<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 20, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
CYSIVE, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
VIRGINIA 7371 54-1698017
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation Classification Code Number)
or organization)
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11480 SUNSET HILLS ROAD
SUITE 200 E
RESTON, VIRGINIA 20190
(703) 742-0865
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------
NELSON A. CARBONELL, JR.
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
CYSIVE, INC.
11480 SUNSET HILLS ROAD
SUITE 200 E
RESTON, VIRGINIA 20190
(703) 742-0865
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
<TABLE>
<S> <C>
STEVEN A. MUSELES, ESQ. PAUL V. ROGERS, ESQ.
HOGAN & HARTSON L.L.P. HALE AND DORR LLP
555 THIRTEENTH STREET, N.W. 1455 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20004 WASHINGTON, D.C. 20004
TELEPHONE: (202) 637-5600 TELEPHONE: (202) 942-8400
TELECOPY: (202) 637-5910 TELECOPY: (202) 942-8484
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
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 of 1933, please check the
following box and list the Securities Act of 1933 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 of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED OFFERING PRICE (1) REGISTRATION FEE
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<S> <C> <C>
Common Stock, $.01 par value................................ $60,000,000 $16,680
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o) under the Securities Act of 1933.
------------------------
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.
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<PAGE> 2
The information in this preliminary prospectus is not complete and may be
changed. We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This preliminary
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 AUGUST , 1999
PROSPECTUS
LOGO
Shares
Common Stock
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This is an initial public offering of shares of common stock of Cysive, Inc. We
are offering shares in this offering. No public market currently exists for
our common stock.
We intend to apply for the quotation of our common stock on the Nasdaq National
Market under the symbol "CYSV."
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INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 5.
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<CAPTION>
Per Share Total
<S> <C> <C>
Public offering price $ $
Underwriting discount and commissions $ $
Proceeds to us $ $
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The underwriters have an option to purchase additional shares of
common stock from us at the initial public offering price to cover any
over-allotments of shares.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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THOMAS WEISEL PARTNERS LLC
FIRST UNION CAPITAL MARKETS CORP.
FRIEDMAN BILLINGS RAMSEY
The date of this prospectus is , 1999
<PAGE> 3
TABLE OF CONTENTS
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<CAPTION>
PAGE
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<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 5
Special Note Regarding Forward-Looking
Statements.......................... 11
Use of Proceeds....................... 12
Dividend Policy....................... 12
S Corporation Distributions........... 12
Capitalization........................ 13
Dilution.............................. 14
Selected Financial Data............... 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 16
</TABLE>
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PAGE
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<S> <C>
Business.............................. 23
Management............................ 38
Principal Stockholders................ 44
Description of Capital Stock.......... 45
Shares Eligible for Future Sale....... 49
Underwriting.......................... 51
Validity of the Shares................ 53
Experts............................... 53
Where You Can Find More Information... 53
Index to Financial Statements......... F-1
</TABLE>
<PAGE> 4
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information and financial statements and the related notes included elsewhere in
this prospectus. All information in this prospectus relating to the number of
shares of our common stock and options is based upon information as of August
19, 1999. Unless otherwise specifically stated, the information in this
prospectus does not take into account the possible issuance of additional shares
of common stock to the underwriters to cover over-allotments.
OUR COMPANY
Cysive is a leading software engineering firm that designs and builds
complex, highly customized architectures and systems necessary to support large
scale eBusinesses. eBusinesses are companies that conduct a significant portion
of their business electronically through front-end customer interfaces which are
integrated with back-end systems, such as accounting, billing, manufacturing and
inventory control. Since commencing operations in 1994, we have built
business-critical architectures using core Internet technologies. These
architectures automate business processes and provide the technology
infrastructure necessary for the high levels of customer interactivity, 24-hour
and seven-day, or 24/7, reliability and significant scalability required by
large scale eBusinesses. Due to the customized design criteria and sophisticated
integration requirements of our projects, we employ software engineers with
extensive technology expertise. Our software engineers, who have an average of
10 years experience applying leading-edge technologies to solve
business-critical problems, utilize a disciplined methodology to deliver robust
and secure systems on a timely basis.
Given our technology expertise, we target corporate customers who require
highly complex systems to meet the scale and growth demanded by their
differentiated eBusiness strategies. For example, Cysive built Cisco Systems,
Inc.'s Internetworking Product Center, which is the core of Cisco's electronic
commerce site and accounted for approximately 60% of Cisco's fiscal 1999 total
revenues of $12.2 billion. In addition to Cisco, we have built systems for
customers such as Classified Ventures, Inc./Cars.com, DaimlerChrysler
Corporation, Equifax Secure, Inc., First Union Corporation, Sylvan Prometric and
UUNet Technologies, Inc.
OUR MARKET OPPORTUNITY
In the mid-1990s, a first wave of commercial Internet usage achieved
widespread adoption. At this time, the immediate objective for most companies
was to establish a Web site, which was typically maintained separately from the
enterprise systems at the core of the business. Today, we believe a second wave
is beginning, spearheaded by the companies whose use of the Internet has evolved
from a marketing orientation to a business, or transactional, orientation. These
companies are building their information technology infrastructures to transact
directly, seamlessly and instantaneously with customers, suppliers, partners and
distributors around the world. To truly automate all of the functions associated
with an eBusiness transaction, companies cannot simply link Internet customers
directly to their existing internal systems, which were built for a defined
number of specifically trained employees. An advanced technology approach is
necessary in which business logic, or all of the business procedures and rules,
is built into a core architecture that bridges these existing systems with the
Internet. A successful eBusiness architecture must present business functions to
customers in a simple format, yet provide comprehensive access to all of the
information and transactional capabilities the business has to offer.
Advantages achieved by eBusinesses that were the first to implement
Internet strategies will be lost if their transactional systems are not
scalable, secure and reliable. Therefore, we believe a greater portion of future
corporate Internet spending will be in the implementation and integration of
advanced Internet systems. Companies like Cysive that have the Internet
technology expertise, a defined, repeatable and rigorous process and a strong,
proven track record in building eBusiness architectures will drive business on
the Internet.
1
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OUR SOLUTION
Cysive engineers and deploys next generation systems that enable business
leaders to execute their eBusiness strategies. To build the reliable, robust,
secure and scalable eBusiness systems demanded by our customers, we emphasize
the following key elements:
ADVANCED EBUSINESS ARCHITECTURES. We focus on architecting and building
complex, highly customized Internet technology-based systems rather than broadly
providing strategy, consulting and design services. Our expertise lies in
building the systems driving large scale eBusinesses, which we believe is a key
point of differentiation in our market.
HIGHLY EXPERIENCED SOFTWARE ENGINEERS. The complexity of the systems we
build requires us to employ software engineers with proven technology expertise
and many years of experience. As evidence, our software engineers have on
average 10 years of experience. This significant level of experience enhances
our teams' productivity and enables us to maximize our utilization rates by
making our software engineers interchangeable across varying projects regardless
of the technologies employed.
"SWAT TEAM" APPROACH. The high productivity of our experienced software
engineers enables us to build extensive eBusiness systems with lean and
efficient SWAT teams. For example, we built Cisco's system with a team of only
six software engineers. By using our SWAT teams, we shorten the delivery time of
a project and increase the likelihood of success, thereby reducing the overall
project cost to the customer. Through this approach, we are able to focus our
customers on the total value of the project, rather than on hourly billing
rates. As a result of our high levels of productivity, we consistently generate
revenues per software engineer in excess of $300,000.
RIGOROUS DEVELOPMENT PROCESS. For every project undertaken, our software
engineers strictly adhere to the Cysive development process. Having an
institutionalized methodology helps to mitigate risk and ensure consistent
quality, and enables us to build robust and cost-effective systems more rapidly.
SOPHISTICATED KNOWLEDGE MANAGEMENT. We have spent considerable resources
building our internal knowledge management which comprises: (1) a technology
group, which continually evaluates new products to identify best-of-breed
technologies and is also responsible for on-going proficiency training; and (2)
a centralized knowledge base, which is an extensive intranet database that
captures the intellectual capital gained with each Cysive project.
STRICT QUALITY ASSURANCE PROCESS. We adhere to a strict quality assurance
process to identify and manage risk. In addition to risk management, our quality
assurance approach facilitates the sharing of ideas and technologies among
project managers, enables us to scale our business while maintaining high levels
of quality and allows us to make objective, value-added recommendations to our
customers during the course of a project.
OUR GROWTH STRATEGY. Our objective is to strengthen our position as a
leading eBusiness engineering firm. The key elements of our growth strategy are
to:
- expand existing and establish new customer relationships;
- continue to build and deploy leading-edge technologies;
- attract and retain highly experienced software engineers;
- enhance our geographic presence; and
- expand Cysive's brand recognition.
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<PAGE> 6
THE OFFERING
Common stock offered.................. shares
Common stock outstanding after the
offering.............................. shares
Use of proceeds....................... We will receive net proceeds from
this offering of $ million,
assuming a per share offering price
of $ . We intend to use the net
proceeds of this offering for general
corporate purposes, including working
capital, expansion of operations and
sales and marketing activities.
Proposed Nasdaq National Market
symbol................................ CYSV
Excludes 2,652,200 shares of common stock issuable upon exercise of
outstanding options as of August 19, 1999, at a weighted average exercise price
of $2.83 per share.
------------------------
We founded Cysive in 1993 as a Virginia corporation, but will reorganize as
a Delaware corporation concurrently with the closing of this offering. Our
principal office is located at 11480 Sunset Hills Road, Suite 200 E, Reston, VA
20190. Our telephone number is 703.742.0865. We maintain a Web site at
www.cysive.com. Information contained on our Web site is not incorporated by
reference into this prospectus.
3
<PAGE> 7
SUMMARY FINANCIAL DATA
The following table summarizes our financial data and has been derived from
our audited financial statements for each of the years in the three-year period
ended December 31, 1998 and our unaudited financial statements for the six-month
periods ended June 30, 1998 and 1999, included elsewhere in this prospectus. The
pro forma statement of operations data are unaudited and are presented to
reflect the provision for federal and state income taxes as if we had been
subject to federal and state income taxation as a C corporation. We have
adjusted our balance sheet data to reflect: (1) the sale of the shares of
common stock offered by this prospectus and the initial use of the estimated net
proceeds therefrom, assuming a public offering price of $ per share and after
deducting the underwriting discount and commissions and estimated offering
expenses; (2) the recording of deferred income taxes resulting from the change
from an S corporation to a C corporation; and (3) the payment of a distribution
representing the estimated earned and previously undistributed taxable S
corporation income, estimated to be $ as of June 30, 1999. The
information shown below should be read together with "Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the related notes included
elsewhere in this prospectus.
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<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------ --------------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ----------- ------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues.......................... $5,557 $7,711 $9,142 $3,193 $9,424
Gross profit...................... 3,501 4,913 5,400 1,384 5,951
Operating income (loss)........... 1,260 1,399 782 (297) 858
Net income (loss)................. 1,277 1,422 796 (282) 883
Pro forma net income.............. 464 534
Weighted average shares
outstanding..................... 3,012,000 3,012,000 3,012,000 3,012,000 3,612,000
Weighted average shares and common
stock equivalents............... 3,320,797 3,449,129 3,508,167 3,012,000 4,304,937
Pro forma earnings per share:
Basic........................... $0.15 $0.15
Diluted......................... $0.13 $0.12
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1999
--------------------
PRO FORMA
ACTUAL AS ADJUSTED
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(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents................................... $ 869 $
Working capital............................................. 3,364
Total assets................................................ 5,792
Stockholders' equity........................................ 3,986
</TABLE>
4
<PAGE> 8
RISK FACTORS
An investment in our common stock involves risks. You should carefully
consider the risks described below and the other information in this prospectus
including our financial statements and the related notes before you decide to
buy our common stock. The trading price of our common stock could decline due to
any of these risks, and you could lose all or part of your investment.
IF WE ARE UNABLE TO ATTRACT AND RETAIN QUALIFIED EMPLOYEES, OUR RESULTS OF
OPERATIONS AND FUTURE GROWTH WILL BE IMPAIRED
Our future success depends in large part on our ability to attract and
retain software engineers, project managers, recruiters, other technical
personnel and sales and marketing professionals of various experience levels. If
we fail to attract and retain these personnel, we may be unable to complete
existing projects or bid for new projects of similar size, which could reduce
our revenues and have a material adverse effect on our results of operations.
While attracting and retaining experienced software engineers is critical to our
business and growth strategy, maintaining our current level of software engineer
experience, averaging 10 years, may be particularly difficult. Skilled personnel
are in short supply, and this shortage is likely to continue for some time. As a
result, competition for these people is intense, and the industry attrition rate
for them is high. Additionally, we plan to open new offices in a number of
geographic markets to attract and retain new employees. Our failure to open new
offices or to open them in appropriate areas could limit our ability to attract
and retain qualified personnel. Moreover, even if we are able to grow and expand
our employee base, the resources required to attract and retain these employees
may adversely affect our operating margins.
WE HAVE RELIED AND EXPECT TO CONTINUE TO RELY ON A LIMITED NUMBER OF CUSTOMERS
FOR A SIGNIFICANT PORTION OF OUR REVENUES, AND THE LOSS OF OR A SIGNIFICANT
REDUCTION IN THE WORK PERFORMED FOR ANY OF THEM COULD RESULT IN REDUCED REVENUES
AND EARNINGS
We currently derive and expect to continue to derive a significant portion
of our revenues from a limited number of customers. As a result, the loss of or
significant reduction in the work performed for any significant customer could
reduce our revenues and adversely affect our business, financial condition and
operating results. In 1998, our five largest customers represented 65.3% of our
revenues: Cisco Systems, Inc., 19.6%; Classified Ventures, Inc./Cars.com, 18.0%;
Sylvan Prometric, 12.5%; DaimlerChrysler Corporation, 8.5%; and First Union
Corporation, 6.7%. For the six-month period ended June 30, 1999, our five
largest customers represented 82.5% of our revenues: Sylvan Prometric, 35.1%;
Classified Ventures, Inc./Cars.com, 15.2%; Equifax Secure, Inc., 13.4%; Cisco
Systems, Inc., 10.2%; and UUNet Technologies, Inc., 8.6%. The volume of work
that we perform for a specific customer is likely to vary from period to period,
and a significant customer in one period may not use our services in a
subsequent period. In addition, a failure to collect a large account receivable
from any of these customers could significantly reduce our assets and adversely
affect our business, financial condition and results of operations.
A FAILURE TO MANAGE OUR GROWTH EFFECTIVELY COULD HAVE AN ADVERSE EFFECT ON THE
QUALITY OF OUR SERVICES AND OUR RESULTS OF OPERATIONS
We have grown rapidly and expect to continue to grow rapidly by both hiring
new employees and serving new businesses and geographic markets. Our growth has
placed and will continue to place a significant strain on our management and
operating and financial systems. In addition, our management has limited
experience managing a business of our current size. Our employee base grew from
42 to 89 between January 1, 1998 and June 30, 1999, and several members of our
senior management team have only recently joined Cysive. As a result, our
personnel, systems, procedures and controls may be inadequate to support our
future operations. Our current growth rate may not be sustainable for the long-
term.
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<PAGE> 9
OUR LACK OF LONG-TERM CONTRACTS WITH CUSTOMERS REDUCES THE PREDICTABILITY OF OUR
REVENUES AND MAY ADVERSELY AFFECT OUR OPERATING MARGINS
Our customers retain us on a project-by-project basis, rather than under
long-term contracts. As a result, our revenues are difficult to predict over
longer periods of time. In addition, our operating expenses are relatively fixed
and cannot be reduced on short notice to compensate for unanticipated variations
in the number or size of projects in progress. Because we incur costs based on
our expectations of future revenues, our failure to predict our revenues
accurately may result in our costs becoming a larger percentage of our revenues
which would reduce our margins. If a customer defers, modifies or cancels a
project, we may be unable to rapidly redeploy our employees to other projects to
minimize underutilization of employees and avoid a negative impact to our
operating results. Additionally, in certain instances we work on projects with
other parties, including our customers' in-house technical personnel and
independent third-party firms. A failure by these other parties in meeting
project requirements could result in modifications to or the cancellation of a
project which could adversely affect our operating results.
OUR QUARTERLY REVENUES AND OPERATING RESULTS ARE VOLATILE AND MAY CAUSE OUR
STOCK PRICE TO FLUCTUATE
Our quarterly revenues and operating results have varied in the past and
are likely to vary significantly from quarter to quarter. Our quarterly
operating results may vary as a result of any of the risks discussed in this
"Risk Factors" section of this prospectus and also as a result of a number of
other factors, including:
- the loss of a significant customer or project;
- the amount and timing of expenditures by our customers for our services;
- our employee utilization rate, including our ability to transition
employees quickly from completed or terminated projects to new projects;
- the number, size and scope of our projects;
- the introduction of new services or changes in pricing policies by us or
our competitors;
- our ability to manage costs, including employee costs and support
services costs; and
- costs related to the expected opening or expansion of our offices.
Any of these factors could result in decreased revenues or revenues per
software engineer or increased costs which could have a material adverse effect
on our business, financial condition and results of operations. Because of these
factors, you should not rely on quarter-to-quarter comparisons of our results of
operations as an indication of our future performance. It is possible that in
some future quarter or quarters our operating results will be below the
expectations of securities analysts or investors which may cause the market
price of our common stock to decline significantly.
WE RELY HEAVILY ON OUR BUSINESS REPUTATION, AND OUR FAILURE TO MEET CUSTOMER
EXPECTATIONS COULD RESULT IN NEGATIVE PUBLICITY, LOSS OF EXISTING AND POTENTIAL
CUSTOMERS AND REDUCED REVENUES
We provide eBusiness systems and other applications that are complex and
often critical to our customers' businesses. Any defects or errors in these
applications or our failure to meet customers' expectations could result in
delayed or lost revenues due to adverse customer reaction as well as damage to
our reputation. This failure would adversely affect our ability to attract new
business and reduce future revenues.
WE DEPEND ON OUR CHIEF EXECUTIVE OFFICER, AND HIS LOSS MAY ADVERSELY AFFECT OUR
ABILITY TO ATTRACT AND RETAIN CUSTOMERS, MAINTAIN A COHESIVE CULTURE AND COMPETE
EFFECTIVELY
We believe that our success depends on the continued employment of our
Chief Executive Officer, Nelson A. Carbonell, Jr. If Mr. Carbonell were unable
or unwilling to continue in his present position, he would be very difficult to
replace and our business could be adversely affected. Mr. Carbonell is
particularly important to our business in providing strategic direction,
managing our operations and creating and maintaining a cohesive culture. He has
also been involved in establishing and expanding customer relationships.
6
<PAGE> 10
A SIGNIFICANT PERCENTAGE OF OUR CURRENT SOFTWARE ENGINEERS ARE NOT U.S. CITIZENS
AND MAY BE FORCED TO LEAVE CYSIVE WHEN THEIR TEMPORARY VISAS EXPIRE, AND WE MAY
BE UNABLE TO ATTRACT AND RETAIN ADDITIONAL FOREIGN NATIONALS DUE TO LIMITS
IMPOSED ON THE NUMBER OF VISAS ISSUED BY THE U.S. GOVERNMENT
We depend on software engineers who are not U.S. citizens, and the loss of
a significant number of these personnel would make it difficult to serve our
customers and grow our business. These software engineers are permitted to work
in the United States for up to six years under temporary H-1B visas. Most of our
software engineers working under H-1B visas were originally sponsored by former
employers and, as a result, hold visas which expire in less than six years from
their date of employment by Cysive. As of June 30, 1999, 20, or 32.3%, of our
software engineers were working under H-1B visas. The U.S. Immigration and
Naturalization Service limits the number of new H-1B visas issued in each fiscal
year, and if this limit is reached, our supply of potential software engineers
will be limited. In addition, changes in existing U.S. immigration laws that
make it more difficult for potential employees to obtain H-1B visas could impair
our ability to compete for and provide services to customers and could adversely
affect our business, financial condition and results of operations.
COMPETITION FROM LARGER, MORE ESTABLISHED COMPETITORS WITH GREATER FINANCIAL
RESOURCES AND FROM NEW ENTRANTS COULD RESULT IN PRICE REDUCTIONS, REDUCED
PROFITABILITY AND LOSS OF CURRENT OR FUTURE CUSTOMERS
The eBusiness engineering market is intensely competitive and faces rapid
technological change. We expect competition to continue and intensify, which
could result in price reductions, reduced profitability and the loss of current
or future customers. Our competitors fall into four major categories:
- internal information technology departments of current and potential
customers;
- large information technology consulting services providers;
- traditional information technology services providers; and
- Internet professional services providers.
Many of our competitors have longer operating histories and customer
relationships, greater financial, technical, marketing and public relations
resources, larger customer bases and greater brand or name recognition than we
have. Our competitors may be able to respond more quickly to technological
developments and changes in customer needs. This ability may place us at a
disadvantage in responding to our competitors' pricing strategies, technological
advances, advertising campaigns, strategic partnerships and other initiatives.
In addition, there are low barriers to entry into our business because the costs
to provide information technology services are relatively low. We do not own any
technologies that preclude or inhibit competitors from entering our industry.
Therefore, we expect to continue to face additional competition from new
entrants into our industry.
WE ENTER INTO NON-COMPETE AGREEMENTS WITH SOME OF OUR CUSTOMERS, WHICH MAY
REDUCE THE NUMBER OF OUR POTENTIAL CUSTOMERS AND SOURCES OF REVENUES
A substantial portion of our business involves the development of software
applications for specific projects. Ownership of customer-specific software is
generally retained by the customer, although we retain rights to some of the
applications, processes and other intellectual property developed in connection
with projects. We sometimes agree, however, not to reuse this customer-specific
software when building architectures for a customer's competitors. In addition,
we occasionally agree not to build any type of architecture for a customer's
competitors for limited periods of time, which have been as long as two years.
These non-compete agreements reduce the number of our potential customers and
our sources of revenues.
MISAPPROPRIATION OF AND DISPUTES REGARDING INTELLECTUAL PROPERTY COULD HARM OUR
REPUTATION, ADVERSELY AFFECT OUR COMPETITIVE POSITION AND COST US MONEY
The steps we have taken to protect our proprietary rights may be inadequate
to deter misappropriation of our intellectual property. In addition, we may be
unable to detect unauthorized use of our intellectual property and take
appropriate steps to enforce our rights. If third parties infringe or
misappropriate our
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trade secrets, trademarks or other proprietary information, or if disputes arise
with customers concerning intellectual property, our reputation, competitive
position, relationships with customers, business, financial condition and
results of operations could be adversely affected. We could be required to spend
significant amounts of time and financial resources to defend our rights, and
our managerial resources could be diverted. In addition, although we believe
that our proprietary rights do not infringe the intellectual property rights of
others, other third parties may assert infringement claims against us or claim
that we have violated their intellectual property rights. Such claims, even if
untrue, could result in significant legal and other costs and may distract
management.
