PAGE>
IN WITNESS WHEREOF, each party, intending to be legally bound, has
caused this Agreement to be executed on its behalf by an officer thereunto duly
authorized, all as of the date first set forth above.
U.S. INTERACTIVE, INC.
By:____________________________________
Name:__________________________________
Title:_________________________________
STOCKHOLDERS:
_______________________________________
_______________________________________
_______________________________________
_______________________________________
10
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Stockholder Stockholder Status Shares of Common Stock Stockholder Address
- ----------- ------------------ ---------------------- -------------------
<S> <C> <C> <C>
</TABLE>
11
<PAGE>
ESCROW AGREEMENT
ESCROW AGREEMENT dated March 8, 2000, by and among SOFT PLUS, INC., a
California corporation ("Soft Plus"), U.S. Interactive, Inc. ("USI"), FIRST
ACQUISITION CO., a Delaware corporation ("Acquisition"), MOHAN UTTARWAR ("Soft
Plus Shareholder Agent") on behalf of the "Shareholders" (as defined below), and
THE CHASE MANHATTAN TRUST COMPANY, NATIONAL ASSOCIATION ("Escrow Agent").
BACKGROUND
Acquisition, Soft Plus, USI, Mohan Uttarwar, Vijay Uttarwar, Vinay
Deshpande and O.P. Srinivasan (the "Principal Shareholders") are parties to a
certain Agreement and Plan of Merger dated February 1, 2000, including the
Exhibits and Schedules thereto (collectively the "Merger Agreement"), pursuant
to which there is required to be deposited in escrow __________ shares of common
stock, par value $.001 per share of USI (the "Escrow Shares"), to be held by the
Escrow Agent subject to the terms and conditions set forth herein.
Acquisition has directed ChaseMellon Shareholder Services (the
"Transfer Agent") to register the Escrow Shares in the name of the Escrow Agent.
The Escrow Shares together with all non-cash dividends payable after the Closing
Date with respect to the Escrow Shares are collectively referred to herein as
the "Escrow Fund." Escrow Agent shall hold the Escrow Fund subject to the terms
and conditions set forth herein.
Pursuant to the terms of the Merger Agreement the Principal
Shareholders and Soft Plus have executed and delivered the Soft Plus Shareholder
Agent Agreement, appointing Mohan Uttarwar, as the Soft Plus Shareholder Agent
to act as the agent, attorney-in-fact and representative for the Soft Plus
Shareholders in accordance with the terms of this Escrow Agreement.
All capitalized terms used herein and not otherwise defined herein
shall have the meanings given to such terms in the Merger Agreement.
NOW, THEREFORE, in consideration of the foregoing background and of the
mutual covenants hereinafter set forth and in the Merger Agreement, the parties
hereto, intending to be legally bound, hereby agree as follows:
1. Appointment of Escrow Agent. Soft Plus, as it exists following the
merger of Soft Plus, a wholly-owned subsidiary of USI, with and into Acquisition
(the "Acquisition") and the Soft Plus Shareholder Agent do hereby appoint and
designate The Chase Manhattan Trust Company, National Association as the Escrow
Agent for the purposes set forth herein, and the Escrow Agent does hereby accept
such appointment under the terms and conditions set forth herein.
2. Establishment of Escrow Fund. Pursuant to the terms of Section 3.1.5
of the Merger Agreement, Acquisition hereby deposits with Escrow Agent the
Escrow Shares. The Escrow Shares shall be issued in the amounts set forth on
Exhibit I attached hereto. Exhibit I hereto sets forth the name of each Soft
Plus Shareholder and the number and percentage of Escrow Shares attributable to
such Soft Plus Shareholder of the Escrow Fund. Immediately upon ascertaining
that the Transfer Agent has complied with its written instructions to register
the Escrow Shares in the name of the Escrow Agent, as aforesaid, neither the
USI, Acquisition nor Soft Plus shall have any liability to the Soft Plus
Shareholder Agent or any Soft Plus Shareholder with respect to the delivery of
the Escrow Shares. The shareholders of Soft Plus whose shares are included in
the Escrow Shares shall be entitled to vote such shares in accordance with their
pro rata ownership of the Escrow Shares.
<PAGE>
3. Disposition and Termination.
3.1 The Escrow Agent shall disburse the Escrow Fund upon and
pursuant to the written instructions set forth in this Section 3.
3.1.1 Disposition to Acquisition or USI. Subject to Section 4
hereof, from time to time, on the 15th business day (or the next day on which
shares of USI Common Stock are traded on The Nasdaq Stock Market, Inc.
("Nasdaq") if on such 15th business day no such trading is to occur) (the "Stock
Disbursement Date") following receipt fromUSI of a written notice of instruction
signed by an authorized officer of USI to do so (the "Disbursement Notice"),
which Disbursement Notice shall set forth the amount of a claim ("Escrow Claim
Amount"), the Escrow Agent shall immediately disburse to Acquisition or USI, as
determined by USI, such number of shares of Escrow Shares equal to the amount of
the Escrow Claim Amount. The number of shares to be disbursed shall be
determined by using the USI Closing Date Price.