WE MAY HAVE DIFFICULTY RESPONDING TO CHANGING TECHNOLOGY, INDUSTRY STANDARDS AND
CUSTOMER PREFERENCES, WHICH COULD CAUSE US TO LOSE CUSTOMERS AND REDUCE OUR
REVENUES
Our market and the technologies used by our customers are characterized by
rapid change and commercialization of new technologies and products. Our success
will depend, in part, on our ability to offer services that keep pace with
continuing changes in technology, evolving industry standards and changing
customer preferences. Our failure to respond successfully to these technological
developments or to respond in a timely or cost-effective way could cause us to
lose current and potential business opportunities, reduce our revenues and have
a material adverse effect on our business, financial condition and results of
operations. We have derived and expect to continue to derive a substantial
portion of our revenues from creating eBusiness systems that are based upon
leading technologies and are capable of adapting to future technologies. We
believe our ability to attract and retain experienced software engineers depends
on our ability to utilize leading-edge technologies. Additionally, to the extent
technology becomes standardized or simplified, there may be less demand for the
services of our highly skilled personnel.
OUR BUSINESS COULD BE NEGATIVELY AFFECTED BY YEAR 2000 ISSUES
Year 2000 issues may adversely affect our business and our customers'
businesses. On January 1, 2000, many computer systems could fail or malfunction
because they may be unable to distinguish 21st century dates from 20th century
dates. As a result, computer systems used by many companies, including us, our
customers and our potential customers, may need upgrades to comply with year
2000 requirements. These customers and potential customers may choose to
allocate their available funds to these upgrades instead of purchasing our
services, which could result in reduced revenues for Cysive. In addition, any
failure by our internal systems or the systems that we create for our customers
could have a material adverse effect on our reputation, business, financial
condition and results of operations, and could result in costly litigation. For
information on how we are addressing year 2000 issues, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000 Readiness Disclosure."
OUR BUSINESS MAY SUFFER IF USE OF THE INTERNET AS A MEANS FOR COMMERCE DECLINES
Our future success depends heavily on the acceptance and growth of the
Internet as a means for commerce. The widespread acceptance and adoption of the
Internet for conducting business is likely only if the Internet provides
businesses with greater efficiencies and improvements. If commerce on the
Internet does not continue to grow or grows slower than expected, the need for
our services could decline, resulting in fewer projects and reduced revenues.
Consumers and businesses may reject the Internet as a viable commercial medium
for a number of reasons, including:
- actual or perceived lack of security of information;
- lack of access and ease of use;
- congestion of Internet traffic or other usage delays;
- inconsistent quality of service;
- increases in access costs to the Internet;
- evolving government regulation;
- uncertainty regarding intellectual property ownership;
8
<PAGE> 12
- costs associated with the obsolescence of existing infrastructure; and
- economic viability of the Internet commerce model.
OUR CUSTOMERS MAY BE SMALL OR HAVE LITTLE OR NO OPERATING HISTORY, RAISING THE
POSSIBILITY THAT THEY MAY LACK SUFFICIENT CASH FLOW TO PAY OUR FEES OR THEIR
BUSINESSES MAY FAIL
We believe that an increasing portion of our future revenues could be
derived from emerging companies formed specifically to conduct business over the
Internet. These companies often have little or no earnings or cash flow, and
their businesses are more likely to fail than those of more mature companies. As
a result, they may be unable to pay our fees in a timely fashion or at all, and
our business, financial condition and results of operations could be adversely
affected.
OUR EXISTING STOCKHOLDERS WILL CONTROL STOCKHOLDER ACTIONS AFTER THIS OFFERING
AND MAY VOTE THEIR SHARES IN WAYS IN WHICH YOU DISAGREE
Upon completion of this offering, our directors, executive officers and
their affiliates will beneficially own, in the aggregate, % of our
outstanding common stock. As a result, these stockholders will be able to
exercise control over all matters requiring stockholder approval, including the
election of directors and approval of significant corporate transactions. They
will also be able to block an unsolicited tender offer. Accordingly, this
concentration of ownership could delay or prevent a third party from acquiring
control of Cysive at a premium over the then-current market price of our common
stock.
OUR CERTIFICATE OF INCORPORATION AND BYLAWS AND DELAWARE LAW CONTAIN PROVISIONS
THAT MAY DELAY OR DETER A CHANGE IN CONTROL THAT MAY BE BENEFICIAL TO YOU
The certificate of incorporation and bylaws we intend to implement upon
completion of this offering as well as various provisions of Delaware law may
make it more difficult to affect a change in control of our company. The
existence of these provisions may adversely affect the price of our common
stock, discourage third parties from making a bid for our company or reduce any
premiums paid to our stockholders for their common stock. Our certificate of
incorporation authorizes our board of directors to issue shares of preferred
stock with rights and preferences that may be senior to your common stock and
provides for the division of the board of directors into three classes with
staggered three-year terms. In addition, provisions of Delaware law may
discourage, delay or prevent a change in control of Cysive.
OUR COMMON STOCK HAS NOT TRADED PUBLICLY; THE INITIAL PUBLIC OFFERING PRICE MAY
NOT BE INDICATIVE OF THE MARKET PRICE OF OUR COMMON STOCK AFTER THIS OFFERING,
AND THE MARKET PRICE OF OUR COMMON STOCK, LIKE THE MARKET PRICES OF THE STOCKS
OF OTHER INTERNET-RELATED AND TECHNOLOGY COMPANIES, MAY FLUCTUATE WIDELY AND
RAPIDLY
Prior to this offering, you could not buy or sell our common stock
publicly. Accordingly, we cannot assure you that an active public trading market
for our stock will develop or be sustained after this offering. We will
determine the initial public offering price for our common stock through
negotiation with the underwriters. The market price after this offering may vary
significantly from the initial offering price in response to any of the
following factors, some of which are beyond our control:
- changes in financial estimates or investment recommendations by
securities analysts relating to our stock;
- announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures, technological
innovations or capital commitments;
- loss of a major customer;
- additions or departures of key personnel; and
- fluctuations in the stock price and volume of traded shares especially in
the traditionally volatile Internet-related and technology sectors.
The securities of many companies have experienced extreme price and volume
fluctuations in recent years, often unrelated to the companies' operating
performance. Specifically, market prices for securities of
9
<PAGE> 13
Internet-related and technology companies have frequently reached elevated
levels following their initial public offerings. These levels may be
unsustainable and may not bear any relationship to these companies' operating
performances. If the market price of our common stock reaches an elevated level
following this offering, it may materially and rapidly decline. In the past,
following periods of volatility in the market price of a company's securities,
stockholders have often instituted securities class action litigation against
the company. If we were involved in a class action suit, it could be costly and
divert the attention of management. Furthermore, if adversely determined, a
class action suit would negatively impact our profitability and have a material
adverse effect on our business, financial condition and results of operations.
WE HAVE BROAD DISCRETION OVER THE USE OF THE PROCEEDS FROM THIS OFFERING AND MAY
FAIL TO USE THEM EFFECTIVELY TO GROW OUR BUSINESS
We have significant flexibility in using the proceeds we receive from this
offering and may fail to use the proceeds effectively to grow our business.
Because the proceeds are not required to be allocated to any specific investment
or transaction, you cannot determine at this time the value or appropriateness
of our use of the proceeds.
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION AND PAY A HIGHER PRICE
FOR OUR COMMON STOCK THAN EXISTING STOCKHOLDERS
If you purchase common stock in this offering, you will pay more for your
shares than the amounts paid by existing stockholders for their shares. As a
result, you will experience immediate and substantial dilution of approximately
$ per share.
THE SALE OR AVAILABILITY FOR SALE OF SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK
COULD ADVERSELY AFFECT OUR STOCK PRICE
Sales of a substantial number of shares of common stock after this
offering, or the perception that these sales could occur, could adversely affect
the market price of our common stock and impair our ability to raise capital
through the sale of additional equity securities. After this offering, we will
have shares of our common stock outstanding. All of the shares sold in the
offering will be freely transferable without restriction or further
registration, except for any shares purchased by our "affiliates," as defined in
Rule 144. The 3,612,000 shares of common stock outstanding prior to this
offering are "restricted securities" as defined in Rule 144 and may be sold in
absence of registration in accordance with Rule 144 or Rule 701 under the
Securities Act or another exemption from registration.
OUR FORMER STATUS AS AN S CORPORATION COULD EXPOSE US TO LIABILITY AND ADVERSELY
AFFECT OUR PROFITABILITY
Since our founding in 1993, we have been treated as an S corporation under
the Internal Revenue Code of 1986, as amended. In connection with the completion
of this offering, we will convert to a C corporation. If the IRS or any state
taxing authority were to challenge our prior S corporation status, we could be
liable to pay corporate taxes on our income, at the effective corporate tax
rate, for all or a part of the period in which we operated as an S corporation,
plus interest and possibly penalties.
10
<PAGE> 14
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute
forward-looking statements. Forward-looking statements relate to future events
or our future financial performance. In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"expects," "plans," "anticipates," "could," "believes," "estimates," "predicts,"
"potential" or "continue" or the negative of such terms or other comparable
terminology. These statements are only predictions. Actual events or results may
differ materially. In evaluating these statements, you should specifically
consider various factors, including the risks outlined under "Risk Factors."
These factors may cause our actual results to differ materially from any
forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future events or results.
Moreover, neither we nor any other person assumes responsibility for the
accuracy and completeness of such statements. We are under no duty to update any
of the forward-looking statements after the date of this prospectus to conform
such statements to actual results.
11
<PAGE> 15
USE OF PROCEEDS
We estimate the net proceeds from the sale of the shares of
common stock offered by this prospectus will be $ million, or
$ million if the underwriters exercise their over-allotment option in
full, assuming an initial public offering price of $ per share and after
deducting the underwriting discount and commissions and estimated offering
expenses.
Our primary purposes for this offering are to obtain additional equity
capital, create a public market for our common stock and facilitate future
access to public markets. We expect to use the net proceeds for general
corporate purposes, including working capital, expansion of operations and sales
and marketing activities. Pending such uses, we will invest the net proceeds of
this offering in investment grade, interest-bearing securities.
DIVIDEND POLICY
We currently intend to retain all of our earnings for the future operation
and growth of our business and do not intend to pay cash dividends in the
foreseeable future. We have paid and will pay additional compensation to our
stockholders in the form of cash distributions to enable them to pay income
taxes on our income, as described under "S Corporation Distributions" and Note 2
of the notes to our financial statements included elsewhere in this prospectus.
The payment of cash dividends in the future will depend upon our results of
operations and financial condition and such other factors as the board of
directors may consider or deem appropriate.
S CORPORATION DISTRIBUTIONS
We have been treated as an S corporation under Subchapter S of the Internal
Revenue Code of 1986, as amended, since we were founded in 1993. As a result of
our S corporation status, our taxable income has been taxed, for federal and
state income tax purposes, directly to our stockholders. Our S corporation
status will terminate upon completion of this offering, and accordingly, we will
have to pay federal and state income taxes. For more information on this
subject, see Note 2 of the notes to our financial statements included elsewhere
in this prospectus.
We intend to distribute to our stockholders of record immediately prior to
the offering, on a pro rata basis, the undistributed balance of cumulative
income taxed or taxable to these stockholders immediately prior to the
completion of this offering. This amount will be limited to the lesser of the
federal or applicable state accumulated taxable income to avoid any dividend
characterization. As of June 30, 1999, $ of our taxable income was
taxed or is taxable to our stockholders and not distributed. The actual
distribution will be adjusted through the date of the closing of this offering.
You will not receive any of this distribution.
12
<PAGE> 16
CAPITALIZATION
The following table presents our capitalization as of June 30, 1999 on: (1)
an actual basis; and (2) a pro forma as adjusted basis to reflect: (a) the sale
of the common stock offered by this prospectus assuming a public offering price
of $ per share and after deducting the underwriting discount and commissions
and estimated offering expenses; (b) the recording of deferred income taxes
resulting from the change from an S corporation to a C corporation; and (c) the
payment of the S corporation distribution. You should read this information
together with our financial statements and the related notes included elsewhere
in this prospectus. The number of shares of common stock issued and outstanding
does not include 2,506,200 shares of common stock reserved for issuance upon
exercise of outstanding options.
<TABLE>
<CAPTION>
JUNE 30, 1999
-----------------------------
PRO FORMA
ACTUAL AS ADJUSTED
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value, 1,000,000 shares
authorized, no shares issued or outstanding, actual; $0.01
par value, 10,000,000 shares authorized, no shares issued
or outstanding, pro forma as adjusted..................... --
Common stock, $0.01 par value, 75,000,000 shares authorized,
3,612,000 shares issued or outstanding, actual; 75,000,000
shares authorized, shares issued and outstanding,
pro forma as adjusted..................................... $ 36
Additional paid-in capital.................................. 2,080
Deferred stock compensation................................. (119)
Retained earnings........................................... 1,989
------ ------
Total stockholders' equity............................. 3,986
------ ------
Total capitalization.............................. $3,986 $
====== ======
</TABLE>
13
<PAGE> 17
DILUTION
As of June 30, 1999, the pro forma net tangible book value of our common
stock was approximately $ , or $ per share of common stock
after giving effect to the proposed S corporation distribution as if it had
occurred as of , 1999. Pro forma net tangible book value per
share represents the amount of our stockholders' equity less intangible assets,
divided by 3,612,000 shares of common stock outstanding as of June 30, 1999.
Dilution per share to new investors represents the difference between the
amount per share paid by purchasers of common stock in this offering and the pro
forma net tangible book value per share of common stock immediately after
completion of this offering. After giving effect to the sale by us of
shares of common stock in this offering, at an assumed initial public offering
price of $ per share and after deducting the underwriting discount and
commissions and estimated offering expenses, our pro forma net tangible book
value as of June 30, 1999 would have been $ million or $ per
share. This amount represents an immediate increase in net tangible book value
of $ per share to existing stockholders and an immediate dilution in
net tangible book value of $ per share to purchasers of common stock in
this offering. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of June 30,
1999................................................... $
Increase per share of common stock attributable to new
investors..............................................
----------
Pro forma net tangible book value per share after the
offering..................................................
----------
Dilution per share to new investors......................... $
==========
</TABLE>
The following table presents on a pro forma basis as of June 30, 1999, the
difference between the number of shares of common stock purchased from Cysive,
the total consideration paid to Cysive and the average price paid by existing
stockholders and by new investors, before deduction of the underwriting discount
and commissions and estimated offering expenses payable by us:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ -------------------- PRICE PAID
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------- ------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......................... % $ % $
New investors..................................
-------- --- -------- ---
Total................................ 100% 100%
=== ===
</TABLE>
The table above assumes no exercise of stock options outstanding at August
19, 1999. As of August 19, 1999, we had options outstanding to purchase a total
of 2,652,200 shares of common stock at a weighted average exercise price of
$2.83 per share under our Amended and Restated 1994 Stock Option Plan. To the
extent any of these outstanding options are exercised, there will be further
dilution to new investors.
14
<PAGE> 18
SELECTED FINANCIAL DATA
The following statement of operations data for each of the years in the
five-year period ended December 31, 1998 and the balance sheet data as of
December 31, 1996, 1997 and 1998 have been derived from Cysive's financial
statements, which have been audited by Ernst & Young LLP, independent auditors.
The statement of operations data for the years ended December 31, 1994 and 1995
are derived from our audited financial statements. The statement of operations
data for the six months ended June 30, 1998 and 1999 and the balance sheet data
as of June 30, 1999 are unaudited and are derived from our unaudited financial
statements. In our opinion, the unaudited financial data include all adjustments
(consisting of only normal recurring adjustments), necessary for a fair
presentation of the information shown in those data. Results of operations for
interim periods are not necessarily indicative of results to be expected for the
full year. Selected financial data should be read together with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and the related notes included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------------------------- ------------------------
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ---------- ---------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues..................... $948 $2,993 $5,557 $7,711 $9,142 $3,193 $9,424
Direct costs................. 534 1,557 2,056 2,798 3,742 1,809 3,473
---------- ---------- ---------- ---------- ---------- ---------- -----------
Gross profit................. 414 1,436 3,501 4,913 5,400 1,384 5,951
Operating expenses:
General and
administrative........... 110 497 2,009 2,754 2,725 1,009 2,574
Sales and marketing........ 141 241 232 760 1,824 672 1,720
Stock compensation......... -- -- -- -- 69 -- 799
---------- ---------- ---------- ---------- ---------- ---------- -----------
Total operating
expenses............... 251 738 2,241 3,514 4,618 1,681 5,093
Operating income (loss)...... 163 698 1,260 1,399 782 (297) 858
Other income (expense),
net........................ -- (1) 17 23 14 15 25
---------- ---------- ---------- ---------- ---------- ---------- -----------
Net income (loss)............ $163 $ 697 $1,277 $1,422 $ 796 $ (282) $ 883
========== ========== ========== ========== ========== ========== ===========
Earnings (loss) per share:
Basic...................... $0.06 $0.23 $0.42 $0.47 $0.26 $(0.09) $0.24
Diluted.................... $0.06 $0.23 $0.38 $0.41 $0.23 $(0.09) $0.21
Weighted average shares
outstanding................ 2,523,288 3,011,249 3,012,000 3,012,000 3,012,000 3,012,000 3,612,000
Weighted average shares and
common stock equivalents... 2,523,288 3,011,249 3,320,797 3,449,129 3,508,167 3,012,000 4,304,937
Pro forma net income(1)...... $464 $534
========== ===========
Pro forma earnings per
share(1):
Basic...................... $0.15 $0.15
Diluted.................... $0.13 $0.12
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1996 1997 1998 1999
------ ------ ------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents................................... $ 456 $ 690 $ 612 $ 869
Working capital............................................. 1,032 1,948 2,150 3,364
Total assets................................................ 1,753 2,421 3,163 5,792
Stockholders' equity........................................ 1,478 2,214 2,519 3,986
</TABLE>
- ---------------
(1) The pro forma statement of operations data are unaudited and are presented
to reflect the provision for federal and state income taxes as if we had
been subject to federal and state income taxation as a C corporation during
each of the periods presented.
15
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion together with "Selected Financial
Data" and our financial statements and the related notes included elsewhere in
this prospectus.
OVERVIEW
Cysive is a leading software engineering firm that designs and builds
complex, highly customized architectures and systems necessary to support large
scale eBusinesses. eBusinesses are companies that conduct a significant portion
of their business electronically through front-end customer interfaces which are
integrated with back-end systems, such as accounting, billing, manufacturing and
inventory control. Since commencing operations in 1994, we have built
business-critical architectures using core Internet technologies. These
architectures automate business processes and provide the technology
infrastructure necessary for the high levels of customer interactivity, 24/7
reliability and significant scalability required by large scale eBusinesses.
Prior to 1997, we built large scale, distributed systems using approaches
and technologies that are the foundations for current Internet applications. At
that time, our leading-edge technology focus required a sales effort led by
technology savvy project managers. In late 1996 and early 1997, our technology
group evaluated and developed software prototypes using key Internet
technologies such as Java, XML and CORBA. After successfully deploying our first
eBusiness system in mid-1997, we began to target customers who were making
significant investments in their eBusiness applications. As a result, there was
a fundamental shift in our business strategy away from general purpose
distributed systems to customized eBusiness applications. As part of this
strategy, in the fourth quarter of 1997 and the first half of 1998, we spent
considerable resources to: (1) train all of our software engineers with the next
generation of Internet technologies that had been researched and prototyped by
our technology group; and (2) deploy a direct sales force capable of selling
eBusiness applications. As a result, these initiatives significantly impacted
our results of operations for these three quarters. Specifically, the generation
of a sales pipeline of eBusiness applications and the deployment of our sales
force affected our revenues and sales and marketing expenses. In addition, the
completion of two of our largest distributed systems combined with the extensive
training of our software engineers caused our utilization rates and gross
margins to decline during these quarters. As reflected in our latest results,
these investments positioned us to emerge in the second half of 1998 as a
leading eBusiness engineering firm.
We derive our revenues from software engineering services which are
provided primarily on a time and materials basis. Revenues are recognized and
billed monthly by multiplying the number of hours expended by our software
engineers in the performance of the contract by the established billing rates
plus other directly billable costs. Revenues exclude reimbursable project costs
which are reimbursed from our customers.
Our financial results may fluctuate from quarter-to-quarter based on
factors such as the number of projects, the amount and timing of our customers'
expenditures, employee utilization rates, hourly billing rates and general
economic conditions. Revenues from a few large customers may constitute a
significant portion of our total revenues in a particular quarter or year. For
example, in 1998, our five largest customers represented 65.3% of our revenues:
Cisco Systems, Inc., 19.6%; Classified Ventures, Inc./Cars.com, 18.0%; Sylvan
Prometric, 12.5%; DaimlerChrysler Corporation, 8.5%; and First Union
Corporation, 6.7%. For the six-month period ended June 30, 1999, our five
largest customers represented 82.5% of our revenues: Sylvan Prometric, 35.1%;
Classified Ventures, Inc./Cars.com, 15.2%; Equifax Secure, Inc., 13.4%; Cisco
Systems, Inc., 10.2%; and UUNet Technologies, Inc., 8.6%. Revenues from any
given customer will vary from period-to-period; however, we expect that
significant customer concentration will continue for the foreseeable future. To
the extent that any significant customer uses less of our services or terminates
its relationship with us, our revenues may decline substantially. We attempt to
mitigate our revenue concentration issues by contractual wind-down provisions
and by rapid redeployment of our lean, efficient teams.
16
<PAGE> 20
The number of Cysive employees increased from 19 as of January 1, 1996 to
89 as of June 30, 1999. We actively recruit software engineers and support staff
and expect the total number of employees to increase significantly during the
remaining months of 1999 and into the foreseeable future. Direct costs consist
primarily of compensation and benefits for our software engineers and the
non-billable portion of other direct project costs. We expect that our per
capita direct costs will increase over time due to wage increases and inflation.
In addition, these costs may increase after the offering because prospective
employees may perceive that the stock option component of our compensation
package is not as valuable as it was prior to the offering. Our gross margins
are affected by trends in the utilization rate of our software engineers,
defined as the percentage of our software engineers' time billed to customers,
divided by the total available hours in a period, less holidays. If a project
ends earlier than scheduled, we may need to redeploy our project personnel. Any
resulting non-billable time may adversely affect our gross margins.
General and administrative expenses consist primarily of compensation and
benefits for our management, finance and administration, human resources,
information technology, recruiting and the non-billable portion of our quality
assurance and regional management personnel. In addition, general and
administrative expenses include depreciation and amortization and general
operating expenses such as telephones, office supplies, travel, outside
professional services, training and facilities costs. We expect general and
administrative expenses to increase as we add additional personnel, expand our
information technology infrastructure, open new offices, increase our recruiting
efforts and incur additional costs related to the growth of our business and
operations as a public company.
Sales and marketing expenses consist primarily of salaries, commissions,
benefits, marketing programs and travel costs associated with our sales and
marketing efforts. We sell our services through a direct sales force organized
by geographic region. We expect sales and marketing expenses to increase as we
continue to build a direct sales force and expand our marketing programs.
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the relative
composition of revenues and selected statement of operations data as a
percentage of revenues:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------- ----------------
1996 1997 1998 1998 1999
----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Revenues........................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Direct costs....................................... 37.0 36.3 40.9 56.7 36.9
----- ----- ----- ----- -----
Gross profit....................................... 63.0 63.7 59.1 43.3 63.1
Operating expenses:
General and administrative....................... 36.1 35.7 29.8 31.6 27.3
Sales and marketing.............................. 4.2 9.9 20.0 21.0 18.2
Stock compensation............................... -- -- 0.8 -- 8.5
----- ----- ----- ----- -----
Total operating expenses................. 40.3 45.6 50.6 52.6 54.0
Operating income (loss)............................ 22.7 18.1 8.5 (9.3) 9.1
Other income, net.................................. 0.3 0.3 0.2 0.5 0.3
----- ----- ----- ----- -----
Net income (loss).................................. 23.0% 18.4% 8.7% (8.8)% 9.4%
===== ===== ===== ===== =====
</TABLE>
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Revenues. Revenues increased $6.2 million, or 195.1%, to $9.4 million for
the six months ended June 30, 1999 from $3.2 million for the same period in
1998. This increase in revenues primarily reflects the more mature direct sales
model established in mid-1998, the benefits of which were not fully realized
until early 1999. As a result of our direct sales efforts, our number of
customers increased to 21 for the six
17
<PAGE> 21
months ended June 30, 1999 from 11 for the same period in 1998. In addition, as
we completed several large distributed systems and migrated to eBusiness
applications, our average billing rates increased.
Direct Costs. Direct costs increased $1.7 million, or 92.0%, to $3.5
million for the six months ended June 30, 1999 from $1.8 million for the same
period in 1998. As a percentage of revenues, direct costs decreased to 36.9% for
the six months ended June 30, 1999 from 56.7% for the same period in 1998. This
significant decrease as a percentage of revenues was primarily attributable to
our low utilization rates in 1998, which resulted from the completion of two of
our largest distributed systems and the extensive training of all of our
software engineers during the first half of 1998. The average utilization rate
increased to 88.5% for the six months ended June 30, 1999 from 54.2% for the
same period in 1998.
Gross Profit. Gross profit increased $4.6 million, or 329.9%, to $6.0
million for the six months ended June 30, 1999 from $1.4 million for the same
period in 1998. As a result of the above factors, the gross margin increased to
63.1% for the six months ended June 30, 1999 from 43.3% for the same period in
1998.
General and Administrative. General and administrative expenses increased
$1.6 million, or 155.1%, to $2.6 million for the six months ended June 30, 1999
from $1.0 million for the same period in 1998. As a percentage of revenues,
general and administrative expenses decreased to 27.3% for the six months ended
June 30, 1999 from 31.6% for the same period in 1998. This decrease was due
primarily to our ability to spread our costs over a greater revenue base,
particularly with respect to depreciation and amortization. This operating
leverage, however, was partially offset by the expansion of our office in the
metropolitan area of San Jose, CA in September 1998 as well as additional
corporate administrative hires.
Sales and Marketing. Sales and marketing expenses increased $1.0 million,
or 156.0%, to $1.7 million for the six months ended June 30, 1999 from $672,000
for the same period in 1998. As a percentage of revenues, sales and marketing
expenses decreased to 18.2% for the six months ended June 30, 1999 from 21.0%
for the same period in 1998. This decrease was primarily due to the significant
expansion of our direct sales force in the first half of 1998 without the
benefit of revenues generated by those hires. This decrease was partially offset
by additional hires in the marketing group and the execution of our marketing
program in the first half of 1999.
Stock Compensation. Stock compensation reflects the grant of non-qualified
stock options at a price below their fair market value, which vested upon their
grant in the second quarter of 1999.
Operating Income (Loss). Operating income increased $1.2 million to
$858,000 for the six months ended June 30, 1999 from an operating loss of
$297,000 for the same period in 1998. As a result of the above factors, the
operating margin increased to 9.1% for the six months ended June 30, 1999.
Other Income, Net. Net other income increased $10,000, or 63.6%, to
$25,000 for the six months ended June 30, 1999 from $15,000 for the same period
in 1998 primarily due to gains on the sale of fixed assets and the timing of
matching charitable contributions made on behalf of our employees.
Net Income (Loss). Net income increased $1.2 million to $883,000 for the
six months ended June 30, 1999 from a loss of $282,000 for the same period in
1998. As a result of the above factors, the net margin increased to 9.4% for the
six months ended June 30, 1999.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenues. Revenues increased $1.4 million, or 18.6%, to $9.1 million in
1998 from $7.7 million in 1997. This increase in revenues reflected a larger
number of customers, which totaled 23 in 1998 as compared to 15 in 1997. In
addition, our higher revenues were a result of our ability to increase our
billing rates in 1998 as we more fully migrated our business model to eBusiness
applications. The benefits of this larger customer base and our higher billing
rates, however, were offset in part by: (1) the shift in our business model that
affected the fourth quarter of 1997 and the first two quarters of 1998; and (2)
the completion of our projects in early 1998 for our two largest customers in
1997. As discussed above, we made significant investments in our direct sales
force, the benefits of which were not realized until the
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<PAGE> 22
second half of 1998. Consequently, while we ended 1998 with a greater number of
customers, most of their associated projects did not start until the second half
of the year.
Direct Costs. Direct costs increased $944,000, or 33.7%, to $3.7 million
in 1998 from $2.8 million in 1997. As a percentage of revenues, direct costs
increased to 40.9% in 1998 from 36.3% in 1997. This significant increase as a
percentage of revenues was primarily due to our low utilization rates in the
first half of 1998 which correlated with the completion of two large scale
distributed systems and our efforts to train all of our software engineers. The
average utilization rate decreased to 70.5% in 1998 from 79.9% in 1997.
Gross Profit. Gross profit increased $487,000, or 9.9%, to $5.4 million in
1998 from $4.9 million in 1997. As a result of the above factors, the gross
margin decreased to 59.1% in 1998 from 63.7% in 1997.
General and Administrative. General and administrative expenses decreased
$29,000, or 1.0%, to $2.7 million in 1998 from $2.8 million in 1997. As a
percentage of revenues, general and administrative expenses decreased to 29.8%
in 1998 from 35.7% in 1997. This decrease as a percentage of revenues was
primarily attributable to our ability to spread our costs over a greater revenue
base. The benefits of this operating leverage were partially offset by the
opening of a new office in the metropolitan area of San Jose, CA in May 1998 and
the expansion of our Reston, VA office in August 1998.
Sales and Marketing. Sales and marketing expenses increased $1.1 million,
or 139.8%, to $1.8 million in 1998 from $761,000 in 1997. As a percentage of
revenues, sales and marketing expenses increased to 20.0% in 1998 from 9.9% in
1997. This increase was primarily due to the significant expansion of our direct
sales force in the first half of 1998. In addition, at the end of 1998 we hired
a dedicated marketing staff and implemented a more extensive marketing program.
Stock Compensation. Stock compensation reflected the grant of
non-qualified stock options issued at a price below fair market value, which
vested upon the achievement of select performance goals at the end of 1998.
Operating Income (Loss). Operating income decreased $617,000, or 44.1%, to
$782,000 in 1998 from $1.4 million in 1997. As a result of the above factors,
the operating margin decreased to 8.5% in 1998 from 18.1% in 1997.
Other Income, Net. Net other income decreased $9,000, or 40.2%, to $14,000
in 1998 from $23,000 in 1997. This decrease was primarily due to the interest
expense we incurred from borrowings under our line of credit during 1998 to
support our internal growth.
Net Income (Loss). Net income decreased $626,000, or 44.0%, to $796,000 in
1998 from $1.4 million in 1997. As a result of the above factors, the net margin
decreased to 8.7% in 1998 from 18.4% in 1997.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenues. Revenues increased $2.2 million, or 38.8%, to $7.7 million in
1997 from $5.6 million in 1996. This increase in revenues primarily reflected an
increase in the number of customers to 15 in 1997 from eight in 1996.
Direct Costs. Direct costs increased $743,000, or 36.1%, to $2.8 million
in 1997 from $2.1 million in 1996. As a percentage of revenues, direct costs
decreased slightly to 36.3% in 1997 from 37.0% in 1996. The slight decrease
during 1997 as a percentage of revenues was primarily attributable to our higher
utilization rates in 1997. The average utilization rate increased to 79.9% in
1997 from 72.8% in 1996.
Gross Profit. Gross profit increased $1.4 million, or 40.3%, to $4.9
million in 1997 from $3.5 million in 1996. As a result of the above factors, the
gross margin increased to 63.7% in 1997 from 63.0% in 1996.
General and Administrative. General and administrative expenses increased
$744,000, or 37.0%, to $2.8 million in 1997 from $2.0 million in 1996. As a
percentage of revenues, general and administrative expenses decreased slightly
to 35.7% in 1997 from 36.1% in 1996. Our higher expenses resulted from an
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<PAGE> 23
increase in the number of general and administrative personnel, expansion of our
facilities in Reston, VA and a full year of expenses from the opening of a new
office in the metropolitan area of Chicago, IL in May 1996. The slight decrease
as a percentage of revenues reflects the greater operating leverage from
spreading these expenditures over a larger revenue base.
Sales and Marketing. Sales and marketing expenses increased $529,000, or
227.7%, to $760,000 in 1997 from $232,000 in 1996. As a percentage of revenues,
sales and marketing expenses increased to 9.9% in 1997 from 4.2% in 1996. This
increase was primarily due to increased travel and marketing activities.
Operating Income (Loss). Operating income increased $139,000, or 11.1%, to
$1.4 million in 1997 from $1.3 million in 1996. As a result of the above
factors, the operating margin decreased to 18.1% in 1997 from 22.7% in 1996.
Other Income, Net. Net other income increased $6,000, or 35.5%, to $24,000
in 1997 from $17,000 in 1996. This increase was primarily due to the interest
income earned on higher average cash balances maintained during 1997.
Net Income (Loss). Net income increased $146,000, or 11.4%, to $1.4
million in 1997 from $1.3 million in 1996. As a result of the above factors, the
net margin decreased to 18.4% in 1997 from 23.0% in 1996.
QUARTERLY RESULTS OF OPERATIONS
The following table presents unaudited quarterly financial data for the
periods indicated. We derived this data from our unaudited financial statements,
and in our opinion, they include all adjustments, which consist only of normal
recurring adjustments, necessary to present fairly the financial results for the
periods.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30, SEP. 30,
1997 1997 1997 1997 1998 1998 1998
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATION DATA
Revenues........................ $1,727 $2,016 $2,130 $1,839 $1,633 $1,560 $2,585
Gross profit.................... 1,136 1,295 1,404 1,077 720 664 1,617
Operating expenses:
General and administrative.... 649 702 692 711 440 569 729
Sales and marketing........... 201 206 188 165 218 453 486
Stock compensation............ -- -- -- -- -- -- 28
Operating income (loss)......... 286 387 524 201 62 (358) 374
Net income (loss)............... $ 294 $ 394 $ 533 $ 201 $ 73 $ (354) $ 381
====== ====== ====== ====== ====== ====== ======
AS A PERCENTAGE OF REVENUES
Revenues........................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit.................... 65.8 64.2 65.9 58.6 44.1 42.6 62.6
Operating expenses:
General and administrative.... 37.6 34.8 32.5 38.7 26.9 36.5 28.2
Sales and marketing........... 11.6 10.2 8.9 9.0 13.4 29.1 18.8
Stock compensation............ -- -- -- -- -- -- 1.1
Operating income (loss)......... 16.6 19.2 24.5 10.9 3.8 (23.0) 14.5
Net income (loss)............... 17.0% 19.5% 25.0% 10.9% 4.5% (22.7)% 14.7%
====== ====== ====== ====== ====== ====== ======
<CAPTION>
QUARTER ENDED
---------------------------------
DEC. 31, MAR. 31, JUNE 30,
1998 1999 1999
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATION DATA
Revenues........................ $3,364 $4,178 $5,246
Gross profit.................... 2,399 2,324 3,627
Operating expenses:
General and administrative.... 987 1,059 1,515
Sales and marketing........... 666 760 960
Stock compensation............ 41 19 780
Operating income (loss)......... 705 486 372
Net income (loss)............... $ 696 $ 497 $ 386
====== ====== ======
AS A PERCENTAGE OF REVENUES
Revenues........................ 100.0% 100.0% 100.0%
Gross profit.................... 71.3 55.6 69.1
Operating expenses:
General and administrative.... 29.4 25.4 28.9
Sales and marketing........... 19.8 18.2 18.3
Stock compensation............ 1.2 .4 14.8
Operating income (loss)......... 20.9 11.6 7.1
Net income (loss)............... 20.7% 11.9% 7.4%
====== ====== ======
</TABLE>
We believe that period-to-period comparisons of our operating results are
not necessarily meaningful and that you should not rely on these comparisons as
indicators of future performance. For additional information on this subject,
see "Risk Factors -- Our quarterly revenues and operating results are volatile
and may cause our stock price to fluctuate."
LIQUIDITY AND CAPITAL RESOURCES
In June 1998, we entered into a line of credit with Merrill Lynch Business
Financial Services Inc. under which we were entitled to draw up to $1.0 million
in borrowings. In March 1999, we increased the
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<PAGE> 24
amount available under this line of credit to $1.5 million. We intend to use any
borrowings under the line of credit for working capital purposes. The interest
rate on amounts borrowed under the line of credit is calculated using the 30-day
commercial paper rate as quoted in The Wall Street Journal, plus 2.9% per annum.
The credit facility expires in September 1999. Any borrowings under the line of
credit will be secured by all of our assets. The line of credit requires our
financial ratios to be in compliance with the debt covenants. At June 30, 1999,
we had no outstanding borrowings under the line of credit.
Cash and cash equivalents were $869,000 at June 30, 1999, $612,000 at
December 31, 1998 and $690,000 at December 31, 1997. Net cash provided by
operating activities was $659,000 for the period ended June 30, 1999, $731,000
in 1998, $1.0 million in 1997 and $1.1 million in 1996. Capital expenditures of
$187,000 for the six months ended June 30, 1999, $249,000 in 1998, $80,000 in
1997 and $279,000 in 1996, were used primarily for computer equipment, office
equipment and leasehold improvements related to our growth. Capital expenditures
for the remainder of 1999 are expected to be $210,000 and will be made
principally for computer equipment, internally used software purchases and
leasehold improvements to support our growth.
We anticipate that the net proceeds of this offering, together with
existing sources of liquidity and funds generated from operations, should be
adequate to fund our currently anticipated cash needs through at least the next
18 months. To the extent we are unable to fund our operations from cash flows,
we may need to obtain financing from external sources in the form of either
additional equity or indebtedness. There can be no assurance that additional
financing will be available at all, or that, if available, the financing will be
obtainable on favorable terms.
YEAR 2000 READINESS DISCLOSURE
Many currently installed computer systems and software products are coded
to accept only two-digit year entries in the date code field. Consequently, on
January 1, 2000, many of these systems could fail or malfunction because they
may be unable to distinguish 21st century dates from 20th century dates. As a
result, computer systems and software used by many companies, including us, our
customers and our potential customers, may need upgrades to comply with year
2000 requirements.
Although we believe that our principal internal systems are year 2000
compliant, some of our systems are not yet certified. We have received year 2000
compliance statements from the suppliers of some of our principal internal
systems and have sought similar statements from other vendors. Because we and
our customers depend, to a very substantial degree, upon the proper functioning
of our computer systems, a failure of our systems to correctly recognize dates
beyond December 31, 1999 could materially disrupt our operations and adversely
affect our business, financial condition and results of operations.
The year 2000 problem may also affect third-party software products that
are incorporated into the business systems that we create for our customers.
Although our customers license software directly from third parties, we
generally discuss year 2000 issues with these suppliers and sometimes perform
internal testing on their products, but do not guarantee that the software
licensed by these suppliers is year 2000 compliant. Any failure on our part to
provide year 2000 compliant eBusiness systems to our customers could result in
financial loss, harm to our reputation and liability to others.
We do not currently have any information concerning the year 2000
compliance status of our customers nor do we intend to examine our customers for
year 2000 compliance. Our current or potential customers may incur significant
expenses to achieve year 2000 compliance. If our customers are not year 2000
compliant, they may experience material costs to remedy problems or may face
litigation costs. In either case, year 2000 issues could reduce or eliminate the
budgets that current or potential customers could have for purchases of our
services. In addition, we anticipate that some of our customers may reduce or
eliminate their purchase of new customized software during the second half of
1999 as they attend to year 2000 issues. As a result, our business, financial
condition and results of operations could be adversely affected.
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We have funded the costs to become year 2000 compliant from operating cash
flows and have not separately accounted for these costs in the past. To date,
these costs have not been material. We will incur additional costs related to
year 2000 compliance for administrative personnel to manage the process of
becoming year 2000 compliant. In addition, we may experience problems and costs
with year 2000 compliance, which could divert management's time from ordinary
business activities and have a material adverse effect on our business,
financial condition and operating results. The worst case scenario for year 2000
problems for us would be the need to cease normal operations for an indefinite
period of time while we attempted to respond to our own or help with our
customers' year 2000 problems without having full internal operational
capabilities.
Although it is not yet completed, we are implementing our year 2000
contingency plan. Our year 2000 contingency plan addresses situations that may
result if we are unable to achieve year 2000 readiness for our critical
operations. The cost of implementing our plan is not expected to be material.
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BUSINESS
OVERVIEW
Cysive is a leading software engineering firm that designs and builds
complex, highly customized architectures and systems necessary to support large
scale eBusinesses. eBusinesses are companies that conduct a significant portion
of their business electronically through front-end customer interfaces which are
integrated with their with back-end systems, such as accounting, billing,
manufacturing and inventory control. Since commencing operations in 1994, we
have built business-critical architectures using core Internet technologies.
These architectures automate business processes and provide the technology
infrastructure necessary for high levels of customer interactivity, 24/7
reliability and significant scalability required by large scale eBusinesses. Due
to the customized design criteria and sophisticated integration requirements of
our projects, we employ software engineers with extensive technology expertise.
Our software engineers, who have an average of 10 years experience applying
leading-edge technologies to solve business-critical problems, utilize a
disciplined methodology to deliver robust and secure systems on a timely basis.
Given our technology expertise, we target corporate customers who require
highly complex systems to meet the scale and growth demanded by their
differentiated eBusiness strategies. For example, Cysive built Cisco Systems,
Inc.'s Internetworking Products Center, which is the core of Cisco's electronic
commerce site and accounted for approximately 60% of Cisco's fiscal 1999 total
revenues of $12.2 billion. In addition to Cisco, we have built systems for
customers such as Classified Ventures, Inc./Cars.com, DaimlerChrysler
Corporation, Equifax Secure, Inc., First Union Corporation, Sylvan Prometric and
UUNet Technologies, Inc.
INDUSTRY BACKGROUND
In the mid-1990s, a first wave of commercial Internet usage achieved
widespread adoption. The Internet brought technology standardization to business
through a common set of protocols, languages and applications, such as HTTP,
HTML and Web browsers. Although many companies comprehended the magnitude of
potential technological and communications advancements provided by the
Internet, they lacked the resources to implement Internet-based technologies.
The immediate objective for most companies at this time was to establish an
Internet presence. These companies used the Internet as an interface for
communicating with customers and launched their Web sites as colorful online
marketing brochures. With little ability to automate business processes or
execute transactions, these sites were maintained separately from the enterprise
systems at the core of the business which, in turn, had not been designed to
interface with the standards-based architecture of the Internet. Simple,
small-scale functions such as customer inquiries to the Web sites were handled
through text-based scripts, such as CGI and PERL, which had neither the
structure nor the capability of a software program, but sufficed for this
early-stage environment. As a result, many of today's Internet professional
services providers focus on providing strategy, design and technology services
to enable companies to build an initial presence on the Internet, rather than
the specialized technology expertise required to architect scalable, successful
eBusinesses.
Today, we believe a second wave is beginning, spearheaded by the companies
whose use of the Internet has evolved from a marketing orientation to a
business, or transactional, orientation. For these companies, the Web site has
quickly evolved from a marketing interface into an advanced software application
at the core of their businesses. International Data Corporation estimates U.S.
corporate Internet spending to increase from $85 billion in 1999 to $203 billion
by 2002. Many companies are building their information technology
infrastructures to transact directly, seamlessly and instantaneously with
customers, suppliers, partners and distributors around the world. These
eBusiness capabilities are rapidly creating new markets, communications channels
and revenue growth opportunities, while enabling companies to reduce costs,
improve operating efficiencies, shorten cycle times and improve communications.
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To truly automate all of the functions associated with an eBusiness
transaction, companies cannot simply link Internet customers directly to their
existing internal systems. These existing systems were designed for a defined
number of specifically trained employees. In addition, each system typically was
built to provide a very specific function such as accounting, billing, product
configuration, manufacturing or inventory control. As a result, with each system
serving distinct purposes, it is extremely difficult for a customer to have a
user-friendly, customer service focused experience without significant
integration of back-end systems.
To integrate these back-end systems, an advanced technology approach is
necessary in which business logic, or all of the business procedures and rules,
is built into a core architecture that bridges these existing systems with the
Internet. This core architecture handles all of the business functions that
previously could only be executed by specially trained personnel, such as
preferred customer discounting, credit approval, product configuration, pricing,
billing, accounting, inventory control and order and delivery scheduling. A
successful eBusiness architecture must present business functions to customers
in a simple format, yet provide comprehensive access to all of the information
and transactional capabilities the business has to offer. In addition, the
technology infrastructure that integrates the Internet with the core
architecture and back-end systems must be carefully designed to handle extremely
large volumes of Internet traffic and ensure 24/7 reliability. This architecture
requires software engineering expertise in areas such as: load balancing to
spread traffic across servers; caching to make data access immediate; thread and
connection pooling to optimally use system resources; and data conversion to
convert data into usable Internet formats. These architectures use a
component-based design which is flexible and extensible to meet the needs of the
business as it grows.
Advantages achieved by eBusinesses that were the first to implement
Internet strategies will be lost if their transactional systems are not
scalable, secure and reliable. Therefore, we believe a greater portion of future
corporate Internet spending will be in the implementation and integration of
advanced Internet systems. Companies like Cysive that have the Internet
technology expertise, a defined, repeatable and rigorous process and a strong,
proven track record in building eBusiness architectures will drive business on
the Internet.
THE CYSIVE SOLUTION
Cysive engineers and deploys next generation systems that enable business
leaders to execute their eBusiness strategies. To build the reliable, robust,
secure and scalable eBusiness systems demanded by our customers, we emphasize
the following key elements:
ADVANCED EBUSINESS ARCHITECTURES
The core of our business is to architect and build complex, highly
customized Internet technology-based systems. Our expertise lies in building the
systems driving large scale eBusinesses. For example, Cysive built the
architecture for First Union Corporation's online automated account stand-in
system which is accessible through multiple channels by First Union's more than
16 million retail and corporate customers. When First Union's mainframe-based
systems become overloaded, this system stands-in for all online channels,
including interactive voice response and the Internet. We believe our ability to
successfully deploy truly large scale systems is a key point of differentiation
in our market. Furthermore, the knowledge and confidence gained from building
customized business-critical systems generates a high level of repeat business
from our customers. For example, in the first half of 1999, 73% of our customers
from whom we generated over $100,000 of revenues were customers in prior years.