3.1.2 Disposition to the Soft Plus Shareholder Agent. On the
first anniversary of the Closing Date, the Escrow Agent shall, by written
notice, substantially in the form attached hereto as Exhibit II, direct the
Transfer Agent to register in the name of and in the amount of the percentage of
the Escrow Shares as set forth on Exhibit I any shares remaining in the Escrow
Fund on such date excluding (A) that number of shares which the Escrow Agent
disbursed in connection with any Disbursement Notices received by the Escrow
Agent from Acquisition or USI pursuant to the terms of Section 3.1.1 above, (B)
that number of shares which the Escrow Agent might have to disburse in
connection with any amounts identified in a notice (a "Claim Notice") received
by the Escrow Agent from an authorized officer of USI or Acquisition stating
that a claim has been asserted against USI or Acquisition by a third party, but
with respect to which amounts Acquisition or USI has not yet furnished to Escrow
Agent a Disbursement Notice and (C) that number of Shares representing the
Reserve (as defined in Section 4.2 hereof). With respect to any amounts
identified in a Disbursement Notice or Claim Notice, the Escrow Agent shall
retain an aggregate amount of the Escrow Shares (rounded up to the next whole
share) which has a value equal to the amount specified in the Disbursement
Notice and Claim Notice based on the USI Closing Date Price, plus commissions
and other sales charges which the Escrow Agent determines may be necessary. With
respect to a Claim Notice, the Escrow Agent shall retain such number of shares
in the Escrow Fund until such time as a Disbursement Notice is received from USI
or Acquisition, or, joint written instructions (a "Joint Instruction Letter")
shall be received from USI or Acquisition on the one hand and the Soft Plus
Shareholder Agent on the other, in which event Escrow Agent shall deliver the
shares in accordance with the instructions stated in such Disbursement Notice
subject to Section 4 hereof, or Joint Instruction Letter, as the case may be.
3.1.3 Acquisition and USI agree to furnish to the Soft Plus
Shareholder Agent copies of all notices sent by Acquisition or USI to the Escrow
Agent at the time such notices are sent to the Escrow Agent. In addition,
Acquisition and USI agree to furnish to the Soft Plus Shareholder Agent (but not
to the Escrow Agent), as an attachment to each such notice so furnished to the
Soft Plus Shareholder Agent, a full written explanation of each claim, including
the amount thereof, the provision(s) of the Merger Agreement or other agreement
delivered in connection therewith, under which such claim is asserted, and a
summary of the relevant facts upon which such claim is based underlying its
requests for reimbursement made on any such notice.
2
<PAGE>
3.1.4 The Escrow Agent shall provide a copy of its written
instructions pursuant to this Section 3 to Acquisition or USI, as the case may
be, and to the Soft Plus Shareholder Agent.
3.2 Upon registration by the Transfer Agent of all of the Escrow
Shares in the Escrow Fund as provided in Sections 3.1.1 and 3.1.2 hereof, and
upon disbursement by the Escrow Agent of the last remaining shares and funds in
the Escrow Fund, this Escrow Agreement shall terminate, subject to the
provisions of Sections 5 and 8 hereunder, which Sections shall survive such
termination. This Escrow Agreement may also be terminated at any time upon the
receipt by Escrow Agent of ten (10) days' prior joint written notice of
termination executed by USI or Acquisition, on the one hand, and the Soft Plus
Shareholder Agent on the other, directing the distribution of the Escrow Fund.
4. Objections to Disbursements.
4.1 If the Soft Plus Shareholder Agent objects to any Escrow Claim
Amount contained in any Disbursement Notice received from Acquisition or USI,
the Soft Plus Shareholder Agent shall provide written notice of such objection
to such Disbursement Notice (an "Objection Notice") to Escrow Agent (with a copy
simultaneously furnished to USI) before 5:00 p.m. (Eastern Standard Time) on the
business day prior to the Stock Disbursement Date.
4.2 Pending resolution of the objection described in the Objection
Notice in accordance with the terms of this Section 4 and Section 6 hereof,
Escrow Agent shall not take the action required by Section 3.1.1 with respect to
the Escrow Claim Amount, but shall retain as a reserve (the "Reserve") that
number of shares of Escrow Shares (rounded up to the next whole share) with a
value equal to the relevant Escrow Claim Amount, such number of shares to be
valued at the USI Closing Date Price; provided, however, if an Objection Notice
objects to less than the entire amount of the Escrow Claim Amount, then the
Escrow Agent shall disburse Escrow Shares equal to the Escrow Claim Amount not
in dispute. If Escrow Agent does not receive an Objection Notice before 5:00
p.m. on the business day prior to the Stock Disbursement Date, the Soft Plus
Shareholder Agent shall be deemed to have approved such Disbursement Notice.
4.3 In case of any Objection Notice, the Soft Plus Shareholder Agent
and USI shall attempt in good faith to agree upon the rights of the respective
parties with respect to each Objection Notice within 45 days after Escrow
Agent's receipt of the Objection Notice (the "Negotiation Period"). If Soft Plus
Shareholder Agent and USI should so agree during the Negotiation Period, a
memorandum setting forth such agreement shall be prepared and signed by both
parties and shall be furnished to Escrow Agent. Escrow Agent shall be entitled
to rely on any such memorandum and distribute the Escrow Shares from the Escrow
Fund in accordance with the terms thereof.