In addition, our best-of-breed technology focus helps us to recruit highly
experienced software engineers who desire a culture and environment that takes
pride in being on the leading edge of technology.
HIGHLY EXPERIENCED SOFTWARE ENGINEERS
The integration of existing and emerging technologies required to build our
customers' eBusiness systems is highly complex and requires expertise across a
broad array of technologies. Our software
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<PAGE> 28
engineers must have extensive knowledge in leading-edge technologies such as
XML, Java, C++, Distributed Objects, such as CORBA and DCom, and Relational and
Object Database Management Systems. In addition, they must have experience
interfacing with older legacy system technologies. As a result, we employ
software engineers with proven technology expertise and many years of
experience. As evidence, our software engineers have on average 10 years of
experience. Furthermore, 93% of our software engineers have technical
undergraduate degrees and 49% have advanced degrees. This significant level of
experience enhances our teams' productivity and enables us to maximize our
utilization rates by making our software engineers interchangeable across
varying projects regardless of the technologies employed.
"SWAT TEAM" APPROACH
The high productivity of our experienced software engineers enables us to
build extensive eBusiness systems with lean and efficient SWAT teams. For
example, with a team of only six software engineers, we built Cisco Systems'
Internetworking Product Center, which, according to Cisco, generated
approximately 60% of Cisco's fiscal 1999 total revenues. We believe smaller
teams increase efficiency, enhance the ability of a team to share ideas,
expertise and project development information and reduce the margin for error.
As a result, we believe that by using our SWAT teams, we shorten the delivery
time of a project and increase the likelihood of success, thereby reducing the
overall project cost to the customer. Through this approach, we are able to
focus our customers on the total value of the project, rather than on hourly
billing rates. In addition, our highly efficient, SWAT team approach allows us
to quickly redeploy teams once a project is completed and to scale without
having to add large numbers of software engineers. As a result of our high
levels of productivity, we consistently generate revenues per software engineer
in excess of $300,000.
RIGOROUS DEVELOPMENT PROCESS
For every project undertaken, our software engineers strictly adhere to the
Cysive development process. This approach begins with a comprehensive assessment
of a customer's needs followed by the development of a series of milestones
comprised of three distinct phases: architecture and analysis; design and
development; and testing and deployment. Having this institutionalized
methodology helps to mitigate risk and ensure consistent quality, and enables us
to build robust and cost-effective systems more rapidly. The Cysive development
process also ensures that our customers have the flexibility to continuously
modify their projects as their needs evolve. By visibly streamlining our
processes and producing noticeable efficiencies, the Cysive development process
helps to build customer confidence and consequently generate greater repeat
business.
SOPHISTICATED KNOWLEDGE MANAGEMENT
We have spent considerable resources building our internal knowledge
management which comprises: (1) a technology group, which continually evaluates
new products to identify best-of-breed technologies and is also responsible for
on-going proficiency training; and (2) a centralized knowledge base, which is an
extensive intranet database that captures the intellectual capital gained with
each Cysive project. This intranet database is accessible anytime from any
remote location. Together, the technology group and our proprietary knowledge
base help to disseminate our accumulated intellectual capital to all employees,
enhance the reusability of processes and accelerate the professional development
of our software engineers by keeping them abreast of new technologies.
STRICT QUALITY ASSURANCE PROCESS
We adhere to a strict quality assurance process to identify and manage
risk. To distribute knowledge across our company and to help maintain
objectivity within each project, we use a project manager from outside of a
given project team to serve as the quality assurance supervisor who monitors and
evaluates a project's development. The supervisor is responsible for a monthly
review meeting and report focused on the scope, schedule and cost of the
project. As a result, all project managers are subject to as well as oversee the
quality assurance process. In addition to risk management, our quality assurance
approach
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facilitates the sharing of ideas and technologies among project managers,
enables us to scale our business while maintaining high levels of quality and
allows us to make objective, value-added recommendations to our customers during
the course of a project.
CYSIVE GROWTH STRATEGY
Our objective is to strengthen our position as a leading eBusiness
engineering firm. The key elements of our growth strategy are to:
EXPAND EXISTING AND ESTABLISH NEW CUSTOMER RELATIONSHIPS
Our ability to further penetrate our existing customer base and establish
relationships with new customers is essential to our growth. Because our
strategy revolves around delivering highly customized eBusiness systems for our
customers' business-critical applications, we approach the customer relationship
from a long-term perspective. We target corporate customers who are investing
significant resources on Internet-focused business strategies that require
complex technology systems. While further penetration of our existing customer
base is important, we aggressively seek new customer relationships through our
direct sales efforts, new marketing activities, referral-driven sales and
strategic technology partnerships.
CONTINUE TO BUILD AND DEPLOY LEADING-EDGE TECHNOLOGIES
Deployment of best-of-breed technologies is essential to our ability to
deliver customized eBusiness systems. The core architectures that our software
engineers build for our customers serve as the foundation for future application
developments and, therefore, need to be reliable, robust, secure, scalable and
extensible. These architectures cannot be developed solely by utilizing packaged
applications but instead require the integration of an array of existing and
emerging technologies. Maintaining a leadership position in understanding and
using the latest technologies is critical to our growth, and we will continue to
dedicate significant resources in this area. For example, we have established a
technology group with the primary objectives of keeping our software engineers
abreast of the latest innovations in technology and enabling each of them to
bring the acquired expertise to any customer project. Our software engineers
staff this group on a rotating basis to learn the practical intricacies of the
latest technologies and are able to subsequently disseminate their learning
across all areas of our company.
ATTRACT AND RETAIN HIGHLY EXPERIENCED SOFTWARE ENGINEERS
Attracting and retaining qualified software engineers is critical to our
growth. We identify and attract seasoned software engineers through a broad
range of sources, including internal referrals, other technology companies and
technical associations, the Internet and advertisements in technical
periodicals. We place a strong emphasis on hiring software engineers who have
several years of industry experience and proven technical expertise. To ensure
that we hire qualified software engineers, we employ a stringent seven-step
recruiting process that incorporates multiple examinations to evaluate a
candidate's technical qualifications. Our focus on complex projects, coupled
with our exacting recruiting standards, has created a culture that fosters
proven competence with leading-edge technologies and helps us to attract and
retain highly qualified personnel. For example, since January 1, 1999, we have
hired 45% of our existing software engineers based on internal referrals and
believe that our attrition rate of less than 5% is well below the industry
average.
ENHANCE OUR GEOGRAPHIC PRESENCE
Continued geographic expansion gives us access to a broader base of highly
qualified software engineers and customers. We plan to establish a local
presence in several of the key technology markets to increase our visibility
with and ability to evaluate a larger number of potential software engineers.
Decreasing the travel burden placed on our software engineers should
significantly enhance our ability to hire and retain people with the skill level
we desire and help us to maintain our low attrition rates. Moreover, a broader
geographic presence will help us to service our existing customers better and to
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establish new relationships. In addition, we intend to capitalize on local
offices to enhance our regional marketing efforts. We have already established
offices in the metropolitan areas of Washington, D.C., San Jose, CA, Atlanta, GA
and Chicago, IL and plan to open offices in the metropolitan areas of Los
Angeles, CA and Dallas, TX.
EXPAND CYSIVE'S BRAND RECOGNITION
Our reputation and track record with customers are key to our success. To
augment the reputation and track record that we have established from
successfully implementing many eBusiness systems, we are launching an aggressive
marketing campaign aimed at chief executive officers, chief information officers
and electronic commerce managers to build brand recognition and generate sales
leads. Our success in communicating the Cysive brand will drive our visibility
with potential customers, industry partners and prospective employees.
CASE STUDIES
The following are descriptions of representative projects which we have
completed, or in the case of Sylvan Prometric and Equifax Secure, Inc., are
ongoing. Financial and statistical data included in these descriptions have been
provided by the applicable customers.
CISCO SYSTEMS, INC.
Cysive SWAT Team Six software engineers over a period of 14 months.
Customer Description Cisco operates one of the world's largest Internet
commerce sites, generating electronic commerce
revenues of $32 million per day. The order
processing engine supporting this site is the
Internetworking Product Center, or IPC, through
which Cisco's largest enterprise customers have
exclusive access to tailor large, complex
networking solutions online and place their orders
directly with Cisco.
Customer Challenge In early 1997, the IPC handled 300 orders per day
over the Internet. As the IPC's popularity
increased, customer demand exceeded its capacity.
To ensure that the system could scale to
significantly higher levels of customer demand,
Cisco needed to overhaul the IPC architecture with
a state-of-the-art, extensible electronic commerce
engine.
Cysive Deliverable Cysive worked with Cisco to identify system
requirements to support the growing complexity and
volume requirements of Cisco's online order demand.
The resulting server-side Java-based order
processing engine, built by Cysive's software
engineers in collaboration with Cisco and run on a
Cisco network architecture, provides scalability,
reliability and accelerated performance.
Key Features - By allowing the IPC to share data and system
resources across multiple transactions and by
maintaining continuous server connections
throughout long, complex transactions, the IPC
can process nearly 300% more orders, accounting
for nearly 60% of Cisco's $12.2 billion in
revenues for its 1999 fiscal year.
- Significant performance improvements were
realized. The speed of one-third of the most
commonly used application transactions increased
five to 10 times over previous levels, while the
speed of the remaining two-thirds doubled.
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- The new component-based IPC system provides
greater overall extensibility. Because we built
the architecture as a reusable set of components,
in a follow-on project we reused approximately
60% of the code for another application in a new
area of the business, cutting the subsequent
development time in half.
CLASSIFIED VENTURES, INC./CARS.COM
Cysive SWAT Team Six software engineers over a period of four
months.
Customer Description Cars.com is a division of Classified Ventures, a
Chicago-based company formed by eight leading media
companies including The Tribune Company, Central
Newspapers, Inc., Gannett Co. Inc., The New York
Times Co. and The Washington Post Company. To begin
transitioning its offline classified listings
business to an Internet-based model, Classified
Ventures sought to develop Cars.com, a Web site
that allows users to quickly search and locate
vehicles by make, model, location, price, mileage
and other attributes from across the nation.
Customer Challenge Cars.com needed a highly scalable architecture that
would allow a high volume of users to quickly and
easily find the car they want, read auto reviews
and expert car buying advice, and obtain
information on loans and leases. After a
competitor's system failed to produce the required
scalability, Classified Ventures turned to Cysive.
Cysive Deliverable Cysive rearchitected the Cars.com site, creating a
flexible, scalable system that can handle extremely
high user volumes. As of August 1999, the site
served over 1.5 million page views per day with one
million unique visitors per month. In June 1999,
Media Metrix ranked the site as the second most
trafficked automotive site on the Internet. The
architecture enables real-time data feeds from over
130 affiliate newspapers across the United States.
Key Features - Every page request on the Cars.com site employs
technology called Java servlets. Servlet
architectures do not require the program to re-
execute for each request, which can slow down
performance. This design enables the system to
handle more transactions simultaneously.
- One of the key challenges in scaling to millions
of transactions per day is to ensure that
information is up-to-date and reliable. At these
traffic volumes, even the most advanced databases
are challenged to both read and provide
information and write and maintain information.
We created a system that addresses this challenge
by optimizing database resources.
- We designed and delivered specialized caching
techniques that keep reusable information in the
middle tier of the application so it can be
quickly accessed without returning to the
database. This design helps to ensure data
integrity, performance and reliability.
- The component-based architecture allows for a
high degree of reuse as the system extends to
include new functions, enabling Cars.com to adapt
and change to market conditions. In addition, we
have been able to reuse many of these components
for other Classified Ventures projects.
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EQUIFAX SECURE, INC.
Cysive SWAT Team Eight software engineers over a period of four
months.
Customer Description Equifax Secure, Inc., a wholly owned subsidiary of
Equifax, Inc., provides next generation electronic
commerce solutions that enable enterprises to
authenticate consumer identity, secure business
applications and manage digital certificates and
directories for highly secure, private electronic
commerce over the Internet and other networks.
Customer Objective Equifax Secure's objective was to build a high
performance, scalable system on which to run
Equifax Secure's electronic commerce solution.
Equifax Secure solutions significantly reduce the
risk, cost and complexity of assuring the privacy
and security of electronic transactions over the
Internet and other networks. Equifax Secure offers
a fee-based service for corporate customers across
a wide range of industries that need to identify
Internet users with a high degree of certainty.
Equifax Secure's customers include companies such
as eBay and Security First National Bank.
Cysive Deliverable We built the next generation Internet application
software that supports Equifax Secure's
patent-pending, remote consumer authentication
process. The system queries consumers for specific
personal information, matches the response to
information in Equifax's databases and other
sources and evaluates the information as to its
reliability, reporting the results back to the
Equifax Secure customer.
Features - The system is designed to handle up to 4,000
concurrent users and handle 400 transactions per
minute. The system provides end-to-end consumer
authentication within 60 seconds.
- The system has been designed for flexibility and
to adapt to the future needs of Equifax. It
employs a component-based architecture that has
specific business functionality for consumer
authentication that is layered on top of
generalized services for infrastructure and data
access. These last two can be reused for
follow-on applications, reducing the cost and
time to market for Equifax Secure.
FIRST UNION CORPORATION
Cysive SWAT Team Three software engineers over a period of three
months.
Customer Description One of the nation's largest financial institutions,
First Union provides financial services to more
than 16 million retail and corporate customers.
Customer Challenge The ability to deliver account information to
customers with reliability and security is central
to First Union's business. First Union's objective
was to provide 100% reliable customer service in a
cost-effective manner, delivering account
information through automated channels such as
interactive voice response telephony and the
Internet. As the number of its customers increased,
First Union realized that it needed back-up for its
legacy systems to deal with unexpected volume
spikes and power outages, or for scheduled outages,
to maintain reliable 24/7 delivery of information.
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Cysive Deliverable Cysive built a robust, highly available system that
delivers balance and transaction information to
First Union account holders. We designed the system
to stand-in for all online channels including the
interactive voice response telephony and the
Internet, and to scale as First Union's business
grows.
Key Features - The new system can handle high volumes of
information with reliability and security. By
caching or storing the data for the most popular
customer inquiries between the mainframe and the
online channels, the design reduces the burden on
the system and improves performance.
- The architecture is designed to reduce the risk
of service failure by employing a highly
available software application running on highly
available servers. The application is designed to
balance transactions across multiple servers. If
one or more servers goes down, the application
automatically moves customer traffic to the
remaining redundant servers without an
interruption in service. The new system, in its
initial implementation, has stood in for 50% to
70% of voice response unit inquiries.
- By automating the account inquiry traffic, the
new system provides timely account information to
First Union customers, thereby reducing the
number of inquiries directed to the customer
service support center. The new system has the
potential to reduce First Union's costs on a per
call basis up to 80%.
SYLVAN PROMETRIC
Cysive SWAT Team 16 software engineers deployed on two different
ongoing projects.
Customer Description Sylvan Prometric is the technology-based testing
division of Sylvan Learning Systems, Inc., a
leading worldwide provider of computer-based
testing services. Sylvan operates 3,500 testing
centers in 130 countries and supports 35 monetary
currencies and 25 languages. Sylvan currently
delivers over 500,000 tests per month.
Customer Challenge Scheduling and registration of Sylvan Prometric
test candidates is a business process central to
the success of the company. To maintain its
leadership position, Sylvan continually seeks to
enhance and improve its processes and technologies.
Sylvan Learning Systems acquired a large competitor
several years ago and, to date, has been operating
with multiple, disparate scheduling and
registration systems. These systems needed to be
fully integrated to maximize the competitive value
of Sylvan's growing distribution channels and to
leverage Internet connectivity for its customers.
Cysive Deliverable We are developing a comprehensive system for all
worldwide registration and scheduling of test
candidates through the Internet, call centers and
an automated voice response telephony system. We
also are developing an underlying corporate
intranet-based system to provide Sylvan with an
efficient, lower cost means for managing key
business processes.
Key Features - Using Internet-based technologies and
infrastructures, Cysive is building a single,
centralized scheduling and registration resource
for Sylvan. With features such as automated
registration and scheduling for tests, electronic
reporting of test results and the ability to
store
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customer information including candidate
eligibility, candidate demographics and testing
history, Sylvan should be able to improve the
efficiency and customer service of its testing
services while reducing operating costs.
- We are building an underlying intranet-based
system through which Sylvan can manage its
business processes such as: reporting
capabilities for global business operations;
integrating the financial system; and enabling
test centers around the world to administer their
own specific solutions for scheduling and
registration.
- This approach will consolidate and streamline all
activities associated with the scheduling and
registration process. Today, Sylvan handles most
registrations using call center representatives.
With the new system, Sylvan expects to generate
80% of the registrations through the Internet and
individual testing centers, thereby significantly
reducing call center operating costs and
improving customer service and business
performance.
THE CYSIVE DEVELOPMENT PROCESS
Cysive uses a multi-phase development process that simplifies the
management of and reduces the risks associated with project development. Our
development approach starts with a comprehensive assessment that identifies the
scope, architecture, schedule and cost of building a customer's eBusiness
system. After this initial assessment, the project consists of incremental
milestones that produce deliverables over a time period which typically spans
eight to 16 weeks. These milestones allow for a controlled, customized and
repeatable process that reduces costs and ensures delivery. Within each
milestone, our development process comprises three phases: architecture and
analysis, design and development, and testing and deployment. Throughout each
milestone, Cysive project managers perform routine quality assurance reviews to
ensure we deliver the system on time, on budget and with the appropriate
functionality.
COMPREHENSIVE INITIAL ASSESSMENT
The Cysive assessment evaluates the customer's eBusiness strategy and gives
an immediate, clear and concise understanding of the eBusiness system needed to
meet our customer's business objectives. We provide a system blueprint that
details the high level architecture, including the system's key components and
processes, and the requirements, including every function and interaction, the
new system will deliver. We also produce a detailed project plan with our
recommendations for the organization, process, schedule, staffing and cost of
the project.
The assessment determines the project milestones required for successful
delivery. Each milestone has an inventory of specific related functions, and
within each milestone we complete the three phases of the Cysive development
process. By building, testing and deploying the system in milestone increments,
we ensure timely and accurate delivery of the system. Moreover, the milestones
can often be completed in parallel, significantly reducing the time to market of
the system.
THE DEVELOPMENT PROCESS: ARCHITECTURE AND ANALYSIS PHASE
The architecture and analysis phase produces detailed requirements and
system architecture specifications to ensure smooth, predictable project
execution. As part of this phase, we deliver the following:
- Requirements Specification: We produce a detailed description of
functional needs as well as non-functional requirements, including
performance, reliability and security requirements.
- High Level Object Model: We develop a model that highlights the
software components of the system, its business functions and
interrelationships.
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- Updated Project Plan: We update the schedule, tasks, resource
requirements and organization chart in the project plan.
- Technical and Software Architecture Specification: We specify
software partitioning, other products, protocols and deployment
options.
- Frameworks and Graphical User Interface Prototypes: We partially
develop the system that provides an early demonstration of its
functionality and conduct end-to-end testing to reduce risk.
THE DEVELOPMENT PROCESS: DESIGN AND DEVELOPMENT PHASE
During the design and development phase, we refine the system architecture
and write and test the source code. As part of this phase, we deliver the
following:
- Design Documentation: We provide sequence diagrams and a greater
level of detail to the Object Model developed in the prior phase.
- Source Code Written: We write the code to implement each business
function in the system.
- Testing: We begin with unit testing, followed by incremental
integration and regression testing.
- Functional System Demonstration: As we complete each milestone, a
demonstration of the systems' functionality becomes available for
review.
THE DEVELOPMENT PROCESS: TESTING AND DEPLOYMENT PHASE
The final phase of the Cysive development process starts during the
analysis phase when the project team evaluates and selects the best testing
tools for a customer's system test. A three-step testing process begins with:
- System Test and User Acceptance Planning: We detail the processes
for conducting the system test, define how and when performance and
stress testing will be conducted, detail reporting and tracking of
software defects and outline test team member roles.
- System Test: The system test requires completion of all milestones,
integration and regression testing. The system test team works in
conjunction with the development team to identify any defects in the
software, make appropriate fixes and execute additional test cycles
until all defects are eliminated.
- User Acceptance Test/Pilot: The last step in the testing phase
includes final testing of the software and release to a subset of
the user community. The pilot process develops a core group of users
to debug the system in its actual production environment and to help
accelerate training when made available to a broader user community.
- System Deployment: After final testing, we deploy the system and
monitor its performance through feedback from future milestones of
the project.
QUALITY ASSURANCE
Cysive's strict quality assurance process mitigates risk and addresses
critical issues as they arise to ensure that we deploy our customers' eBusiness
systems successfully and on schedule. The mandatory process involves monthly
two-day evaluations conducted by a senior level software engineer who serves as
a supervisor to a project team. To distribute knowledge across our company and
to help maintain objectivity within each project, we use a project manager from
outside of a given project team to serve as the quality assurance supervisor who
monitors and evaluates a project's development. This supervisor is responsible
for a monthly review meeting and report focused on the scope, schedule and cost
of the project. This senior level supervisor evaluates the status reports,
assists in the resolution of technical problems and ensures adherence to the
development process. In addition, the supervisor is responsible for continually
assessing a customer's internal processes and helps to make objective,
value-added recommendations to our customers. This process imposes a discipline
to our projects that helps to shorten time-to-deployment cycles by as much as
one to three months. In addition to ensuring a high quality
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deliverable, the quality assurance process helps to give our software engineers
valuable project experience. By making every one of our senior software
engineers responsible for quality assurance, the process facilitates the sharing
of knowledge and helps us to maintain high levels of quality as we scale the
business. In addition, throughout the quality assurance process, project
documentation and data are continually fed into our knowledge base.
KNOWLEDGE MANAGEMENT
We approach Cysive knowledge management in two important ways:
TECHNOLOGY GROUP
Our technology group comprises four full-time software engineers who lead
our efforts in research and development, training and information exchange.
Members of the technology group serve as practice leaders for our software
engineers in the latest technologies, languages, tools and environments.
Accordingly, their primary job is to continually lead the evaluation of new
products to identify best-of-breed technologies and disseminate this information
throughout our company using the knowledge base. As a result of the resources we
commit and the expertise of our technology team, our software engineers employ
the latest proven software engineering tools, multi-tier architectures and
frameworks. By pre-screening all of our tools and technologies, we are able to
architect leading-edge systems and consistently deliver proven results on
business-critical projects. In addition, while our technology group has industry
leading experience in such technologies as XML, Java, C++, Internet application
servers, Distributed Objects such as CORBA and DCom, and Relational and Object
Database Management Systems, we spend significant resources on developing the
next generation of technologies. For example, our technology group is currently
researching emerging technologies such as Natural Language Processing and Model-
Based Reasoning. In addition, our technology group is responsible for ongoing
proficiency training and the certification testing for all of our software
engineers.