4.4 If no agreement in accordance with Section 4.3 has been reached
by the end of the Negotiation Period, either the Soft Plus Shareholder Agent or
USI may demand arbitration of the matter unless the amount of the Damages is at
issue in pending litigation with a third party, in which event arbitration shall
not be commenced until such amount is ascertained by settlement or a
non-appealable decision of a court of competent jurisdiction or both parties
agree to arbitration; and in either such event the matter shall be settled by
arbitration conducted by three arbitrators, as follows. Within 15 days after
Soft Plus Shareholder Agent or USI delivers a written demand for arbitration to
the other party, Soft Plus Shareholder Agent or USI shall each select one
arbitrator. The third arbitrator shall be selected as soon as practicable by
agreement of the first two arbitrators or, failing such agreement, by the
American Arbitration Association. The arbitration shall be conducted in
Pennsylvania. The written decision of a majority of the three arbitrators as to
the validity and amount of any claim in such Disbursement Notice shall be
binding and conclusive upon the parties to this Agreement, and Escrow Agent
shall be entitled to act in accordance with such decision and make or withhold
payments out of the Escrow Fund in accordance therewith. The arbitrators shall
award reimbursement to the prevailing party in the arbitration of its reasonable
expenses of the arbitration (including costs and reasonable attorneys' fees).
The award of the arbitrators shall be the sole and exclusive monetary remedy of
the parties and shall be enforceable in any court of competent jurisdiction.
Notwithstanding the foregoing, any party shall be entitled to seek injunctive
relief or other equitable remedies from any state or federal court sitting in
the Eastern District of Pennsylvania.
3
<PAGE>
5. Duties and Responsibilities of Escrow Agent.
5.1 Acquisition and the Soft Plus Shareholder Agent acknowledge and
agree that the Escrow Agent (a) shall not be responsible for any of the
agreements referred to herein, including the Merger Agreement, but shall be
obligated only for the performance of such duties as are specifically set forth
in this Escrow Agreement; (b) shall not be obligated to take any legal or other
action hereunder which might in its judgment involve any expense or liability
unless it shall have been furnished with acceptable indemnification and that no
further duties or responsibilities shall be implied; (c) may rely on and shall
be protected in acting or refraining from acting upon any written notice,
instruction (including, without limitation, wire transfer instructions, whether
incorporated herein or provided in separate written instructions), instrument,
statement, request or document furnished to it hereunder and believed by it to
be genuine and to have been signed or presented by the proper person, and shall
have no responsibility for determining the accuracy thereof and (d) may consult
counsel satisfactory to it, including in-house counsel, and the opinion of such
counsel shall be full and complete authorization and protection in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
accordance with the opinion of such counsel.
5.2 Neither the Escrow Agent nor any of its directors, officers or
employees shall be liable to anyone for any action taken or omitted to be taken
by it or any of its directors, officers or employees hereunder except in the
case of gross negligence, fraud or willful misconduct. The Escrow Agent shall
not incur any liability for following the instructions herein contained or
expressly provided for, or written instructions given by the parties hereto. In
the administration of this Escrow Agreement and the Escrow Fund hereunder, the
Escrow Agent may execute any of its powers and perform its duties hereunder
directly or through agents or attorneys and may, consult with counsel,
accountants and other skilled persons to be selected and retained by it. USI and
the Soft Plus Shareholder Agent, jointly and severally, covenant and agree to
indemnify the Escrow Agent its directors, officers, agents and employees
(collectively, the "Indemnitees") harmless from and against any and all
liabilities, losses, damages, fines, suits, actions, demands, penalties, costs
and expenses, including reasonable out-of-pocket, incidental expenses, legal
fees and expenses, the reasonable allocated costs and expenses of in-house
counsel and legal staff and the reasonable costs and expenses of defending or
preparing to defend against any claim ("Losses") that may be imposed on,
incurred by, or asserted against, the Indemnitees or any of them for following
any instruction or other direction upon which the Escrow Agent is authorized to
rely pursuant to the terms of this Escrow Agreement. In addition to and not in
limitation of the immediately preceding sentence, USI and the Soft Plus
Shareholder Agent, jointly and severally, also covenant and agree to indemnify
and hold the Indemnitees and each of them harmless from and against any and all
Losses that may be imposed on, incurred by, or asserted against the Indemnitees
or any of them in connection with or arising out of the Escrow Agent's
performance under this Escrow Agreement provided the Escrow Agent has not acted
with gross negligence or fraud or engaged in willful misconduct. The provisions
of this Section 5.2 shall survive the termination of this Escrow Agreement and
the resignation or removal of the Escrow Agent for any reason. Anything in this
Escrow Agreement to the contrary notwithstanding, in no event shall the Escrow
Agent be liable for punitive, indirect or consequential loss or damage of any
kind whatsoever (including but not limited to lost profits), even if the Escrow
Agent has been advised of such loss or damage and regardless of the form of
action. The foregoing is not intended to, nor shall it, absolve Escrow Agent of
liability for actual damages it causes in connection with its duties hereunder,
which are often referred to as "special" damages.