KNOWLEDGE BASE
Over the past two years, Cysive has spent significant resources building an
extensive knowledge base. The knowledge base, which is accessible from remote
locations via a secure corporate intranet, is the central repository for
detailed information on every customer project Cysive has conducted. For each
system being built, the knowledge base contains a project file detailing
customer information, a description of the project including the requirements
analysis, project plans, architecture designs and quality assurance reviews, and
a list of the technology products utilized on the project. Finally, the
knowledge base also contains relevant white papers, technical tips and
technology articles that may be of interest to our software engineers.
This knowledge base, which enables us to leverage and reapply our
intellectual capital, is a critical resource for both our software engineers and
management. Using the knowledge base's powerful search and display tools, users
can quickly traverse information links to related information and documents. As
a result, our software engineers can readily reference plans and specifications
from prior projects. This real-time access to information enables our software
engineers to condense the delivery time and to mitigate the potential problems
of a project by identifying those techniques and products that have already been
successfully employed in similar systems. In addition, the knowledge base is a
powerful management tool. By providing information on project progress and
customer needs, the knowledge base helps management prepare for customer
meetings and project reviews.
A key component of the knowledge base is the "technology pipeline," which
is our repository of evaluations of technologies, tools and products. Prior to
use on a customer project, all products are carefully evaluated. The technology
pipeline contains reviews of over 115 products in 22 technology categories.
While the technology pipeline is an invaluable resource for our software
engineers, it is also an important method by which we conduct training and
development. The evaluation process that we employ involves all of our software
engineers. While between projects, our software engineers, under the direction
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of our technology team, work on one or more of the seven stages we have outlined
in the evaluation of a product. Having our software engineers conduct these
evaluations affords them the opportunity to continually work with a variety of
new technologies. A product can then be used on a customer project once it has
successfully completed all of the stages of the Cysive evaluation process.
Initial implementation of new technologies are generally performed by the
software engineers who were part of the technology's evaluation team. In this
manner, we ensure that our customers receive both a proven technology and a team
of software engineers with expertise to deliver that technology.
CULTURE
We continue to build our corporate culture around a common set of values
based on excellence, discipline and results. Our software engineers understand
that we hire only very high caliber technical people because our customers
demand a high level of execution. We believe we have instilled in our software
engineers the sense of challenge as well as pride in having helped to build some
of the most technically complex systems in today's eBusiness environment. By
growing our business internally, we have been able to instill this value set to
all of our professionals on an individual basis. Our culture contributes to our
low attrition rate of less than 5%.
While we focus on excellence and quality, we also foster and maintain a
culture based on innovation, challenge and teamwork to attract and retain the
level of software engineer we demand. In addition, we attempt to create an
environment that promotes cooperative relationships and encourages teamwork. To
ensure rapid deployment of our software engineers, we promote flexibility, speed
and open communication. In addition, to ensure continued development of our
technical staff, we place a high priority on training. We conduct training in a
number of important ways by:
- requiring time for training, so that our software engineers have the
opportunity to assess and master emerging technologies;
- mandating an initial two-week boot camp for new employees;
- conducting two annual company meetings centered around technical
themes;
- sending our software engineers to conferences after which they are
required to write white papers for internal distribution;
- providing training in preparation for three levels of technical
certification;
- purchasing reference materials for our software engineers who in
return write reviews of the materials; and
- offering ongoing internal technology seminars.
RECRUITING
Cysive's continued success and growth depends on our ability to attract and
retain high caliber technical talent. We have a stringent recruiting process
that ensures the technical capability of all of our hires. Given the importance
of recruiting to our company, every professional within Cysive is dedicated to
our recruiting efforts, from our six technical recruiting experts to our
software engineers, management and sales and marketing staff.
We target software engineers with extensive experience and demonstrated
expertise working throughout the technology development lifecycle, from
architecture and design through the development, testing and deployment of
complex technical solutions. Only software engineers with this depth and range
of technology expertise possess the skills required to architect and build
eBusiness systems that integrate leading-edge Internet-based technologies with
multiple back-end systems.
We employ a seven-step hiring process. After initially seeking and
identifying candidates who meet our rigorous standards, our recruiting experts
conduct an initial phone interview with technical questions to screen for high
caliber talent. Candidates then take an hour-long technical test, proceed to a
project manager-level technical screen, face-to-face interviews with a regional
director, project manager and software engineers and a discussion with a senior
executive officer. We maintain a detailed candidate pipeline that tracks all
steps of the process. The capability to analyze this data by skill level, years
of
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experience, region, salary, source, recruiter, visa status and time-to-close
allows us to constantly monitor and improve our recruiting efforts.
To attract potential software engineers, we target multiple functional
areas. We have a number of recruiting efforts aimed at the local, regional and
national markets to help us identify the industry's most seasoned technical
talent. Since January 1, 1999, we have built a reference database which is
comprised of internal referrals from our software engineers and has accounted
for 45% of our hires to date. We also research and identify companies and
technical associations with suitable technical talent and employ advanced
Internet search capabilities to identify potential candidates. Finally, we
advertise in technical and trade periodicals that appeal to software engineers
who are already employed or may be seeking jobs.
SALES AND MARKETING
Our sales efforts are targeted at corporate customers who are investing
significant resources on their eBusiness strategies and consequently require
complex technology systems to meet the scale and growth of these strategies. We
have a sales force of nine professionals who covers three geographic regions:
east, central and west. In each region, we have a senior regional sales manager
and a supporting team of account managers. By structuring our sales organization
along geographic lines and separating account management from delivery, we are
better able to capitalize on regional opportunities and provide higher levels of
local account management and support to our customers. In working with our
customers, we employ a collaborative sales approach that combines the business
and technical knowledge of our salespeople and software engineers. While the
account managers have responsibility for the business aspects of a customer
relationship, they are also held accountable for project progress and delivery.
As a result, they must work closely with the project teams to ensure the
successful completion of all customer projects.
Given our successful completion of several high profile eBusiness systems,
many sales leads result from referrals. In addition, our sales force actively
generates leads through a combination of direct mail, targeted events with
industry thought leaders and cooperative marketing with industry partners. To
augment our sales efforts, we also have a separate marketing effort comprised of
three professionals. Cysive's marketing group focuses on two key objectives: (1)
building brand recognition at a national level to drive business growth and
support our recruiting efforts; and (2) developing and cultivating leads for the
sales force amongst our target audience of chief executive officers, chief
information officers and electronic commerce managers. To achieve these
objectives, we employ a consistent communication strategy based on standards for
our logo, corporate identity, visual elements and messages across all marketing
channels. In addition, to enhance our brand reputation and credibility, we
utilize:
- a public relations program focused on building awareness and
recognition through industry and business press, industry analysts
and major industry forums;
- a comprehensive Web site focused on customer case studies and
testimonials;
- national and regional advertising;
- on-site marketing programs at customer projects to enhance
visibility within the customer environment; and
- seminars to increase the visibility of our executives and provide
lead generation opportunities.
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CUSTOMERS
The following is a representative list of our customers for 1998 and the
current year.
<TABLE>
<S> <C>
AT&T Corp. John Deere & Co., Inc.
CareerPath.com, Inc. Knight Ridder New Media
Cisco Systems, Inc. LeapIT.com
Classified Ventures, Inc./Cars.com Medibuy, Inc.
DaimlerChrysler Corporation Microstrategy, Inc.
Equifax Secure, Inc. Qualcomm, Inc.
First Union Corporation Sylvan Prometric
Fleet Bank UOP, Inc.
Hub Group, Inc. UUNET Technologies, Inc.
</TABLE>
In 1998, our five largest customers represented 65.3% of our revenues:
Cisco Systems, Inc., 19.6%; Classified Ventures, Inc./Cars.com, 18.0%; Sylvan
Prometric, 12.5%; DaimlerChrysler Corporation, 8.5%; and First Union
Corporation, 6.7%. For the six-month period ended June 30, 1999, our five
largest customers represented 82.5% of our revenues: Sylvan Prometric, 35.1%;
Classified Ventures, Inc./Cars.com, 15.2%; Equifax Secure, Inc., 13.4%; Cisco
Systems, Inc., 10.2%; and UUNet Technologies, Inc. 8.6%. The volume of work that
we perform for a specific customer is likely to vary from period to period, and
a significant customer in one period may not use our services in a subsequent
period. In addition, a failure to collect a large account receivable from any of
these customers could significantly reduce our assets and adversely affect our
business, financial condition and results of operations.
COMPETITION
The eBusiness engineering market is intensely competitive and faces rapid
technological change. We expect the competition to continue and intensify, which
could result in price reductions, reduced profitability and loss of current or
future customers. Our competitors fall into four major categories:
- internal information technology departments of current and potential
customers;
- large information technology consulting services providers, such as
Andersen Consulting LLP, Electronic Data Systems Corporation,
International Business Machines Corporation and
PricewaterhouseCoopers, LLC;
- traditional information technology services providers, such as
Sapient Corporation; and
- Internet professional services providers, such as Proxicom, Inc.,
Scient Corporation and Viant Corporation.
Many of our competitors have longer operating histories and customer
relationships, greater financial, technical, marketing and public relations
resources, larger customer bases and greater brand or name recognition than we
have. Our competitors may be able to respond more quickly to technological
developments and changes in customer needs. This may place us at a disadvantage
in responding to our competitors' pricing strategies, technological advances,
advertising campaigns, strategic partnerships and other initiatives. In
addition, there are low barriers to entry into our business because the costs to
provide information technology services are relatively low. We do not own any
technologies that preclude or inhibit competitors from entering our industry.
Therefore, we expect to continue to face additional competition from new
entrants into our industry.
We believe that the principal competitive factors in our business are:
- leading-edge technical knowledge;
- the reputation and experience of professionals delivering services;
- customer value and service;
- the success and reliability of the delivered system; and
- the ability to attract and retain highly skilled, experienced
professionals.
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We believe that we presently compete favorably with respect to each of
these factors. The market for our services is evolving, however, and we may be
unable to compete successfully in the future.
EMPLOYEES
As of June 30, 1999, we had 89 employees, of whom 62 were software
engineers. Of these 62 software engineers, 20, or 32.3%, are working in the
United States under an H-1B visa. Moreover, all 20 of our software engineers who
are working under H-1B visas have applied for permanent residency with the U.S.
Immigration and Naturalization Service. We believe our relationship with our
employees is good. None of our employees is represented by a union.
INTELLECTUAL PROPERTY RIGHTS
Our proprietary knowledge base and other intellectual property rights that
we develop for our customers are an integral part of our business. While
ownership of custom work product is generally retained by the customer, we
retain a royalty-free license to use some or all of the applications, processes
and intellectual property developed in connection with customer projects. This
information is accessible on our knowledge base only to our employees via our
secure corporate intranet. We enter into confidentiality agreements with our
employees, generally require that our software engineers and customers enter
into similar agreements and limit access to and distribution of our knowledge
base. In addition, we will enter into non-competition agreements with all of our
key employees upon completion of this offering. The steps we have taken in this
regard may not be adequate to deter misappropriation of our proprietary
information, and we may be unable to detect unauthorized use and take
appropriate steps to enforce our intellectual property rights.
FACILITIES
Our principal headquarters is located in Reston, VA. The lease for our
headquarters expires in June 2003. We also have offices in the metropolitan
areas of Chicago, IL, San Jose, CA, Atlanta, GA and plan to open offices in the
metropolitan areas of Los Angeles, CA and Dallas, TX. We do not own any real
estate. We do not consider any specific leased location to be material to our
operations and believe that equally suitable alternative locations are available
in all areas where we currently do business.
LEGAL PROCEEDINGS
We are not a party to any pending material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table presents information about each of our executive
officers and directors.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
Nelson A. Carbonell, Jr................... 36 Chairman of the Board, President, Chief
Executive Officer and Founder
John R. Lund.............................. 37 Chief Financial Officer, Treasurer,
Secretary and Director
Michael E. Price.......................... 51 Chief Technology Officer
Robert C. Rubinstein...................... 58 Chief Operating Officer
Joseph M. Rymsza.......................... 32 Vice President, Sales
John M. Saaty............................. 31 Vice President, Marketing
Penny J. Jobin............................ 43 Director of Recruiting
Jon S. Korin.............................. 45 Director
Eric J. Magleby........................... 38 Director and Founder
John M. Sabin............................. 44 Director
</TABLE>
Nelson A. Carbonell, Jr. founded Cysive and has served as President, Chief
Executive Officer and Chairman of the board of directors since we commenced
operations in 1994. From February 1991 until March 1994, Mr. Carbonell served as
Director of Commercial Systems, Inc. at PRC, Inc., now a subsidiary of Litton
Industries. PRC Inc. is a leading provider of information technology and
systems-based solutions for the U.S. government and commercial customers. Mr.
Carbonell serves on the Executive Committee of the Washington-Baltimore Young
President's Organization. Mr. Carbonell received a B.S. in Electrical
Engineering from George Washington University in 1985.
John R. Lund has served as our Treasurer since December 1995, our Chief
Financial Officer since April 1997 and our Secretary since April 1999. From
December 1995 until April 1997, Mr. Lund served as our Vice President of
Finance. From December 1994 until December 1995, Mr. Lund was Vice President of
Finance for Public Sector, Inc., a subsidiary of PRC, Inc. From January 1992
until December 1994, Mr. Lund served as Director of Management Reporting and
Budgets for PRC, Inc. Mr. Lund received a B.S. in Accounting from Brigham Young
University in June 1986. Mr. Lund has been a director since April 1999.
Michael E. Price has served as our Chief Technology Officer since November
1997. From October 1995 until November 1997, Mr. Price served as our Vice
President of Technology. From October 1993 until October 1995, Mr. Price served
as a member of the technical staff of MRJ Technology Solutions, a provider of
information systems and engineering services primarily to the U.S. government.
Robert C. Rubinstein has served as our Chief Operating Officer since July
1999. From March 1999 until July 1999, Mr. Rubinstein served as our Vice
President of Consulting. From August 1997 until March 1999, Mr. Rubinstein
served as Vice President of the Communication Operations and Maintenance Support
Sector of MRJ Technology Solutions, managing their Computer & Communications
Support and Communication Operations and Maintenance Support contracts. From
August 1994 until August 1997, Mr. Rubinstein served as the Director of the
Network Systems Division of MRJ and was responsible for government and
commercial networking and enterprise application development. Mr. Rubinstein
received a B.A. in Mathematics from California State University at Los Angeles
in 1963.
Joseph M. Rymsza has served as our Vice President of Sales since March
1998. From October 1991 until February 1998, Mr. Rymsza served in numerous
domestic and international sales management capacities for Object Design, Inc.,
a developer of object-oriented databases. Mr. Rymsza received a B.S.E.E. in
Electrical and Computer Engineering from the University of Notre Dame in 1989.
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<PAGE> 42
John M. Saaty has served as our Vice President of Marketing since July
1999. From December 1998 until June 1999, Mr. Saaty served as our Director of
Marketing. From August 1995 until November 1998, Mr. Saaty served as a brand
manager for Intel Corp. responsible for microprocessor brand strategy and
marketing, and as a product marketing manager for consumer desktop PCs. Mr.
Saaty received a B.A. in English from Northwestern University in 1990 and an
M.B.A. in Marketing from The Wharton School of the University of Pennsylvania in
1995.
Penny J. Jobin has served as our Director of Recruiting since August 1995.
From January 1993 until August 1995, Ms. Jobin served as Director of Technical
Recruiting at Paul-Tittle Associates, an executive search firm in McLean,
Virginia. Ms. Jobin received a B.S. in Business Administration from George Mason
University in 1984.
Jon S. Korin has served as a Director since April 1997. Mr. Korin has
served as vice president of strategic development for PRC, Inc. since June 1993.
He is a board member and past president of the National Capital chapter of the
Association for Corporate Growth and a board member of the IT Services Division
of the Information Technology Association of America. Mr. Korin received a B.S.
from The Wharton School of the University of Pennsylvania in May 1976 and
attended the New York University Graduate School of Business.
Eric J. Magleby has served as a Director and an account manager since we
commenced operations in 1994. From February 1994 until April 1999, Mr. Magleby
was also our Executive Vice President. Prior to joining Cysive in 1993, Mr.
Magleby worked in various sales and management positions at PRC, Inc. Mr.
Magleby received a B.S. and M.S. from Brigham Young University in June 1985.
John M. Sabin has served as a Director since April 1997. Mr. Sabin
currently acts as a business consultant. From May 1998 until September 1999, Mr.
Sabin served as Executive Vice President and Chief Financial Officer of Hudson
Hotels Corporation. Hudson Hotels Corporation is public hotel ownership and
management company. From February 1997 until May 1998, Mr. Sabin served as
Senior Vice President and Treasurer of Vistana, Inc., a public company that
owns, operates and develops time share resorts, and served as Chief Financial
Officer of Vistana from February 1997 until November 1997. From June 1996 until
February 1997, Mr. Sabin served as Vice President of Finance of Choice Hotels
International, Inc., a public hotel franchisor, and served as Vice President of
Mergers and Acquisitions from June 1995 to February 1997. From December 1993
until October 1996, he served as Vice President of Finance and Assistant
Treasurer of Manor Care, Inc., the former parent of Choice Hotels International,
Inc. Mr. Sabin is a Director and non-Executive Chairman of the Board of
Competitive Technologies, Inc., a public technology licensing and transfer
company. Mr. Sabin received his B.S., M.Acc. and M.B.A. degrees from Brigham
Young University and a J.D. degree from the J. Reuben Clark Law School at
Brigham Young University.
BOARD COMPOSITION
We currently have five directors. Upon completion of this offering, the
terms of office of the directors will be divided into three classes: Class I,
whose term will expire at the annual meeting of stockholders to be held in 2000;
Class II, whose term will expire at the annual meeting of stockholders to be
held in 2001; and Class III, whose term will expire at the annual meeting of
stockholders to be held in 2002. The Class I director will be Mr. Carbonell, the
Class II directors will be Messrs. Lund and Korin and the Class III directors
will be Messrs. Sabin and Magleby. At each annual meeting of stockholders after
the initial classification or special meeting held in place of an annual
meeting, the successors to directors whose terms will then expire will be
elected to serve from the time of election and qualification until the third
annual meeting following election or similar special meeting. If the board of
directors increases the number of directors, the newly created directorships
will be distributed among the three classes such that each class of directors
will, as nearly as possible, consist of one-third of the directors. This
classification of our board of directors may delay or prevent changes in control
or management of Cysive.
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<PAGE> 43
BOARD COMMITTEES
Our board of directors has established an audit committee, a compensation
committee and an executive committee. The audit committee assists the board of
directors in fulfilling its responsibilities of ensuring that management
maintains an adequate system of internal controls. The audit committee also:
recommends an independent audit firm to audit financial statements and to
perform services related to the audit; reviews the scope and results of the
audit with the independent auditors; considers the adequacy of the internal
accounting control procedures; and considers auditors' independence. The audit
committee consists of Messrs. Sabin and Korin.
The compensation committee determines the salaries and incentive
compensation of Cysive's officers and provides recommendations for the salaries
and incentive compensation of other employees and software engineers. The
compensation committee also administers Cysive's various incentive compensation,
stock and benefit plans. The compensation committee consists of Messrs. Sabin,
Magleby and Korin.
The executive committee determines the objectives and performance criteria
of each member of Cysive's management team. The executive committee consists of
Messrs. Carbonell and Lund.
DIRECTOR COMPENSATION
Each non-employee director currently receives $1,000 of cash compensation
and reimbursement for reasonable travel expenses for each board meeting
attended. In addition, each director receives a stock option for the purchase of
10,000 shares of common stock for each year of service.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to or earned by our
chief executive officer and all other executive officers whose salary and bonus
for services rendered in all capacities for the year ended December 31, 1998
exceeded $100,000. We use the term "named executive officers" to refer to these
people in this prospectus.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
NAME AND PRINCIPAL POSITION(S) SALARY BONUS
- ------------------------------------------------------------ -------- --------
<S> <C> <C>
Nelson A. Carbonell, Jr., Chairman, President and Chief
Executive Officer......................................... $167,500 $143,422
John R. Lund, Chief Financial Officer....................... 118,077 58,144
Michael E. Price, Chief Technology Officer.................. 118,221 58,144
Joseph M. Rymsza, Vice President, Sales (1)................. 151,139 25,000
</TABLE>
- ---------------
(1) Mr. Rymsza's salary includes sales commissions earned in the amount of
$49,571.
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<PAGE> 44
OPTION GRANTS IN LAST FISCAL YEAR
The following table shows grants of stock options to each of our named
executive officers during the year ended December 31, 1998. The percentages in
the table below are based on options to purchase an aggregate of 686,000 shares
of common stock, granted under our stock option plan in the year ended December
31, 1998 to our employees and directors. The exercise price per share of each
option was equal to the fair market value of the common stock on the date of
grant as determined by the board of directors. Potential realizable values are
net of exercise price before taxes and are based on the assumption that our
common stock appreciates at the annual rate shown, compounded annually, from the
date of grant until the expiration of the 10-year term. These numbers are
calculated based on the requirements of the SEC and do not reflect our estimate
of future stock price growth.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ---------------------
NAME GRANTED FISCAL YEAR PRICE DATE 5% 10%
- -------------------------------- ---------- ------------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Nelson A. Carbonell, Jr......... -- -- -- -- -- --
John R. Lund.................... 39,450 5.8% $3.11 1/19/08 $ 77,183 $195,598
20,550 3.0% 1.87 1/19/08 24,155 61,212
Michael E. Price................ 60,000 8.7% 3.11 1/19/08 117,389 297,488
Joseph M. Rymsza................ 150,000 21.9% 3.11 3/1/08 293,474 743,720
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table presents summary information with respect to stock
options owned by the named executive officers at December 31, 1998, and with
respect to stock options exercised by the named executive officers during the
fiscal year ended December 31, 1998. No options were exercised in 1998. There
was no public trading market for the common stock as of December 31, 1998.
Accordingly, the values of unexercised in-the-money options shown below have
been calculated on the basis of the assumed initial public offering price of
$ per share, less the applicable exercise price per share, multiplied by the
number of shares underlying such options.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Nelson A. Carbonell, Jr........................ 550,000 -- $ --
John R. Lund................................... 60,000 90,000 $
Michael E. Price............................... 90,000 60,000
Joseph M. Rymsza............................... 50,000 100,000
</TABLE>
STOCK PLANS
STOCK OPTIONS
The 1994 Option Plan provides for the grant of restricted stock and other
stock-based awards and stock options. 4,600,000 shares of common stock are
authorized to be issued pursuant to the 1994 Option Plan, of which options to
purchase 1,347,800 shares of common stock are available for grant under the 1994
Option Plan as of August 19, 1999. Options to purchase an aggregate of 2,652,200
shares of common stock at a weighted average exercise price of $2.83 per share
were outstanding under the 1994 Option Plan as of August 19, 1999.
The 1994 Option Plan will be amended and restated concurrently with the
closing of this offering to permit the granting of options to purchase shares of
common stock intended to qualify as incentive options under the Internal Revenue
Code and options that do not qualify as incentive options. The exercise price
41
<PAGE> 45
of each non-qualified options will be determined by the compensation committee
but may not be less than 85% of the fair market value of our common stock on the
date of grant. For incentive options, the exercise price may not be less than
100% (110% in the case of certain stockholders) of the fair market value of our
common stock on the date of grant.
The term of each option will be fixed by the compensation committee and may
not exceed 10 years from the date of grant. The compensation committee will
determine at what time or times each option may be exercised and the period of
time, if any, after retirement, death, disability or termination of employment
during which options may be exercised. Options may be made exercisable in
installments. The exercisability of options may be accelerated by the
compensation committee.
The compensation committee may also award:
- shares of common stock to participants. These stock awards may be
conditioned on the achievement of performance goals and/or continued
employment with us through a specified restricted period. If the
performance goals and any other restrictions are not attained, the
participant will forfeit his or her restricted shares. The purchase price
of restricted shares of common stock will be determined by the committee.
- deferred stock units, which are ultimately payable in the form of
unrestricted shares of common stock. A deferred stock award may be
conditioned or restricted in whatever manner the compensation committee
may determine. These conditions and restrictions may include the
achievement of performance goals and/or continued employment with us
through a specified restricted period. If the performance goals and other
restrictions are not attained, the participant will forfeit his or her
deferred stock units. During the deferral period, the deferred stock
units may be credited with dividend equivalent rights.
- shares of common stock at no cost or for a purchase price determined by
the compensation committee which are free from any restrictions under the
stock option plan. Unrestricted shares of common stock may be issued to
participants in recognition of past services or other valid
consideration, and may be issued in lieu of cash compensation to be paid
to participants.
- performance stock awards to participants entitling the participants to
receive shares of common stock upon the achievement of performance goals
and other conditions determined by the compensation committee.
- dividend equivalent rights entitling the recipient to receive credits for
dividends that would be paid if the recipient had held a specified number
of shares of common stock. Dividend equivalent rights may be granted as a
component of another award or as a freestanding award. Dividend
equivalent rights credited under the stock option plan may be paid
currently or be deemed to be reinvested in additional shares of common
stock, and may accrue additional dividend equivalent rights after
reinvestment at fair market value at the time of deemed reinvestment.
Dividend equivalent rights may be settled in cash, common stock or a
combination of cash and shares, in a single installment or installments,
as specified in the award. Awards payable in cash on a deferred basis may
provide for crediting and payment of interest equivalents.
- a right to receive a number of shares or, in the discretion of the
compensation committee, an amount in cash or a combination of shares and
cash, based on the increase in the fair market value of the shares
underlying the right during a stated period specified by the compensation
committee. The compensation committee may approve the grant of these
stock appreciation rights related or unrelated to stock options. Upon
exercise of a stock appreciation right that is related to a stock option
granted, the holder of the related option will surrender the option for
the number of shares as to which the stock appreciation right is
exercised and will receive payment of an amount computed as provided in
the stock appreciation right award. Generally, a stock appreciation right
granted in connection with a stock option will be exercisable at the time
or times, and only to the extent that, the related stock option is
exercisable, and will not be transferable except to the extent that the
related option may be transferable.
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<PAGE> 46
PERFORMANCE AND ANNUAL INCENTIVE AWARDS
Our stock option plan authorizes the compensation committee to grant
multi-year and annual incentive awards based upon achievement of pre-established
performance goals, including awards that qualify as "performance-based
compensation" for purposes of the Internal Revenue Code. The grant, exercise
and/or settlement of a performance award may be made contingent upon achievement
of pre-established performance goals. Achievement of performance goals will be
measured over a performance period of up to 10 years, as specified by the
committee.
The amount of an incentive award is based upon the achievement of a
performance goal or goals based upon business criteria during a given
performance period specified by the committee. The committee may specify the
amount of the incentive award as a percentage of these business criteria, a
percentage in excess of a threshold amount or as another amount which need not
bear a strictly mathematical relationship to these business criteria.
OTHER STOCK-BASED AWARDS
The committee is authorized to grant to participants other awards that may
be based on or related to our common stock, including:
- convertible or exchangeable debt securities;
- other rights convertible or exchangeable into shares;
- purchase rights for shares;
- incentive awards with value and payment contingent upon performance; and
- incentive awards valued by reference to the performance of specified
subsidiaries or business units.
1999 EMPLOYEE STOCK PURCHASE PLAN
The Cysive, Inc. 1999 Employee Stock Purchase Plan will permit eligible
employees to purchase shares of common stock at a discount. All Cysive employees
whose customary employment is more than 20 hours per week and for more than five
months in any calendar year are eligible to participate in this plan, provided
that any employee who would own 5% or more of the total combined voting power or
value of Cysive's stock immediately after any grant is not eligible to
participate. During purchase periods, we will withhold amounts through payroll
deductions for eligible employees who elect to participate in this plan. At the
end of each purchase period, we will use accumulated payroll deductions to
purchase stock at a price equal to no less than 85% of the market price on the
first or last business day of each offering period on behalf of our eligible
employees who are participating in the plan. We have reserved 4,600,000 shares
of common stock for issuance under this plan.
401(K) PLAN
We sponsor the Cysive 401(k) Profit Sharing Plan, a defined contribution
plan intended to qualify under Section 401 of the Internal Revenue Code.
Employees who are at least 21 years old are generally eligible to participate
and may enter the Plan as of the first day of any calendar quarter. Participants
may make pre-tax contributions to the plan of up to 15% of their eligible
earnings, subject to a statutorily prescribed annual limit. Each participant is
fully vested in his or her contributions and the investment earnings. We make
matching contributions to the plan equal to 100% of the first 6% of a
participant's contribution. Each participant is vested in our contributions and
the corresponding investment earnings after three years of service.
Contributions by the participants or Cysive to the plan, and the income earned
on these contributions, are generally not taxable to the participants until
withdrawn. Contributions by us are generally deductible when made. Participant
and company contributions are held in trust as required by law. Individual
participants may direct the trustee to invest their accounts in authorized
investment alternatives.
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<PAGE> 47
PRINCIPAL STOCKHOLDERS
The following shows the number and percentage of outstanding shares of our
common stock that were owned as of August 19, 1999 and as adjusted to reflect
the sale of common stock in this offering by:
- each person known by us to own beneficially more than 5% of the common
stock
- each director, director nominee and named executive officer; and
- all directors and executive officers as a group.
Unless indicated otherwise below, the address for each listed director and
officer is Cysive, Inc., 11480 Sunset Hills Road, Suite 200E, Reston, VA 20190.
Except as indicated by footnote, the persons named in the table have sole voting
and investment power with respect to all shares of common stock shown as
beneficially owned by them. The total number of shares of common stock
outstanding used in calculating the percentage for each listed person includes
the shares of common stock underlying options held by that person that are
exercisable within 60 days of August 19, 1999 but excludes shares of common
stock underlying options held by any other person.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK PERCENTAGE OWNED
BENEFICIALLY OWNED -------------------
PRIOR TO AND PRIOR TO AFTER
NAME AFTER OFFERING OFFERING OFFERING
- ---------------------------------------------------------- ------------------- -------- --------
<S> <C> <C> <C>
Nelson A. Carbonell, Jr. (1).............................. 3,083,382 74.4% %
Eric J. Magleby (2)....................................... 1,050,000 29.1%
John R. Lund (3).......................................... 140,000 3.7%
Michael E. Price (4)...................................... 105,000 2.8%
Joseph M. Rymsza (5)...................................... 75,000 2.0% *
John M. Sabin (6)......................................... 16,000 * *
Jon S. Korin (7).......................................... 15,000 * *
----------
All executive officers and directors as a group (7
persons) (8)............................................ 4,484,382 99.8%
==========
</TABLE>
- ---------------
* Less than 1% of the outstanding common stock.
(1) Includes 2,550,000 shares of our common stock owned in joint tenancy by Mr.
Carbonell and his wife, Michele Carbonell. Also includes 533,382 shares of
common stock issuable upon the exercise of Mr. Carbonell's currently
exercisable options.
(2) Represents 1,050,000 shares of our common stock owned in joint tenancy by
Mr. Magleby and his wife, Monette Magleby.
(3) Represents 140,000 shares of common stock issuable upon exercise of
currently exercisable options.
(4) Represents 105,000 shares of common stock issuable upon exercise of
currently exercisable options.
(5) Represents 75,000 shares of common stock issuable upon exercise of currently
exercisable options.
(6) Includes 15,000 shares of common stock issuable upon exercise of currently
exercisable options.
(7) Represents 15,000 shares of common stock issuable upon exercise of currently
exercisable options.
(8) Includes 883,382 shares of common stock issuable upon exercise of currently
exercisable options.
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<PAGE> 48
DESCRIPTION OF CAPITAL STOCK
We founded our company as a Virginia corporation. We will reorganize as a
Delaware corporation concurrently with the closing of this offering. The
following summary description of our capital stock is based on the provisions of
the certificate of incorporation and bylaws that we will adopt when this
offering closes and the applicable provisions of the Delaware General
Corporation Law.
GENERAL
Our authorized capital stock consists of 75,000,000 shares of common stock,
par value $0.01 per share, and 10,000,000 shares of preferred stock, par value
$0.01 per share. We do not have any outstanding shares of preferred stock.
As of August 19, 1999, there were 3,612,000 shares of common stock
outstanding held by five stockholders of record. Based on the number of shares
outstanding on August 19, 1999, following this offering we will have outstanding
shares of common stock. In addition, as of August 19, 1999, there were
outstanding stock options for the purchase of a total of 2,652,200 shares of
common stock at a weighted average exercise price of $2.83 per share.
COMMON STOCK
We are authorized to issue 75,000,000 shares of common stock. Each
stockholder of record is entitled to one vote for each outstanding share of our
common stock owned by that stockholder on every matter properly submitted to the
stockholders for their vote. After satisfaction of the dividend rights of
holders of preferred stock, holders of common stock are entitled to any dividend
declared by the board of directors out of funds legally available for this
purpose, and, after the payment of liquidation preferences to holders of
preferred stock, holders of common stock are entitled to receive, on a pro rata
basis, all our remaining assets available for distribution to the stockholders
in the event of our liquidation, dissolution or winding up. Holders of common
stock do not have any preemptive right to become subscribers or purchasers of
additional shares of any class of our capital stock. The outstanding shares of
common stock are, and the shares of common stock offered in this offering will
be, when issued and paid for, fully paid and nonassessable. The rights,
preferences and privileges of holders of common stock may be adversely affected
by the rights of the holders of shares of any series of preferred stock that we
may designate and issue in the future.
PREFERRED STOCK
Our certificate of incorporation allows us to issue without stockholder
approval preferred stock having rights senior to those of the common stock.
Following completion of this offering, no shares of preferred stock will be
outstanding. Our board of directors will be authorized, without further
stockholder approval, to issue up to 10,000,000 shares of preferred stock in one
or more series and to fix the rights, preferences, privileges and restrictions
of any series of preferred stock, including dividend rights, conversion rights,
voting rights, terms of redemption and liquidation preferences and to fix the
number of shares constituting any series and the designations of these series.
Our issuance of preferred stock may have the effect of delaying or
preventing a change in control of Cysive. Our issuance of preferred stock could
decrease the amount of earnings and assets available for distribution to the
holders of common stock or could adversely affect the rights and powers,
including voting rights, of the holders of common stock. The issuance of
preferred stock could also have the effect of decreasing the market price of the
common stock. We currently have no plans to issue any shares of preferred stock.
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<PAGE> 49
LIMITATION OF LIABILITY OF DIRECTORS AND OFFICERS
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 breach of fiduciary duty as a
director, except for liability:
- for any breach of the director's duty of loyalty to us or our
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law, relating to
unlawful dividends or unlawful stock purchases or redemptions; or
- for any transaction from which the director derives an improper personal
benefit.
As a result of this provision, we and our stockholders may be unable to
obtain monetary damages from a director for breach of his or her duty of care.
Our bylaws provide for the indemnification of our directors and officers to
the fullest extent authorized by the Delaware General Corporation Law, except
that we will indemnify a director or officer in connection with an action
initiated by that person only if the action was authorized by our board of
directors. The indemnification provided under our bylaws includes the right to
be paid expenses in advance of the final disposition of a proceeding for which
indemnification may be had, provided that the payment of these expenses incurred
by a director or officer in advance of the final disposition of a proceeding may
be made only upon delivery to us of an undertaking by or on behalf of the
director or officer to repay all amounts paid in advance if it is ultimately
determined that the director or officer is not entitled to be indemnified. Under
our bylaws, if we do not pay a claim for indemnification within 60 days after we
have received a written claim, the director or officer may bring an action to
recover the unpaid amount of the claim and, if successful, the director or
officer also will be entitled to be paid the expense of prosecuting the action
to recover these unpaid amounts.
Under our bylaws, we have the power to purchase and maintain insurance on
behalf of any person who is or was one of our directors, officers, employees or
agents, or is or was serving at our request as a director, officer, employee,
partner or agent of another corporation or of a partnership, joint venture,
limited liability company, trust or other enterprise, against any liability
asserted against the person or incurred by the person in any of these
capacities, or arising out of the person's fulfilling one of these capacities,
and related expenses, whether or not we would have the power to indemnify the
person against the claim under the provisions of the Delaware General
Corporation Law. We intend to purchase director and officer liability insurance
on behalf of our directors and officers.
ANTI-TAKEOVER PROVISIONS
GENERAL
Our certificate of incorporation and bylaws contain provisions that are
intended to enhance the likelihood of continuity and stability in the
composition of and the policies formulated by our board of directors. In
addition, provisions of Delaware law may hinder or delay an attempted takeover
of Cysive other than through negotiation with our board of directors. These
provisions could have the effect of discouraging attempts to acquire Cysive or
remove incumbent management even if some or a majority of our stockholders
believe this action to be in their best interest, including attempts that might
result in the stockholders' receiving a premium over the market price for the
shares of common stock held by stockholders.
CLASSIFIED BOARD
Our certificate of incorporation provides for the division of our board of
directors into three classes of directors serving staggered three-year terms.
Our certificate of incorporation further provides that the
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<PAGE> 50
approval of the holders of at least two-thirds of the shares entitled to vote
thereon and the approval of a majority of our entire board of directors are
necessary for the alteration, amendment or repeal of sections of our certificate
of incorporation relating to the election and classification of our board of
directors, limitation of director liability, indemnification and the vote
requirements for such amendments to our certificate of incorporation. These
provisions may have the effect of deterring hostile takeovers or delaying
changes in control or management of our company.
REMOVAL OF DIRECTORS; VACANCIES
Our certificate of incorporation provides that directors may be removed
only for cause. In addition, vacancies and newly created directorships resulting
from any increase in the size of the board of directors may be filled only by
the affirmative vote of a majority of the directors then in office, even if they
do not constitute a quorum, or by a sole remaining director. These provisions
would prevent stockholders from removing incumbent directors without cause and
filling the resulting vacancies with their own nominees.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER PROPOSALS AND STOCKHOLDER NOMINATIONS
OF DIRECTORS
Our bylaws establish an advance notice procedure with regard to the
nomination, other than by the board of directors, of candidates for election to
the board of directors and with regard to matters to be brought before an annual
meeting of our stockholders by a stockholder. For nominations and other business
to be brought properly before an annual meeting by a stockholder, the
stockholder must deliver notice to us not less than 60 days nor more than 90
days prior to the first anniversary of the preceding year's annual meeting.
Separate provisions based on public notice by us specify how this advance notice
requirement operates if the date of the annual meeting is advanced by more than
30 days or delayed by more than 60 days from the anniversary date. The
stockholder's notice must set forth specified information regarding the
stockholder and its holdings, as well as background information regarding any
director nominee, together with that person's written consent to being named in
the proxy statement as a nominee and to serving as a director if elected, and a
brief description of any business desired to be brought before the meeting, the
reasons for conducting the business at the meeting and any material interest of
the stockholder in the business proposed. In the case of a special meeting of
stockholders called for the purpose of electing directors, nominations by a
stockholder may be made only by delivery to us, no later than 10 days following
the day on which public announcement of the special meeting is made, of a notice
that complies with the above requirements. Although our bylaws do not give our
board of directors any power to approve or disapprove stockholder nominations
for the election of directors or any other business desired by stockholders to
be conducted at an annual meeting, the bylaws:
- may have the effect of precluding a nomination for the election of
directors or precluding the conduct of business at a particular annual
meeting if the proper procedures are not followed; or
- may discourage or deter a third party from conducting a solicitation of
proxies to elect its own slate of directors or otherwise attempting to
obtain control of Cysive, even if the conduct of this solicitation or the
attempt to obtain control might be beneficial to Cysive and our
stockholders.
SPECIAL STOCKHOLDERS' MEETINGS
Under our certificate of incorporation and bylaws, special meetings of
stockholders, unless otherwise prescribed by statute, may be called only:
- by the board of directors, the chairperson, the chief executive officer
or the president; or
- by the holders of at least a majority of the securities of Cysive
outstanding and entitled to vote generally in the election of directors.
LIMITATIONS ON STOCKHOLDER ACTION BY WRITTEN CONSENT
Our certificate of incorporation and bylaws also provide that any action
required or permitted to be taken at a stockholders' meeting may be taken
without a meeting, without prior notice and without a vote,
47
<PAGE> 51
if the action is taken by persons who would be entitled to vote at a meeting and
who hold shares having voting power equal to not less than the minimum number of
votes of each class or series that would be necessary to authorize or take the
action at a meeting at which all shares of each class or series entitled to vote
were present and voted.
SECTION 203 OF DELAWARE LAW
In addition to the foregoing provisions of our certificate of incorporation
and bylaws, we will be governed by the provisions of Section 203 of the Delaware
General Corporation Law. Section 203 prohibits publicly held Delaware
corporations from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the interested stockholder. Generally, an "interested stockholder" is
a person who, together with affiliates and associates, owns, or within three
years did own, 15% or more of the corporation's outstanding voting stock. These
provisions could have the effect of delaying, deferring or preventing a change
in control of Cysive or reducing the price that investors might be willing to
pay in the future for shares of our common stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is .
LISTING
We intend to apply to have our common stock approved for quotation on the
Nasdaq National Market under the trading symbol "CYSV."
48
<PAGE> 52
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market could
adversely affect our common stock's prevailing market price. Upon completion of
this offering, we will have outstanding an aggregate of shares of our
common stock, assuming no exercise of the underwriters over-allotment option and
no exercise of outstanding options. Of these shares, all of the shares sold in
this offering will be freely tradable without restriction or further
registration under the Securities Act, unless the shares are purchased by
"affiliates" of Cysive as that term is defined in Rule 144 under the Securities
Act.
The remaining 3,612,000 shares of common stock held by existing
stockholders 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
Securities Act Rule 144 or 701. We summarize these two rules below. The
provisions of Rules 144 and 701 provide that the restricted securities will be
available for sale in the public market on the date which is one year from the
date they were issued, subject to the volume limitations and other conditions of
Rule 144.
RULE 144
Under Rule 144, 3,001,000 shares of common stock will be freely tradable 90
days after this offering closes. All of these shares of common stock will be
subject to lock-up agreements. In general, under Rule 144, beginning 90 days
after the closing of this offering, a person who has 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:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after this offering; or
- the average weekly trading volume of the 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.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
Cysive.
Under Rule 144(k), 11,000 shares of common stock will be freely tradable
after this offering closes. None of these shares of common stock will be subject
to lock-up agreements. Under Rule 144(k), a person who is not one of our
affiliates at any time during the 90 days preceding a sale, and who has owned
the shares proposed to be sold for at least two years, is entitled to sell the
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. Therefore, unless otherwise
restricted, "Rule 144(k) shares" may be sold immediately upon the completion of
this offering.
RULE 701
As of August 19, 1999, a total of 1,809,128 shares of common stock had been
issued or were issuable upon the exercise of options. All of these shares,
subject to option vesting, will be eligible for sale in reliance on Rule 701
beginning 90 days after the closing of this offering. Of these shares of common
stock, 1,483,382 will be subject to lock-up agreements. In general, under Rule
701 as currently in effect, any of our employees who have purchased shares from
us in connection with a compensatory plan or other agreement is eligible to
resell such shares 90 days after the effective date of this offering in reliance
on Rule 144, but without compliance with restrictions, including the holding
period, contained in Rule 144.
STOCK OPTIONS
As soon as practicable after this offering, we intend to file a
registration statement under the Securities Act covering 4,000,000 shares of
common stock reserved for issuance under our stock plans. As of August 19, 1999,
options to purchase 2,652,200 shares of common stock were outstanding. The
49
<PAGE> 53
registration statement is expected to be filed and become effective as soon as
practicable after the effective date of this offering. Accordingly, shares
registered under such registration statement will, subject to vesting provisions
and Rule 144 volume limitations applicable to our affiliates, be available for
sale in the open market shortly after this offering closes, and in the case of
our officers, directors and stockholders who have entered into lock-up
agreements, after the 180-day lock-up agreements expire.
LOCK-UP AGREEMENTS
All of Cysive's officers and directors, and several of its stockholders,
who will beneficially own an aggregate of shares of common stock after
this offering closes, will sign lock-up agreements with the underwriters under
which they agreed, among other things, not to offer, sell or agree to sell,
directly or indirectly, or otherwise dispose of any shares of common stock or
any securities convertible into or exercisable or exchangeable for shares of
common stock, for a period of 180 days after the date of this prospectus.
Transfers or dispositions can be made sooner with the prior written consent of
Thomas Weisel Partners LLC. This consent may be given at any time without public
notice.
50
<PAGE> 54
UNDERWRITING
Subject to the terms and conditions set forth in an agreement among the
underwriters and us, each of the underwriters named below, through their
representatives, Thomas Weisel Partners LLC, First Union Capital Markets Corp.
and Friedman, Billings, Ramsey & Co., Inc., has severally agreed to purchase
from us the aggregate number of shares of common stock set forth opposite its
name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ---------------------------------------------------------- ---------
<S> <C>
Thomas Weisel Partners LLC................................
First Union Capital Markets Corp..........................
Friedman, Billings, Ramsey & Co., Inc.....................
Total...........................................
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters are subject to various conditions, such as approval of legal
matters by counsel. The nature of the underwriters' obligations is such that
they are committed to purchase and pay for all of the shares of common stock
listed above if any are purchased.
The underwriting agreement provides that we will indemnity the underwriters
against liabilities specified in the underwriting agreement under the Securities
Act of 1933, as amended, or will contribute to payments that the underwriters
may be required to make relating to these liabilities.
OVER-ALLOTMENT OPTION
We have granted a 30-day over-allotment option to the underwriters to
purchase up to an aggregate of additional shares of common stock at
the public offering price less the underwriting discount and commissions as set
forth on the cover page of this prospectus. If the underwriters exercise such
option in whole or in part, then each of the underwriters will be severally
committed, subject to conditions described in the underwriting agreement, to
purchase the additional shares of common stock in proportion to their respective
purchase commitments set forth in the above table.