4
<PAGE>
5.3 Taxes incurred with respect to the earnings of the Escrow Fund
and payments made hereunder shall be borne by the party to whom such earnings
are distributed (or to be distributed) or to whom such payment is made. If such
earnings are not distributed during the calendar year in which they arise, then
such earnings shall be allocated to the Soft Plus Shareholders as their interest
may appear. To the extent that Escrow Agent becomes liable for the payment of
any taxes in respect of income derived from the investment of funds held or
payments made hereunder, Escrow Agent shall satisfy such liability to the extent
possible from the Escrow Fund. USI, Acquisition and the Soft Plus Shareholder
Agent, jointly and severally, agree to assume any and all obligations imposed
now or hereafter by any applicable tax law with respect to the payment of the
Escrow Fund under this Agreement, and to indemnify and hold the Escrow Agent
harmless from and against any taxes, additions for late payment, interest,
penalties and other expenses, that may be assessed against the Escrow Agent on
any such payment or other activities under this Agreement. USI, Acquisition and
the Soft Plus Shareholder Agent undertake to instruct the Escrow Agent in
writing with respect to the Escrow Agent's responsibility for withholding and
other taxes, assessments or other governmental charges, certifications and
governmental reporting in connection with its acting as Escrow Agent under this
Agreement. USI, Acquisition and the Soft Plus Shareholder Agent, jointly and
severally, agree to indemnify and hold the Escrow Agent harmless from any
liability on account of taxes, assessments or other governmental charges,
including without limitation the withholding or deduction or the failure to
withhold or deduct same, and any liability for failure to obtain proper
certifications or to properly report to governmental authorities, to which the
Escrow Agent may be or become subject in connection with or which arises out of
this Agreement, including costs and expenses (including reasonable legal fees
and expenses), interest and penalties. Notwithstanding the foregoing, no
distributions will be made unless the Escrow Agent has on file an original,
signed W-9 form or its equivalent prior to distribution, and the tax
identification numbers of all distributees. Each party hereto, except the Escrow
Agent, shall, on the signature page of this Escrow Agreement, and each Soft Plus
Shareholder shall, on Exhibit I hereto, provide the Escrow Agent with its Tax
Identification Number ("TIN") as assigned by the Internal Revenue Service.
6. Dispute Resolution; Third Party Claims. It is understood and agreed
that should any dispute arise with respect to the delivery, ownership, right of
possession and/or disposition of the Escrow Fund, or should any claim be made
upon such Escrow Fund by a third party, the Escrow Agent upon receipt of written
notice of such dispute or claim by the parties hereto or by a third party, is
authorized and directed to retain in its possession without liability to anyone,
all or any of said Escrow Fund until such dispute shall have been settled either
in accordance with Section 4.3 or in the case of a claim being made upon the
Escrow Fund by a third party, in accordance with Article XII of the Merger
Agreement. The Escrow Agent may, but shall be under no duty whatsoever to,
institute or defend any legal proceedings which relate to the Escrow Fund. The
Escrow Agent shall provide notice to Acquisition, USI and the Soft Plus
Shareholder Agent promptly upon receipt of any notice of a claim or dispute upon
the Escrow Fund by a third party.
5
<PAGE>
7. Resignation. The Escrow Agent may resign and be discharged from its
duties or obligations hereunder by giving not less than ten days written notice
to USI, Acquisition and the Soft Plus Shareholder Agent. Such resignation shall
take effect 30 days after the giving of such notice (the "Resignation Period"),
or upon receipt by the Escrow Agent of an instrument of acceptance executed by a
successor escrow agent and upon delivery by the Escrow Agent to such successor
of all the escrow documents and funds or securities then held by the Escrow
Agent hereunder. If no such successor escrow agent is appointed in writing prior
to the effective date of such resignation, the Escrow Agent shall direct the
Transfer Agent to register all of the Escrow Shares to Acquisition or its
successor (unless the Escrow Agent shall have received written notice from USI
otherwise prior to expiration of the Resignation Period) and, after deduction
its fees and expenses if not theretofore paid or adequately provided for, shall
deliver all monies included in the Escrow Fund, if any, by check payable to
Acquisition, to be held in accordance with the terms of this Escrow Agreement,
whereupon the Escrow Agent shall have no further duties or responsibilities
under this Agreement and Acquisition shall use its best efforts to (a) promptly
designate a successor escrow agent, subject to the approval of the Soft Plus
Shareholder Agent, which shall not be unreasonably withheld, (b) direct the
Transfer Agent to register such Escrow Shares in the name of such successor
escrow agent and (c) deliver such monies, if any, to such successor escrow
agent.
8. Escrow Agent Not Personally Liable. All of the parties hereto
expressly recognize that Escrow Agent, acting in such capacity, shall not have
any personal liability with respect to matters, promises or agreements
hereunder, including, without limitation, under Sections 5 and 9 hereof, or in
any other fashion under this Escrow Agreement, but instead is in all matters
hereunder acting solely as the agent of Acquisition with the consent of the Soft
Plus Shareholder Agent; provided, however, that Escrow Agent shall be liable for
its own gross negligence, willful misconduct and fraud.
9. Compensation and Expenses.
9.1 Pursuant to the terms of the Merger Agreement, Acquisition
agrees to pay the Escrow Agent's reasonable compensation for its normal services
hereunder in accordance with the fee schedule attached hereto as Exhibit III,
which may be subject to change on an annual basis. The Escrow Agent shall be
entitled to reimbursement on demand for all expenses incurred in connection with
the administration of the escrow created hereby which are in excess of its
compensation for normal services hereunder, including without limitation,
payment of any legal fees and expenses incurred by the Escrow Agent in its
administration of this Escrow Agreement.
9.2 Notwithstanding Section 9.1 above, any fees or expenses arising
in connection with any matters described in Section 6 above shall be borne
entirely by the party which does not prevail in such matter or as otherwise
determined by the parties or by a court of competent jurisdiction.
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<PAGE>
10. Notices. Any notice permitted or required hereunder shall be deemed
to have been duly given and delivered when delivered personally, or when
delivered if mailed certified or registered mail, postage prepaid or when
delivered by a nationally recognized overnight carrier, to the parties at their
address set forth below:
If to USI or Acquisition:
U.S. Interactive, Inc.
2012 Renaissance Boulevard
King of Prussia, PA 19406
Attention: Lawrence F. Shay, Esquire
Senior Vice President and General Counsel
with a copy to:
Dilworth Paxson LLP
3200 Mellon Bank Center
1735 Market Street
Philadelphia, Pennsylvania 19103
Attention: Michael D. Ecker, Esquire
If to the Soft Plus Shareholder Agent:
Mohan Uttarwar
c/o Soft Plus, Inc.
18900 Stevens Creek Boulevard
Suite 101
Cupertino, CA 95014
with a copy to:
Tae Hea Nahm, Esquire
The Venture Law Group
2775 Sand Hill Road
Menlo Park, CA 94025
If to Escrow Agent:
The Chase Manhattan Trust Company,
National Association
Capital Markets Fiduciary Services
One Liberty Place, Suite 5210
1650 Market Street
Philadelphia, PA 19103
Attention: Alan Halpern
or at such other address as any of the above may have furnished to all of the
other parties in writing by certified or registered mail, return receipt
requested in the manner specified in this Section 10.
7
<PAGE>
11. Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
12. Successors and Assigns; Assignment. This Escrow Agreement shall be
binding upon and shall inure to the benefit of and be enforceable by the heirs,
executors, administrators, personal representatives, successors and assigns of
the parties hereto; provided, however, that none of the Soft Plus Shareholder
Agent, Acquisition or Escrow Agent shall assign this Agreement without first
obtaining the prior written consent of the others and giving written notice
thereof to Escrow Agent; provided, further, however that any corporation or
association into which the Escrow Agent in its individual capacity may be merged
or converted or with which it may be consolidated, or any corporation or
association resulting from any merger, conversion or consolidation to which the
Escrow Agent in its individual capacity shall be a party, or any corporation or
association to which all or substantially all the corporate trust business of
the Escrow Agent in its individual capacity may be sold or otherwise
transferred, shall be the Escrow Agent under this Escrow Agreement without
further act.
13. Modifications. This Agreement may not be altered or modified
without the express written consent of the parties hereto. No course of conduct
shall constitute a waiver of any of the terms and conditions of this Escrow
Agreement, unless such waiver is specified in writing, and then only to the
extent so specified. A waiver of any of the terms and conditions of this Escrow
Agreement on one occasion shall not constitute a waiver of the other terms of
this Escrow Agreement, or of such terms and conditions on any other occasion.
14. Governing Law. This Agreement shall be governed by and construed
under the laws of Pennsylvania without reference to conflict of law principles.
15. Consent to Jurisdiction and Service. The parties hereby absolutely
and irrevocably consent and submit to the jurisdiction of the courts of
Pennsylvania and of any federal court located in Pennsylvania in connection with
any actions or proceedings brought against Acquisition and the Soft Plus
Shareholder Agent by the Escrow Agent arising out of or relating to this Escrow
Agreement. In any such action or proceeding, Acquisition and the Soft Plus
Shareholder Agent hereby absolutely and irrevocably waive personal service of
any summons, complaint, declaration or other process and hereby absolutely and
irrevocably agree that the service thereof may be made by certified or
registered first-class mail directed to Acquisition and the Soft Plus
Shareholder Agent, as the case may be, at their respective addresses in
accordance with Section 10 hereof.
16. Force Majeure. No party hereto shall be responsible for delays or
failures in performance resulting from acts beyond its control. Such acts shall
include but not be limited to acts of God, strikes, lockouts, riots, acts of
war, epidemics, governmental regulations superimposed after the fact, fire,
communication line failures, computer viruses, power failures, earthquakes or
other disasters.
8
<PAGE>
17. Reproduction of Documents. This Agreement and all documents
relating thereto, including, without limitation, (a) consents, waiver and
modifications which may hereafter be executed, and (b) certificates and other
information previously or hereafter furnished, may be reproduced by any
photographic, photostatic, microfilm, optical disk, micro-card, miniature
photographic or other similar process. The parties agree that any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding, whether or not the original is in
existence and whether or not such reproduction was made by a party in the
regular course of business, and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
18. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
19. Headings. The section headings herein are for convenience only and
shall not affect the construction thereof.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Escrow
Agreement on the day and year first above written.
FIRST ACQUISITION CO.
Attest:
_____________________________ By:____________________________________________
Name: Philip L. Calamia Name: Stephen T. Zarrilli
Title: Treasurer Title: President
Mohan Uttarwar], as agent and attorney-in-fact
for the Soft Plus Shareholder Agents
Witness:
____________________ ______________________________________________
THE CHASE MANHATTAN TRUST COMPANY,
NATIONAL ASSOCIATION
Attest:
____________________ By:____________________________________________
Name: Name:
Title: Title:
SOFT PLUS, INC.
Attest:
____________________ By:____________________________________________
Name: Name:
Title: Title:
10
<PAGE>
LOCK-UP AND MARKET-OUT LETTER AGREEMENT
The Board of Directors
U.S. Interactive, Inc.
2012 Renaissance Boulevard
King of Prussia, PA 19406
Ladies and Gentlemen:
In connection with the merger of Soft Plus, Inc., a California
corporation and First Acquisition Co., a Delaware corporation and a wholly owned
subsidiary of U.S. Interactive, Inc., a Delaware corporation ("USI"), pursuant
to a certain Agreement and Plan of Merger dated February 1, 2000 (the "Merger
Agreement"), the undersigned has received _________________________ unregistered
shares of USI Common Stock, par value $0.001 per share (the "Shares").