COMMISSIONS AND DISCOUNTS
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 at such price less a concession not in excess of $ per share
of common stock to other dealers specified in a master agreement among
underwriters that are members of the National Association of Securities Dealers,
Inc. The underwriters may allow, and such dealers may reallow, concessions not
in excess of $ per share of common stock to these other dealers. After this
offering, the offering price, concessions and other selling terms may be changed
by the underwriters. The common stock is offered subject to receipt and
acceptance by the underwriters and to other conditions, including the right to
reject orders in whole or in part.
This table summarizes the compensation to be paid to the underwriters by us
and the expenses payable by us:
<TABLE>
<CAPTION>
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting discount and commissions...................
Expenses................................................
</TABLE>
The underwriters do not expect to confirm sales of common stock to any
accounts over which they exercise discretionary authority.
51
<PAGE> 55
RESERVED SHARES
The underwriters, at our request, have reserved for sale at the initial
public offering price up to shares of common stock to be sold in the
offering for sale to persons designated by us. The number of shares available
for sale to the general public will be reduced to the extent that any reserved
shares are purchased. Any reserved shares not purchased in this manner will be
offered by the underwriters on the same basis as the other shares offered in the
offering.
NO SALES OF SIMILAR SECURITIES
All of our officers and directors, and several of our stockholders and
option holders, have agreed that they will not offer, sell, agree to sell
(directly or indirectly) or otherwise dispose of any shares of common stock
without the prior written consent of Thomas Weisel Partners LLC for a period of
180 days after the date of this prospectus.
In addition, we have agreed that for a period of 180 days after the date of
this prospectus we will not, without the prior written consent of Thomas Weisel
Partners LLC, offer, sell or otherwise dispose of any shares of our capital
stock, except for the shares of common stock being offered and the shares of
common stock issuable upon the exercise of options and warrants outstanding on
the date of this prospectus.
INFORMATION REGARDING THOMAS WEISEL PARTNERS LLC
Thomas Weisel Partners, LLC, one of the representatives of the
underwriters, was organized and registered as a broker-dealer in December 1998.
Since December 1998, Thomas Weisel Partners LLC has been named as a lead-manager
or co-manager on 58 filed public offerings of equity securities, of which 33
have been completed, and has acted as a syndicate member in an additional 32
public offerings of equity securities. Thomas Weisel Partners LLC does not have
any material relationship with us or any of our officers, directors or
controlling persons, except with respect to its contractual relationship with us
under the underwriting agreement entered into in connection with this offering.
NASDAQ NATIONAL MARKET LISTING
Prior to this offering, there has been no public market of the common
stock. The initial offering price will be determined by negotiations between us
and the representatives of the underwriters. Some of the factors to be
considered in these negotiations will be our results of operations in recent
periods, estimates of our prospects and the industry in which we compete, an
assessment of our management, the general state of the securities markets at the
time of this offering and the prices of similar securities of generally
comparable companies. We have applied for approval for listing of the common
stock on the Nasdaq National Market under the symbol "CYSV." We cannot assure
you, however, that an active or orderly trading market will develop for the
common stock or that the common stock will trade in the public market subsequent
to this offering at or above the initial offering price.
MARKET STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
In order to facilitate this offering, persons participating in the offering
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock during and after this offering. Specifically, the
underwriters may over-allot or otherwise create a short position in the common
stock for their own account by selling more shares of common stock than we have
sold to them. The underwriters may elect to cover any short position by
purchasing shares of common stock in the open market or by exercising the
over-allotment option granted to the underwriters. In addition, the underwriters
may stabilize or maintain the price of the common stock by bidding for or
purchasing shares of common stock in the open market and may impose penalty
bids. Under these penalty bids, selling concessions that are allowed to
syndicate members or other broker-dealers participating in this offering are
reclaimed if shares of common stock previously distributed in this offering are
repurchased, usually in order to stabilize the market. The effect of these
transactions may be to stabilize or maintain the market price at a level above
that which might otherwise prevail in the open market. No representation is made
as to the magnitude or
52
<PAGE> 56
effect of any such stabilization or other transactions. These transactions may
be affected on the Nasdaq National Market or otherwise and may be discontinued
at any time after they are commenced.
VALIDITY OF THE SHARES
Hogan & Hartson L.L.P., Washington, D.C., will pass upon the validity of
the issuance of the common stock being offered. Hale and Dorr LLP, Washington,
D.C., will pass upon selected legal matters in connection with this offering for
the underwriters.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements and schedule at December 31, 1998 and 1997, and for each of the three
years in the period ended December 31, 1998, as set forth in their reports. We
have included our financial statements and schedule in the prospectus and
elsewhere in the Registration Statement in reliance on Ernst & Young LLP's
reports, given on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange commission a registration
statement on Form S-1 under the Securities Act of 1933 with respect to the
common stock being offered. This prospectus does not contain all of the
information set forth in the registration statement and the exhibits and
schedules to the registration statement. For further information about us and
the common stock, you should refer to the registration statement and its
exhibits and schedules. Statements contained in this prospectus regarding the
contents of any contract or any other document to which we make reference are
not necessarily complete. In each instance, we make reference to the copy of
such contract or other document filed as an exhibit to the registration
statement, and each such statement is qualified in all respects by this
reference. You may inspect a copy of the registration statement and the exhibits
and schedules to the registration statement without charge at the offices of the
Securities and Exchange Commission at Judiciary Plaza, 450 Fifth Street,
Washington, D.C. 20549. You may obtain copies of all or any part of the
Registration Statement from the Public Reference Section of the Securities and
Exchange Commission, 450 Fifth Street, Washington, D.C. 20549 upon the payment
of the prescribed fees. You may obtain information on the operation of the
Public Reference Room by calling the Securities and Exchange Commission at
1-800-SEC-0330. The Securities and Exchange Commission maintains a Web site at
www.sec.gov that contains reports, proxy and information statements and other
information regarding registrants like us that file electronically with the
Securities and Exchange Commission.
53
<PAGE> 57
CYSIVE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Stockholders' Equity.......................... F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 58
REPORT OF ERNST & YOUNG, LLP, INDEPENDENT AUDITORS
Board of Directors
Cysive, Inc.
We have audited the accompanying balance sheets of Cysive, Inc. (formerly
Alta Software, Inc.) as of December 31, 1997 and 1998, and the related
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1998. 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 provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cysive, Inc. at December 31,
1997 and 1998, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Vienna, Virginia
January 14, 1999, except for
Note 11, as to which
the date is August 19, 1999.
F-2
<PAGE> 59
CYSIVE, INC.
BALANCE SHEETS
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999
IS UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
----------------------- ------------------------
1999
1997 1998 1999 PRO FORMA
---------- ---------- ---------- -----------
(NOTE 2)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents................ $ 690,283 $ 611,654 $ 869,244 $ 869,244
Accounts receivable, less allowance of
$150,000, $160,000 and $506,000 at
December 31, 1997 and 1998 and the six
months ended June 30, 1999,
respectively........................... 1,438,082 2,070,196 4,058,091 4,058,091
Prepaid expenses and other assets........ 27,343 112,095 242,742 242,742
---------- ---------- ---------- ----------
Total current assets................ 2,155,708 2,793,945 5,170,077 5,170,077
Furniture, fixtures and equipment, net...... 257,433 338,452 426,240 426,240
Deferred income taxes....................... -- -- -- 566,000
Other assets................................ 8,022 30,190 196,056 196,056
---------- ---------- ---------- ----------
Total assets........................ $2,421,163 $3,162,587 $5,792,373 $6,358,373
========== ========== ========== ==========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable......................... $ 15,044 $ 27,219 $ 150,950 $ 150,950
Accrued liabilities...................... 192,485 616,715 1,655,524 1,655,524
Income taxes payable..................... -- -- -- 915,000
---------- ---------- ---------- ----------
Total current liabilities........... 207,529 643,934 1,806,474 2,721,474
Commitments................................. -- -- -- --
Stockholders' equity:
Preferred stock, $1.00 par value,
1,000,000 shares authorized, no shares
issued or outstanding.................. -- -- -- --
Common stock, $0.01 par value, 75,000,000
shares authorized; 3,012,000, 3,012,000
and 3,612,000 issued and outstanding at
December 31, 1997 and 1998 and June 30,
1999, respectively..................... 30,120 30,120 36,120 36,120
Additional paid-in capital............... 179,564 176,635 2,079,850 2,079,850
Deferred stock compensation.............. (177,987) (105,829) (118,602) (118,602)
Retained earnings........................ 2,181,937 2,417,727 1,988,531 1,639,531
---------- ---------- ---------- ----------
Total stockholders' equity.......... 2,213,634 2,518,653 3,985,899 3,636,899
---------- ---------- ---------- ----------
Total liabilities and stockholders'
equity............................ $2,421,163 $3,162,587 $5,792,373 $6,358,373
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 60
CYSIVE, INC.
STATEMENTS OF OPERATIONS
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999
IS UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------ -------------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues........................... $5,556,676 $7,711,138 $9,141,966 $3,193,186 $9,423,910
Direct costs..................... 2,055,541 2,798,005 3,741,559 1,808,886 3,473,020
---------- ---------- ---------- ---------- ----------
Gross profit....................... 3,501,135 4,913,133 5,400,407 1,384,300 5,950,890
Operating expenses:
General and administrative....... 2,009,553 2,753,812 2,725,290 1,009,122 2,574,201
Sales and marketing.............. 232,118 760,572 1,823,983 671,884 1,720,173
Stock compensation............... -- -- 69,229 -- 798,442
---------- ---------- ---------- ---------- ----------
Total operating
expenses............... 2,241,671 3,514,384 4,618,502 1,681,006 5,092,816
---------- ---------- ---------- ---------- ----------
Operating income (loss)............ 1,259,464 1,398,749 781,905 (296,706) 858,074
Other income, net.................. 17,373 23,543 14,080 15,185 24,840
---------- ---------- ---------- ---------- ----------
Net income (loss).................. $1,276,837 $1,422,292 $ 795,985 $ (281,521) $ 882,914
========== ========== ========== ========== ==========
Basic earnings (loss) per share.... $0.42 $0.47 $0.26 $(0.09) $0.24
Weighted average shares
outstanding...................... 3,012,000 3,012,000 3,012,000 3,012,000 3,612,000
Diluted earnings (loss) per
share............................ $0.38 $0.41 $0.23 $(0.09) $0.21
Weighted average shares and common
stock equivalents................ 3,320,797 3,449,129 3,508,167 3,012,000 4,304,937
Pro forma diluted earnings per
share............................ $0.13 $0.12
Pro forma weighted average shares
and common stock equivalents..... 3,508,167 4,304,937
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 61
CYSIVE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999
IS UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL DEFERRED
-------------------- PAID-IN STOCK RETAINED
SHARES AMOUNT CAPITAL COMPENSATION EARNINGS TOTAL
---------- ------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995..... 3,012,000 $30,120 $ 1,577 $ -- $ 805,505 $ 837,202
Stockholder distribution......... -- -- -- -- (636,224) (636,224)
Net income....................... -- -- -- -- 1,276,837 1,276,837
---------- ------- ---------- --------- ---------- ----------
Balance at December 31, 1996..... 3,012,000 30,120 1,577 -- 1,446,118 1,477,815
Stockholder distribution......... -- -- -- -- (686,473) (686,473)
Deferred stock compensation...... -- -- 177,987 (177,987) -- --
Net income....................... -- -- -- -- 1,422,292 1,422,292
---------- ------- ---------- --------- ---------- ----------
Balance at December 31, 1997..... 3,012,000 30,120 179,564 (177,987) 2,181,937 2,213,634
Stockholder distribution......... -- -- -- -- (560,195) (560,195)
Issuance of compensatory stock
options........................ -- -- 41,329 -- -- 41,329
Deferred stock compensation...... -- -- (44,258) 72,158 -- 27,900
Net income....................... -- -- -- -- 795,985 795,985
---------- ------- ---------- --------- ---------- ----------
Balance at December 31, 1998..... 3,012,000 30,120 176,635 (105,829) 2,417,727 2,518,653
Stockholder distribution......... -- -- -- -- (1,312,110) (1,312,110)
Common stock issued upon exercise
of options..................... 600,000 6,000 1,092,000 -- -- 1,098,000
Issuance of compensatory stock
options........................ -- -- 785,733 -- -- 785,733
Deferred stock compensation...... -- -- 25,482 (12,773) -- 12,709
Net income....................... -- -- -- -- 882,914 882,914
---------- ------- ---------- --------- ---------- ----------
Balance at June 30, 1999......... 3,612,000 $36,120 $2,079,850 $(118,602) $1,988,531 $3,985,899
========== ======= ========== ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 62
CYSIVE, INC.
STATEMENTS OF CASH FLOWS
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999
IS UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------- -----------------------
1996 1997 1998 1998 1999
---------- ---------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................... $1,276,837 $1,422,292 $ 795,985 $(281,521) $ 882,914
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation............................ 87,967 144,763 163,816 79,895 83,461
Amortization............................ 44,444 115,555 3,712 -- 10,839
Stock compensation...................... -- -- 69,229 -- 798,442
Loss on sale of furniture, fixtures and
equipment, net........................ -- -- 664 -- 4,782
Provision for doubtful accounts......... -- 150,000 10,000 -- 345,628
Changes in assets and liabilities:
Accounts receivable................... (305,356) (754,038) (642,114) 304,258 (2,333,523)
Prepaid expenses and other assets..... (9,533) (10,156) (106,920) (29,482) (296,513)
Accounts payable...................... 18,241 (4,026) 12,175 35,638 123,731
Accrued liabilities................... (35,466) (63,477) 424,230 207,921 1,038,809
---------- ---------- ----------- --------- -----------
Net cash provided by operating
activities.............................. 1,077,134 1,000,913 730,777 316,709 658,570
Cash flows from investing activities:
Capital expenditures.................... (278,855) (80,011) (249,211) (79,619) (186,870)
---------- ---------- ----------- --------- -----------
Net cash used in investing activities..... (278,855) (80,011) (249,211) (79,619) (186,870)
Cash flows from financing activities:
Stockholder distributions............... (636,224) (686,473) (560,195) (424,052) (214,110)
Advances under line of credit........... -- -- 1,523,777 -- --
Repayments of line of credit............ -- -- (1,523,777) -- --
---------- ---------- ----------- --------- -----------
Net cash used in financing activities..... (636,224) (686,473) (560,195) (424,052) (214,110)
Increase (decrease) in cash and cash
equivalents............................. 162,055 234,429 (78,629) (186,962) 257,590
Cash and cash equivalents at beginning of
period.................................. 293,799 455,854 690,283 690,283 611,654
---------- ---------- ----------- --------- -----------
Cash and cash equivalents at end of
period.................................. $ 455,854 $ 690,283 $ 611,654 $ 503,321 $ 869,244
========== ========== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 63
CYSIVE, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999
IS UNAUDITED)
NOTE 1 -- ORGANIZATION
Cysive, Inc. (formerly Alta Software, Inc.) (the "Company" or "Cysive") is
a leading software engineering firm that designs and builds complex, highly
customized architectures and systems necessary to support large scale
eBusinesses. Since commencing operations in 1994, Cysive has built
business-critical architectures using core Internet technologies. These
architectures automate business processes and provide the technology
infrastructure necessary for high levels of customer interactivity, 24/7
reliability and significant scalability required to support large scale
eBusinesses. The Company operates in one business segment.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
The Company derives substantially all of its revenues from time and
materials contracts. On these contracts, revenues are computed by multiplying
the number of project personnel hours expended in the performance of the
contract by the contract billing rates plus other directly billable costs.
Reserves for possible losses on contracts, if any, are recognized in full when
determined. Any prepayments by clients are recorded as deferred revenue and are
recognized as services are provided.
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, the
disclosure of 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.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with a maturity of three months or less at the time of
purchase to be cash equivalents.
FINANCIAL INSTRUMENTS
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash and accounts receivable.
The cash is held by a financial institution. For accounts receivable, the
Company performs ongoing credit evaluations of its customers' financial
condition and generally does not require collateral. The Company maintains
reserves for credit losses which, historically, have been within management's
expectations. The carrying amount of the receivables approximates their fair
value.
FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment are stated at historical cost, net of
accumulated depreciation and amortization. Repairs and maintenance are charged
to operations as incurred, while significant
F-7
<PAGE> 64
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
improvements are capitalized. Furniture, fixtures and equipment are depreciated
or amortized over their estimated useful life, on the straight-line basis, using
the following useful lives:
<TABLE>
<S> <C>
Computers and related equipment Three years
Software Three years
Furniture Five years
Leasehold Improvements Shorter of lease term or useful
life
</TABLE>
INCOME TAXES
The Company and its shareholders have elected to be treated as an S
corporation under the Internal Revenue Code. Under the provisions of the tax
code, the Company's shareholders include their pro rata share of the Company's
income in their personal income tax returns. Accordingly, the Company was not
subject to federal and most state income taxes during the historical periods
presented. The Company currently anticipates completing an initial public
offering of its common stock in 1999 (see Note 11), which will result in the
termination of the Company's S corporation status. At that time, the Company
will convert to a C corporation and will begin accounting for income taxes under
the liability method. As of December 31, 1998 and June 30, 1999, the difference
between the tax bases and the reported amounts of the Company's assets and
liabilities was $773,000 and $1,514,000, respectively.
The Company intends to distribute to stockholders of record immediately
prior to the offering, on a pro rata basis, the undistributed balance of
cumulative income taxed or taxable to these stockholders.
STOCK-BASED COMPENSATION
The Company accounts for its stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees" ("APB 25") using the intrinsic value method. The Company has made pro
forma disclosures required by Statement of Financial Accounting Standards No.
123 ("SFAS 123") "Accounting for Stock Based Compensation" using the fair value
method.
COMPUTATION OF HISTORICAL EARNINGS PER SHARE
Basic earnings per share is calculated using the weighted average number of
common shares outstanding during the period. Diluted earnings per share is
calculated using the weighted average number of common and dilutive common
equivalent shares outstanding during the period, using the treasury stock method
for options.
SIGNIFICANT CUSTOMERS
For the year ended December 31, 1996, three customers individually
represented 65%, 27% and 4% of the Company's revenues. For the year ended
December 31, 1997, three customers individually represented 50%, 17% and 10% of
the Company's revenues. For the year ended December 31, 1998, three customers
individually represented 20%, 18% and 13% of the Company's revenues. For the six
months ended June 30, 1999, three customers individually represented 35%, 15%
and 13% of the Company's revenues.
ADVERTISING COSTS
All advertising and promotion costs are expensed as incurred. During the
years ended December 31, 1996, 1997 and 1998, the Company expensed $40,000,
$88,000 and $194,000, respectively, as advertising costs.
F-8
<PAGE> 65
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain amounts in the prior years financial statements have been
reclassified to conform to the current year presentation.
NOTE 3 -- UNAUDITED INTERIM FINANCIAL INFORMATION
The interim financial information of the Company for the six months ended
June 30, 1998 and 1999 included herein has 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 for complete financial statements 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 information reflects all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial position of the
Company at June 30, 1998 and 1999, and the results of its operations and its
cash flows for the six months ended June 30, 1998 and 1999. Results of
operations for the interim period ended June 30, 1999 are not necessarily
indicative of the results expected for the full year.
NOTE 4 -- FURNITURE, FIXTURES AND EQUIPMENT
Major classes of furniture, fixtures and equipment consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1997 1998 1999
--------- --------- -----------
<S> <C> <C> <C>
Computers and related equipment.................... $ 402,888 $ 547,130 $ 515,723
Software........................................... -- 64,412 66,668
Furniture.......................................... 62,493 99,636 205,143
Leasehold improvements............................. 44,417 44,417 78,008
--------- --------- ---------
509,798 755,595 865,542
Less accumulated depreciation and amortization..... (252,365) (417,143) (439,302)
--------- --------- ---------
$ 257,433 $ 338,452 $ 426,240
========= ========= =========
</TABLE>
NOTE 5 -- ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1997 1998 1999
-------- -------- ------------
<S> <C> <C> <C>
Payroll and payroll taxes........................... $122,097 $295,816 $ 346,199
Bonuses............................................. -- 141,496 907,694
Vacation............................................ 52,584 96,798 179,858
Deferred revenue.................................... -- 69,477 5,976
Other............................................... 17,804 13,128 215,797
-------- -------- ----------
$192,485 $616,715 $1,655,524
======== ======== ==========
</TABLE>
NOTE 6 -- LINE OF CREDIT
In June 1998, the Company entered into a line of credit with a financial
institution from which the Company may draw up to $1,000,000. In March 1999, the
Company increased the amount available for withdrawal to $1,500,000. The line of
credit expires in September 1999. Interest accrues on outstanding
F-9
<PAGE> 66
NOTE 6 -- LINE OF CREDIT (CONTINUED)
balances at the 30-day commercial paper rate as quoted in the Wall Street
Journal, plus 2.9% per annum. The line of credit is secured by all assets of the
Company. At December 31, 1997 and 1998 and June 30, 1999, there were no
outstanding borrowings. Commitment fees of 0.25% paid on the unused line of
credit during 1998 and 1999 were not material.
NOTE 7 -- EMPLOYEE BENEFIT PLAN
The Company has a 401(k) Savings Plan (the "Plan") in which employees are
eligible to participate beginning on the first day of the quarter subsequent to
their hire date and attaining age 21. The Plan allows employees to contribute up
to 15% of their bi-weekly compensation, subject to the statutory limitations.
The Company matches employee contributions up to the first six percent of each
participant's bi-weekly compensation, subject to statutory limitations. The
Company contributions to the Plan are discretionary as authorized by the Board
of Directors. Expense reflected in the statements of operations relating to the
Plan was $155,000, $210,000 and $207,000 for the years ended December 31, 1996,
1997 and 1998, respectively.
NOTE 8 -- STOCKHOLDERS' EQUITY
EQUITY TRANSACTION
In January 1999, two employees and stockholders of the Company exercised
options for the purchase of 600,000 shares for $1,098,000, which was funded
through a distribution in the same amount to the stockholders.
STOCK OPTIONS
In December 1994, the Company established a stock option plan (the "1994
Option Plan") under which 1,000,000 shares of common stock were reserved for
issuance upon exercise of options granted to employees, officers and directors
of the Company. The Board of Directors increased the number of shares available
under the plan to 2,000,000 in November 1995, to 3,000,000 in April 1997 and
subsequently to 4,600,000 in April 1999. The price for the incentive stock
options is to be not less than the fair market value at the date of grant as
determined by the Board of Directors. The 1994 Option Plan provides for
incentive, non-qualified and restricted stock options. Non-employees are not
eligible for incentive stock options.
In July 1997, the Company issued non-qualified options to purchase an
aggregate of 143,538 shares to certain Company directors and an employee (the
"Employee") at an exercise price of $1.87 per share which was considered to be
below fair market value at the time of the option grants. Accordingly, the
Company recorded deferred stock compensation of $177,987. In March 1998, the
Company issued non-qualified options to purchase an aggregate of 17,846 shares
to a certain officer at an exercise price of $1.87 per share which was
considered to be below fair market value at the time of the option grant. The
Company recorded deferred stock compensation of $22,129. In June 1998, the
Employee left the Company and $66,387 was reversed from deferred stock
compensation since no options had vested. In June 1998, the Company also
amortized $27,900 to expense to reflect the 25% vested portion of the deferred
stock compensation.