1. In consideration of the execution of the Merger Agreement, and for
other good and valuable consideration, the undersigned hereby
irrevocably agrees that, without the prior written consent of USI, the
undersigned will not, directly or indirectly, (1) offer for sale, sell,
pledge, or otherwise dispose of (or enter into any transaction or
device that is designed to, or could be expected to, result in the
disposition by any person at any time in the future of) any Shares
(including, without limitation, Shares that may be deemed to be
beneficially owned by the undersigned in accordance with the rules and
regulations of the Securities and Exchange Commission), or securities
convertible into or exchangeable for shares of USI Common Stock
(collectively, the "Restricted Securities"), owned by the undersigned
in connection with the closing of the Merger Agreement, or (2) enter
into any swap or other derivatives transaction that transfers to
another, in whole or in part, any of the economic benefits or risks of
ownership of such Restricted Securities, whether any such transaction
described in clause (1) or (2) above is to be settled by delivery of
Common Stock or other securities, in cash or otherwise, for a period of
24 months after the closing date of the transaction contemplated by the
Merger Agreement. The foregoing shall also apply to Restricted
Securities that are registered by USI from time to time as contemplated
in the Merger Agreement but not otherwise sold pursuant to the terms of
the Merger Agreement.
2. The foregoing restriction shall lapse with respect to one-quarter of
the Restricted Securities every six months beginning on a date six
months following the closing date of the transaction contemplated by
the Merger Agreement, resulting in the restriction on the disposition
of the Restricted Securities described in Paragraph 1 above to lapse
with respect to 100% of the Restricted Securities owned or beneficially
owned by the undersigned on the second anniversary of the closing date
of the transaction contemplated by the Merger Agreement.
3. The undersigned further agrees that, upon the request of USI's
underwriters in the event USI becomes engaged in a firmly underwritten
public offering of its Common Stock following the date hereof, any
Restricted Securities owned or beneficially owned by the undersigned
shall be or become subject to the restrictions on disposition described
in Paragraph 1 for a period of time requested by such underwriters from
the effective date of any such public offering (not to exceed six
months) (regardless of whether such restrictions have lapsed with
respect to any of the Restricted Securities as provided in Paragraph 2
above); provided, however, that the obligations under this Section 3
are conditioned upon each of the officers, directors and 1%
shareholders of USI selling in such offering entering into and
remaining subject to similar agreements with substantially the same
restrictions.
<PAGE>
4. Notwithstanding the foregoing the undersigned may make gifts of
Restricted Securities or other securities convertible into, or
exchangeable or exercisable for, Restricted Securities or other
derivatives during the above-referenced lock-up and market out periods
if the donee agrees in writing to be bound by the terms of this
agreement for the remainder of the lock-up and market out periods.
5. In furtherance of the foregoing, the certificate representing the
Restricted Securities issued to me will contain a restrictive legend
pertaining to the above limitations on resale and that transfer
instructions will be noted on the Company's stock transfer ledger with
respect to the Restricted Securities. USI and its Transfer Agent are
hereby authorized to decline to make any transfer of securities if such
transfer would constitute a violation or breach of this Lock-Up and
Market-Out Letter Agreement.
6. The undersigned understands that execution of this Lock-Up and
Market-Out Letter Agreement is a condition to closing of the
transaction contemplated by the Merger Agreement.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to enter into this Lock-Up and Market-Out Letter
Agreement. Any obligations of the undersigned shall be binding upon the heirs,
personal representatives, successors and assigns of the undersigned.
Very truly yours,
____________________________________
Date: _______________
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
this 8th day of March, 2000 by and between U.S. Interactive, Inc., a Delaware
corporation (the "Company"), and Mohan Uttarwar (the "Executive").
BACKGROUND
The Company desires to employ the Executive, the Executive desires to
be employed by the Company, all on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties intending to be legally bound agree as follows:
1. Employment.
Subject to and pursuant to the terms of this Agreement, effective as of
the date of this Agreement (the "Effective Date"), the Company hereby employs
the Executive, and the Executive shall be employed by and shall serve the
Company, in the capacity of President of SoftPlus, Inc., a wholly-owned
subsidiary of the Company ("SoftPlus"), reporting directly to the Chief
Executive Officer of the Company pursuant to the terms and conditions of this
Agreement, and Executive hereby accepts such employment.
2. Term.
Subject to the provisions for earlier termination provided herein, the
term of this Agreement (the "Term") shall commence on the Effective Date and
shall terminate one year from the date hereof.
3. Duties.
During the Term, the Executive shall be employed at the offices of the
Company in Cupertino, California, and shall have all duties and responsibilities
customarily associated with the position of President of SoftPlus, including
duties determined by the Board of Directors of the Company (the "Board") and the
Chief Executive Officer of the Company. The Executive shall also serve as a
member of the Board for the unexpired term of the vacancy on the Board ending on
the date of the annual meeting of the USI Stockholders in 2001, subject to
removal pursuant to the terms of the Company's Certificate of Incorporation and
Bylaws. The Executive shall devote his full time, ability, attention, energy,
knowledge and skill to perform all duties as assigned or delegated to him by the
Board and Chief Executive Officer of the Company.
<PAGE>
4. Compensation.
For services rendered by the Executive during the Term pursuant to this
Agreement, the Company shall pay or award compensation to Executive as follows:
4.1. Base Compensation. The Company shall pay to the Executive a base
salary ("Base Compensation") of $200,000 (USD) per annum, payable in accordance
with the Company's customary payroll practices for its officers.
4.2. Bonus Compensation. In addition to the Base Compensation, the
Board (or the Compensation Committee of the Board) may in its discretion award
the Executive a performance bonus (the "Performance Bonus") in cash or stock
options commensurate with the Executive's, the Company's and SoftPlus's
performances.
4.3. Withholding. The Company shall deduct and withhold from the
compensation payable to the Executive hereunder any and all applicable federal,
state and local income and employment withholding taxes and any other amounts
required to be deducted or withheld by the Company under applicable statute or
regulation.
5. Additional Benefits. In addition to Base Compensation and Performance
Bonus provided for in Section 4 above, in connection with the Executive's
employment by the Company, the Executive shall be entitled to receive:
5.1. all fringe benefits customarily offered by the Company to its
senior executive officers, including without limitation, health plan benefits,
expense accounts, participation in any Company stock compensation plan and the
various employee benefit plans or programs (collectively, the "Benefit Plans")
provided to the employees of the Company in general, subject to the eligibility
requirements with respect to each such Benefit Plan, and to such other benefits
or perquisites as may be approved by the Board during the Term;
5.2. reimbursement from the Company for all customary, ordinary,
reasonable and necessary business expenses incurred by the Executive in the
performance of his duties and responsibilities hereunder; and
5.3. vacation benefits available under the Company's vacation policy in
effect for its senior executive officers, which may not be carried over from
year to year.
6. Termination of Employment. The Executive's employment with the Company
shall terminate upon any one of the following events:
6.1. Termination for Cause. Company may terminate the Executive's
employment upon fourteen (14) days written notice sent to the Executive stating
the Company's determination, made in good faith, that it is terminating the
Executive for "cause." For purposes of this Agreement, "cause" shall mean
termination based on:
6.1.1. the failure or the refusal of the Executive to follow
lawful and proper directives of the Board or Chief Executive Officer of the
Company;
2
<PAGE>
6.1.2. the Executive's material breach of this Agreement which, if
capable of cure, is not cured fully within ten (10) days after written notice
from the Board or Chief Executive Officer of the Company to the Executive
identifying such breach, provided, that such ten (10) day period shall be
extended to thirty (30) days if such breach is not reasonably susceptible to
cure within ten (10) days and the Executive shall have commenced to cure within
such ten (10) day period and is then proceeding with due diligence to cure such
breach;
6.1.3. conviction of the Executive for (x) any crime constituting
a felony in the jurisdiction in which committed, (y) any crime involving moral
turpitude (whether or not a felony) or (z) any other criminal act against the
Company involving dishonesty whether or not a felony or willful misconduct
intended to injure the Company;
6.1.4. substance abuse (including drunkenness) by the Executive
which is repeated after written notice from the Board or Chief Executive Officer
of the Company to the Executive identifying such abuse;
6.1.5. willful malfeasance or gross misconduct by the Executive
which discredits or damages the Company; or
6.1.6. conviction of or a no contest plea by the Executive for a
violation of the federal securities laws.
6.2. Termination Without Cause. Company may terminate the Executive's
employment upon fourteen (14) days written notice sent to the Executive stating
that the Company is terminating his employment, without cause, which notice can
be given by the Company at any time after the Effective Date at the Company's
sole discretion, for any reason or for no reason.
6.3. Voluntary Termination. The Executive may terminate the Executive's
employment effective upon fourteen (14) days written notice sent to the Company
from the Executive stating that the Executive is electing to terminate his
employment.
6.4. Termination Upon Disability. Company may terminate the Executive's
employment upon fourteen (14) days written notice sent to the Executive stating
that the Company's determination made in good faith that, due to a mental or
physical incapacity of the Executive, the Executive has been unable to perform
his duties under this Agreement for a period of not less than three (3)
consecutive months.
6.5. Termination Upon Death. The Executive's employment will terminate
immediately upon the Executive's death.
7. Payment Upon Termination of Employment.
7.1. Termination for Cause, Termination Without Cause or Voluntary
Termination. Upon any termination of the Executive's employment pursuant to
Section 6.1, 6.2 or 6.3the Company shall immediately pay to the Executive the
compensation and benefits otherwise payable to the Executive under Sections 4
and 5 through the date of termination. Additionally, if the termination is
pursuant to Section 6.2, the Company shall continue to pay to the Executive the
compensation and benefits otherwise payable to the Executive under Sections 4
and 5 through the Term. The Executive's rights under the Company's benefit plans
of general application shall be determined under the provisions of those plans.
3
<PAGE>
7.2. Termination upon Disability. In the event of termination of the
Executive's employment with the Company pursuant to Section 6.4, the Company
shall:
7.2.1. immediately pay to the Executive the compensation and
benefits otherwise payable to the Executive under Sections 4 and 5 through the
date of termination, less any amounts received by the Executive from any
Company-sponsored or SoftPlus-sponsored disability plan.
7.2.2. for three (3) months from the termination date, the Company
shall continue to pay to the Executive all compensation and benefits otherwise
payable to the Executive under Sections 4 and 5 at the Executive's then-salary,
less any amounts received by the Executive from any Company-sponsored or
SoftPlus-sponsored disability plan, further, less applicable withholding taxes,
payable on the Company's normal payroll dates during that period.
7.3. Termination upon Death. In the event of termination of the
Executive's employment with the Company pursuant to Section 6.5, all obligations
of the Company shall cease, except the Company shall immediately pay to the
Executive (or to the Executive's estate) the compensation and benefits otherwise
payable to the Executive under Sections 4 and 5 through the date of termination.
8. No Conflicting Agreements. The Executive warrants that he is under no
obligation which would violate or be in conflict with the terms and conditions
of this Agreement.
9. Resignation of Positions. Upon termination of employment for any reason
whatsoever, the Executive shall be deemed to have resigned from all offices and
directorships then held with the Company and all subsidiaries of the Company.
10. Binding Effect; Assignment. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and permitted assigns of the parties.
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto or their respective successors and assigns
any rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement. The Executive, and
any beneficiary or legal representative of the Executive, shall not assign all
or any portion of the Executive's rights or obligations under this Agreement
without the prior written consent of the Company.
11. Notices. Any notice, request, instruction or other document to be given
hereunder by any party to any other party shall be in writing and shall be
deemed to have been given (i) if mailed with the United States Postal Service by
prepaid, first class, certified mail, return receipt requested, at the time of
receipt by the intended recipient, or (ii) if sent by facsimile transmission,
when so sent and receipt acknowledged by an appropriate telephone or facsimile
receipt (followed by a hard copy mailed in accordance with clause (i) of this
Section 11) addressed as follows:
4
<PAGE>
If to the Company, addressed to:
U.S. Interactive, Inc.
2012 Renaissance Boulevard
King of Prussia, PA 19406
Phone: (610) 313-9700
Fax: (610) 382-8908
Attn: Chief Executive Officer
If to the Executive:
Mr. Mohan Uttarwar
18900 Stevens Creek Boulevard
Suite 101
Cupertino, CA 95014
or such other address as may be given from time to time under the terms of this
notice provision.
12. Entire Agreement. This Agreement and the documents referred to herein
constitute the entire agreement among the parties and no party shall be liable
or bound to any other party in any manner by any warranties, representations, or
covenants except as specifically set forth herein or therein.
13. Amendments and Waivers. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto. No
amendment or waiver may be charged against a party without that party's prior
written consent. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon each transferee of any party hereto.
14. Titles and Subtitles. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
15. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
16. Severability. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of this Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
17. Governing Law. This Agreement shall be governed by and construed under
the laws of the state of Delaware, without reference to conflicts of laws
principles.
5
<PAGE>
18. Mediation and Arbitration. Any dispute which may arise between the
parties hereto as to the construction, interpretation or effect of this
Agreement which is not resolved by mutual agreement between the parties, shall
first be submitted to nonbinding mediation on terms and conditions to be
mutually agreed upon by the parties. In the event that a dispute is not resolved
by nonbinding mediation, the disputing party may give the other party notice of
such party's intention to cause the same to be submitted to arbitration. After
fifteen (15) days have elapsed from the giving of such notice, but not before
such time, the party who gave such notice may cause any such dispute which then
remains unresolved to be submitted to arbitration by submitting the same to the
office of the American Arbitration Association (the "AAA") acting in the state
of incorporation of the Company as determined by the Company (or any successor
thereto, but if no organization is then performing a function reasonably similar
to the AAA, then to a court of competent jurisdiction in accordance with the
rules of such court) with a request for arbitration to be conducted in
accordance with the rules thereof by one (1) arbitrator to be jointly selected
by the parties. The prevailing party's expenses, including without limitation
attorneys' fees, in connection with such arbitration shall be borne by the
losing party; provided, however, that if liability is allocated by the
arbitrator between the parties, the expenses of such arbitration, including
without limitation the parties' attorneys' fees, shall be borne by the parties
in proportion to their respective percentages or proportions of liability
assessed by the arbitrator. The decision of the arbitrator as to all matters
properly submitted to such arbitrator and as to the apportionment of expenses of
arbitration shall be conclusive and binding upon the parties and judgment upon
any award may be entered in any court of competent jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
U.S. INTERACTIVE, INC.
By:_________________________________
Stephen T. Zarrilli
Chief Executive Officer
____________________________________
Mohan Uttarwar
6
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors U.S. Interactive, Inc.:
The audits referred to in our report dated February 9, 2000, included the
related consolidated financial statement schedule for each of the years in the
three-year period ended December 31, 1999, included in the registration
statement. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits. In our opinion, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
We consent to the use of our reports included herein and to the reference
to our firm under the heading "Experts" and "Selected Financial Data" in the
prospectus.
KPMG LLP
Philadelphia, Pennsylvania
March 9, 2000
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors Soft Plus, Inc.:
We consent to the use of our report included herein and to the reference
to our firm under the heading "Experts" in the prospectus.
KPMG LLP
Mountain View, California
March 9, 2000
<PAGE>
EXHIBIT 23.4
Consent of Independent Certified Public Accountants
To the Board of Directors and Stockholders
Digital Evolution, Inc.
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement on Form S-1 of our report dated August 25, 1998, relating
to the balance sheets of Digital Evolution, Inc. as of December 31, 1997 and
1996 and the related statements of operations, stockholders' equity and cash
flows for each of the two years then ended, which are contained in that
Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO Seidman, LLP
Los Angeles, California
March 10, 2000