In April 1999, the Company issued fully vested incentive stock options to
purchase an aggregate of 145,772 shares and fully vested non-qualified options
to purchase an aggregate of 504,228 shares at exercise prices of $3.77 and $2.06
per share (each of which was considered to be below fair market value),
respectively. In accordance with APB 25, the Company recorded $798,442 in
compensation expense.
Options granted under this plan expire no more than five years from the
date of grant for 10% stockholders and ten years from the date of grant for all
other recipients. Except as otherwise noted above, options granted through April
19, 1999 under this plan vest in accordance with the following schedule: one
F-10
<PAGE> 67
NOTE 8 -- STOCKHOLDERS' EQUITY (CONTINUED)
year from the date of the grant, 25%, two years from the date of the grant, 25%,
and three years from the date of the grant, the remaining 50%. Options granted
subsequent to April 19, 1999 vest 25% per year for four years.
The Company has reserved 4,600,000 shares of common stock issuable upon
exercise of options granted under the 1994 Option Plan, of which options to
purchase 1,493,800 shares of common stock are available for grant under the 1994
Option Plan as of June 30, 1999.
The Company adopted the disclosure-only provisions of SFAS No. 123.
Accordingly, no compensation cost has been recognized related to options granted
at fair value during 1996, 1997 and 1998.
Common stock option activity was as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
---------- --------
<S> <C> <C>
Outstanding at December 31, 1995........................... 917,500 $1.77
Granted.................................................. 280,500 2.69
Exercised................................................ -- --
Cancelled or expired..................................... (32,000) 2.30
----------
Outstanding at December 31, 1996........................... 1,166,000 1.98
Granted.................................................. 384,500 2.65
Exercised................................................ -- --
Cancelled or expired..................................... (122,250) 1.97
----------
Outstanding at December 31, 1997........................... 1,428,250 2.16
Granted.................................................. 686,000 3.18
Exercised................................................ -- --
Cancelled or expired..................................... (180,250) 2.72
----------
Outstanding at December 31, 1998........................... 1,934,000 2.47
Granted.................................................. 1,201,200 2.79
Exercised................................................ (600,000) 1.83
Cancelled or expired..................................... (29,000) 3.14
----------
Outstanding at June 30, 1999............................... 2,506,200 2.75
==========
Exercisable at June 30, 1999 1,182,178 $1.20
</TABLE>
The following table summarizes information regarding stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------- ----------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- ------------------------------------------ ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.00 -- $2.00............................ 930,506 3.5 $1.80 838,000 $1.79
$2.01 -- $3.43............................ 1,003,494 8.8 3.09 146,125 2.78
--------- -------
$0.00 -- $3.43............................ 1,934,000 6.3 $2.47 984,125 $1.93
========= =======
</TABLE>
F-11
<PAGE> 68
NOTE 8 -- STOCKHOLDERS' EQUITY (CONTINUED)
Had compensation expense related to the stock option plans been determined
based on the fair value at the grant date for options granted in 1996, 1997 and
1998 consistent with the provisions of SFAS No. 123, the Company's pro forma net
income and earnings per share would have been as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
---------------------------------- JUNE 30,
1996 1997 1998 1999
---------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Net income -- pro forma................. $1,208,157 $1,279,562 $552,470 $701,142
========== ========== ======== ========
Pro forma earnings per common share..... $0.40 $0.43 $0.18 $0.19
Pro forma earnings per common share --
assuming dilution..................... $0.36 $0.37 $0.16 $0.16
</TABLE>
The effect of applying SFAS No. 123 on 1996, 1997 and 1998 pro forma net
income as stated above is not necessarily representative of the effects on
reported net income for future years due to, among other things, the vesting
period of the stock options and the fair value of additional stock options in
future years.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing fair value model with the following
weighted-average assumptions used for grants in 1996, 1997 and 1998: volatility
of 0%; dividend yield of 0%; expected life of the option term of three, four and
five years, respectively; and risk-free interest rate of 6.5%. The weighted
average fair values of the options granted in 1996 with a stock price equal to
the exercise price is $0.48 per share. The weighted average fair values of the
options granted in 1997 with a stock price equal to the exercise price and with
a stock price greater than the exercise price are $0.55 and $1.57 per share,
respectively. The weighted average fair value of the options granted during the
six months ended June 30, 1999 with a stock price equal to the exercise price
and with a stock price greater than the exercise price are $0.94 and $1.81 per
share, respectively.
NOTE 9 -- EARNINGS (LOSS) PER SHARE
The following table summarizes the computation of basic and diluted
earnings (loss) per share for the years ended December 31, 1996, 1997 and 1998
and for the six-month periods ended June 30, 1998 and 1999:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------ -------------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Numerator:
Net income (loss)................. $1,276,837 $1,422,292 $795,985 $(281,521) $882,914
========== ========== ========== ========== ===========
Denominator:
Weighted average shares......... 3,012,000 3,012,000 3,012,000 3,012,000 3,612,000
Weighted average effect of
common stocks equivalents.... 308,797 437,129 496,167 --* 692,937
---------- ---------- ---------- ---------- -----------
3,320,797 3,449,129 3,508,167 3,012,000 4,304,937
========== ========== ========== ========== ===========
Earnings (loss) per share:
Basic........................... $0.42 $0.47 $0.26 $(0.09) $0.24
Diluted......................... $0.38 $0.41 $0.23 $(0.09) $0.21
</TABLE>
* Excluded, as effect is anti-dilutive.
F-12
<PAGE> 69
NOTE 10 -- COMMITMENTS
LEASE OBLIGATIONS
The Company is obligated under various non-cancelable leases for office
facilities and certain computer equipment. These leases generally provide for
renewal options and escalation increases. In 1998, the Company amended a
non-cancelable operating lease and also entered into a new non-cancelable
operating lease for office space in California.
Future minimum payments under non-cancelable operating leases with initial
terms of one year or more as of December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999........................................................ $ 330,939
2000........................................................ 274,232
2001........................................................ 247,842
2002........................................................ 255,510
2003........................................................ 151,028
Thereafter.................................................. --
----------
Total minimum lease payments...................... $1,259,551
==========
</TABLE>
Rental expense on operating leases was $70,000, $108,000 and $237,000 for
the years ended December 31, 1996, 1997 and 1998, respectively.
NOTE 11 -- SUBSEQUENT EVENT
In July 1999, the Board of Directors of the Company authorized the filing
of a registration statement with the SEC that would permit the Company to sell
shares of the Company's common stock in connection with a proposed initial
public offering.
F-13
<PAGE> 70
PROSPECTUS
LOGO
Shares
Common Stock
THOMAS WEISEL PARTNERS LLC
FIRST UNION CAPITAL MARKETS CORP.
FRIEDMAN BILLINGS RAMSEY
- --------------------------------------------------------------------------------
You may rely on the information contained in this prospectus. Neither we nor any
of the Underwriters have authorized anyone to provide information different from
that contained in this prospectus. When you make a decision about whether to
invest in our common stock, you should not rely upon any information other than
the information in this prospectus. Neither the delivery of this prospectus nor
sale of common stock means that information contained in this prospectus is
correct after the date of this prospectus. This prospectus is not an offer to
sell or solicitation of an offer to buy these shares of the common stock in any
circumstances under which the offer or solicitation is unlawful.
Until , 1999 (25 days after the commencement of this offering), all
dealers that buy, sell or trade these shares of common stock, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealers' obligation to deliver a prospectus when acting as
Underwriters and with respect to their unsold allotments or subscriptions.
<PAGE> 71
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various fees and expenses, other than
the underwriting discounts and commissions, payable by the Registrant in
connection with the sale of the common stock being registered hereby. All
amounts shown are estimates except for the Securities and Exchange Commission
("SEC") registration fee, the NASD filing fee and the Nasdaq National Market
listing fee.
<TABLE>
<CAPTION>
AMOUNT
------
<S> <C>
SEC registration fee........................................ $16,680
NASD filing fee............................................. 6,500
Nasdaq National Market listing fee..........................
Blue sky qualification fees and expenses.................... 11,800
Accounting fees and expenses................................
Legal fees and expenses.....................................
Printing and engraving expenses.............................
Transfer agent and registrar fees...........................
Miscellaneous expenses......................................
Total............................................. $
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Upon completion of this offering, the Certificate of Incorporation and
Bylaws of the Registrant will provide for the indemnification of the
Registrant's directors and officers to the fullest extent authorized by, and
subject to the conditions set forth in the Delaware General Corporation Law (the
"DGCL"), except that the Registrant will indemnify a director or officer in
connection with a proceeding (or part thereof) initiated by the person only if
the proceeding (or part thereof) was authorized by the Registrant's Board of
Directors. The indemnification provided under the Certificate of Incorporation
and Bylaws includes the right to be paid by the Registrant the expenses
(including attorneys' fees) in advance of any proceeding for which
indemnification may be had in advance of its final disposition, provided that
the payment of such expenses (including attorneys' fees) incurred by a director
or officer in advance of the final disposition of a proceeding may be made only
upon delivery to the Registrant of an undertaking by or on behalf of the
director or officer to repay all amounts so paid in advance if it is ultimately
determined that the director or officer is not entitled to be indemnified.
Pursuant to the Bylaws, if a claim for indemnification is not paid by the
Registrant within 60 days after a written claim has been received by the
Registrant, the claimant may at any time thereafter bring an action against the
Registrant to recover the unpaid amount of the claim and, if successful in whole
or in part, the claimant will be entitled to be paid also the expense of
prosecuting the action.
As permitted by the DGCL, the Registrant's Certificate of Incorporation
will provide that directors of the Registrant shall not be liable to the
Registrant or its stockholders for monetary damages for breach of fiduciary duty
as a director, except for liability (i) for any breach of the director's duty of
loyalty to the Registrant or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the DGCL, relating to unlawful payment of
dividends or unlawful stock purchase or redemption or (iv) for any transaction
from which the director derived an improper personal benefit. As a result of
this provision, the Registrant and its stockholders may be unable to obtain
monetary damages from a director for breach of his or her duty of care.
II-1
<PAGE> 72
Under the Bylaws, the Registrant will have the power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Registrant, or is or was serving at the request of the
Registrant as a director, officer, employee, partner (limited or general) or
agent of another corporation or of a partnership, joint venture, limited
liability company, trust or other enterprise, against any liability asserted
against the person or incurred by the person in any such capacity, or arising
out of the person's status as such, and related expenses, whether or not the
Registrant would have the power to indemnify the person against such liability
under the provisions of the DGCL. The Registrant intends to purchase director
and officer liability insurance on behalf of its directors and officers.
The Underwriting Agreement provides that the underwriters are obligated,
under specified circumstances, to indemnify directors, officers and controlling
persons of Cysive against specified liabilities, including liabilities under the
Securities Act of 1933, as amended. Reference is made to the form of
Underwriting Agreement to be filed as Exhibit 1.1 hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
None
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement
3.1* Form of Certificate of Incorporation to be filed upon the
closing of this offering
3.2* Bylaws to be effective upon the closing of this offering
4.1* Form of Common Stock Certificate
5.1* Opinion of Hogan & Hartson L.L.P.
10.1* Amended and Restated 1994 Stock Option Plan
10.2* 1999 Stock Purchase Plan
10.3* 401(k) Plan
10.4* Employment Agreement by and between Cysive, Inc. and Nelson
A. Carbonell, Jr.
10.5* Employment Agreement by and between Cysive, Inc. and John R.
Lund
10.6* Employment Agreement by and between Cysive, Inc. and Michael
E. Price
10.7* Employment Agreement by and between Cysive, Inc. and Robert
C. Rubinstein
10.8* Employment Agreement by and between Cysive, Inc. and Joseph
M. Rymsza
10.9* Employment Agreement by and between Cysive, Inc. and John M.
Saaty
10.10* Employment Agreement by and between Cysive, Inc. and Penny
J. Jobin
10.11 Basic Ordering Agreement by and between Cysive, Inc. and
Sylvan Prometric, Inc.
10.12 Basic Ordering Agreement by and between Cysive, Inc. and
Equifax Secure, Inc.
10.13 Basic Ordering Agreement by and between Cysive, Inc. and
Classified Ventures, LLC
10.14 Independent Contractor Services Agreement by and between
Cysive, Inc. and Cisco Systems Inc.
10.15 Consulting Agreement by and between Cysive, Inc. and UOP LLC
10.16* Basic Ordering Agreement by and between Cysive, Inc. and
First Union Corporation
10.17 Revolving Credit Agreement by and between Cysive, Inc. and
Merrill Lynch & Co.
23.1 Consent of Ernst & Young LLP
23.2* Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1)
24.1 Power of Attorney (included on signature page)
27.1 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment
(b) FINANCIAL STATEMENT SCHEDULE
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
II-2
<PAGE> 73
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the underwriter
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as may be required by the underwriter
to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 of this
Registration Statement, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) 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 the form of
prospectus filed by the Registrant 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.
(2) 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-3
<PAGE> 74
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Reston, Commonwealth of
Virginia, on August 20, 1999.
CYSIVE, INC.
By: /s/ NELSON A. CARBONELL, JR.
------------------------------------
Nelson A. Carbonell, Jr.
Chairman, President and Chief
Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Nelson
A. Carbonell, Jr. and John R. Lund, and each of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, from such person and in each person's name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement or any Registration Statement
relating to this Registration Statement under Rule 462 and to file the same,
with all exhibits thereto and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done as fully to all intents
and purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or his or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed as of August 20, 1999 by the following
persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<S> <C>
/s/ NELSON A. CARBONELL, JR. Chairman, President and Chief Executive
- --------------------------------------------- Officer (Principal Executive Officer)
Nelson A. Carbonell, Jr.
/s/ JOHN R. LUND Chief Financial Officer, Treasurer, Secretary
- --------------------------------------------- and Director (Principal Financial and
John R. Lund Accounting Officer)
/s/ JON KORIN Director
- ---------------------------------------------
Jon Korin
/s/ JOHN SABIN Director
- ---------------------------------------------
John Sabin
/s/ ERIC J. MAGLEBY Director
- ---------------------------------------------
Eric J. Magleby
</TABLE>
II-4
<PAGE> 75
REPORT OF INDEPENDENT AUDITORS
ON FINANCIAL STATEMENT SCHEDULE
Board of Directors
Cysive, Inc.
We have audited the financial statements of Cysive, Inc. (formerly Alta
Software, Inc.) as of December 31, 1997 and 1998 and for each of the three years
in the period ended December 31, 1998, and have issued our report thereon dated
January 14, 1999 (included elsewhere in this Registration Statement). Our audits
also included the financial statement schedule listed in Item 16(b) of this
Registration Statement. This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
VIENNA, VIRGINIA
January 14, 1999
S-1
<PAGE> 76
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO
BEGINNING OF COSTS AND OTHER BALANCE AT
DESCRIPTION PERIOD EXPENSES ACCOUNTS END OF PERIOD
----------- ------------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1996.............. $ -- $ -- $ -- $ --
Year ended December 31, 1997.............. -- 150 -- 150
Year ended December 31, 1998.............. 150 28 (18) 160
</TABLE>
S-2
<PAGE> 77
EXHIBIT INDEX
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement
3.1* Form of Certificate of Incorporation to be filed upon the
closing of this offering
3.2* Bylaws to be effective upon the closing of this offering
4.1* Form of Common Stock Certificate
5.1* Opinion of Hogan & Hartson L.L.P.
10.1* Amended and Restated 1994 Stock Option Plan
10.2* 1999 Stock Purchase Plan
10.3* 401(k) Plan
10.4* Employment Agreement by and between Cysive, Inc. and Nelson
A. Carbonell, Jr.
10.5* Employment Agreement by and between Cysive, Inc. and John R.
Lund
10.6* Employment Agreement by and between Cysive, Inc. and Michael
E. Price
10.7* Employment Agreement by and between Cysive, Inc. and Robert
C. Rubinstein
10.8* Employment Agreement by and between Cysive, Inc. and Joseph
M. Rymsza
10.9* Employment Agreement by and between Cysive, Inc. and John M.
Saaty
10.10* Employment Agreement by and between Cysive, Inc. and Penny
J. Jobin
10.11 Basic Ordering Agreement by and between Cysive, Inc. and
Sylvan Prometric, Inc.
10.12 Basic Ordering Agreement by and between Cysive, Inc. and
Equifax Secure, Inc.
10.13 Basic Ordering Agreement by and between Cysive, Inc. and
Classified Ventures, LLC
10.14 Independent Contractor Services Agreement by and between
Cysive, Inc. and Cisco Systems Inc.
10.15 Consulting Agreement by and between Cysive, Inc. and UOP LLC
10.16* Basic Ordering Agreement by and between Cysive, Inc. and
First Union Corporation
10.17 Revolving Credit Agreement by and between Cysive, Inc. and
Merrill Lynch & Co.
23.1 Consent of Ernst & Young LLP
23.2* Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1)
24.1 Power of Attorney (included on signature page)
27.1 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment
<PAGE> 1
EXHIBIT 10.11
BASIC ORDERING AGREEMENT
THIS AGREEMENT ("Agreement") is hereby entered into between Alta Software,
Inc., 11480 Sunset Hills Road, Suite 200E, Reston, VA 20190 ("Alta") and Sylvan
Prometric, 7600 France Avenue South, Suite 100, Edina, MN 55435 (the
"Customer") on the following terms and conditions:
1. General Undertaking. The parties are entering into this
Agreement to establish a relationship whereby Customer may, from time to time,
commission Alta to perform certain technical consulting, feasibility analysis,
software design, prototyping, development, training, support or other
professional or technical services agreed to by the parties. Alta's
development approach contemplates that libraries of generic code may be drawn
from Alta's object-oriented software framework whenever feasible and that
generic portions of Custom Work Product developed for particular projects will
be added to Alta's accumulated framework and reused by Alta on future,
unrelated projects.
2. Task Orders. Work performed under this Agreement shall be
described in a Task Order ("TO"), which in each instance shall be incorporated
herein as an Addendum to this Agreement at the time it is signed by Nelson
Carbonell and an authorized representative of the Customer. Execution of a TO
shall be considered a commitment by Customer to commission and pay for the
services described therein according to the hourly rates, terms and subject to
the conditions of the TO and this Agreement. Alta's workers shall maintain
contemporaneous daily time records of hours and tasks performed. Any total
dollar amounts or time schedules referenced in a TO shall be considered
reasonably accurate estimates, subject to revision.
3. Term. The term of this Agreement ("Term") shall be effective
on the date last below written and, unless terminated earlier in accordance
with Section 12 ("Default"), shall continue in full force and effect for a
period of one (1) year and shall automatically be renewed for successive one
(1) year periods unless either party notifies the other within thirty (30) days
prior to expiration of the then current Term that the Agreement shall not be
renewed. Either party may suspend or terminate work under a particular TO at
any time by giving written notice to the other party. Termination shall have
no effect on Customers obligation to pay the applicable labor rate for services
performed prior to the effective date of termination. Termination shall have
no effect on the provisions of Section 5 ("Proprietary Rights..."), Section 6
("Confidential Information"), Section 7 ("Nonsolicitation"), Section 9
("Warranties...") or Section 10 ("Limitation...").
4. Invoices, Payment, Certain Costs & Taxes. All services are
rendered on a Time & Materials basis and shall be invoiced monthly as work
progresses. Invoices shall be submitted monthly and shall be paid within
thirty (30) days from
1
<PAGE> 2
date of invoice. Customer may not withhold or "setoff' any amounts due
hereunder and Alta reserves the right to cease work without prejudice if
amounts are not paid when due. Extension of trade credit is conditioned upon
prompt payment. Any late payment shall be subject to any costs of collection
(including reasonable legal fees) and shall bear interest at the rate of one
(1) percent per month or fraction thereof until paid. Unless otherwise stated
in a TO, prices quoted do not include and Customer shall reimburse Alta for its
pre-authorized cost of travel (air & cab fare, lodging, auto rental) and
out-of-pocket costs for overnight courier, long- distance telephone and the
like. Customer shall pay, indemnify and hold Alta harmless from all federal,
state or local sales, use, value-added, gross receipts, personal property or
similar tax, duty or other levy (other than taxes imposed on the net income or
profits of Alta), and any interest or penalties imposed thereon, with respect
to the services or deliverables contemplated herein; provided, however,
customer shall not be required to pay penalties and interest on such taxes that
are the legal responsibility of Alta to collect and report.
5. Proprietary Rights to Software.
(a) Custom Work Product Defined. "Custom Work Product"
means the resulting work product (including all functional and technical
designs, software prototypes, programs, modules, code, algorithms, flowcharts,
data diagrams, documentation and the like) created by Alta after the effective
date of this Agreement on behalf of Customer and in furtherance of a specific
TO. Custom Work Product does not include any of Alta's separately identified
preexisting software frameworks, libraries or code incorporated or "embedded"
into the Custom Work Product ("Embedded Software").
(b) Ownership of Custom Work Product. Upon final
payment, Customer shall own all right, title and interest to all Custom Work
Product. Alta expressly acknowledges and agrees that, conditioned on final
payment all such Custom Work Product constitutes "work made for hire" under the
Federal copyright laws (17 U.S.C. Sec. 101) owned exclusively by Customer and,
alternatively, shall irrevocably assign all ownership or other rights it might
have in Custom Work Product to Customer. Customer irrevocably grants Alta a
royalty-free, perpetual, nonexclusive license in source code form to add Custom
Work Product to Alta's "framework" and libraries of code and to modify,
sublicense and reuse on unrelated projects any Custom Work Product of a generic
or reusable nature. However, Alta shall be restricted from reusing or
reselling Custom Work Product developed for Sylvan to any organization engaged
in the creation or delivery of computerized examination programs.
(c) License to Embedded Software. Except as otherwise
specifically set forth in a TO addressing the subject: (i) this Agreement
conveys no ownership rights to Customer with respect to Embedded Software, and
(ii) Customer is granted a paid-up, perpetual, nonexclusive license to modify
and use the Embedded
2
<PAGE> 3
Software as an integral part of, and in conjunction with, Customer's use of the
Custom Work Product in support of Customers internal business operations and
for no other purpose. Customer may not transfer, assign or sublicense the
Embedded Software or disclose source code for Embedded Software to any other
person (other than Customer's own employees having a "need to know" under
Section 6 below) without Alta's prior written consent. Customer shall restrict
access to Embedded Software to its own employees. Alta reserves all rights not
expressly granted.
6. Confidential Information.
(a) Acknowledgment of Confidentiality. Each party hereby
acknowledges that it may be exposed to confidential and proprietary information
belonging to the other party or relating to its affairs including, without
limitation, Custom Work Product, Embedded Software and other technical
information (including functional and technical specifications, designs,
drawings, analysis, research, processes, computer programs, methods, ideas,
"know how" and the like), business information (sales and marketing research,
materials, plans, accounting and financial information, personnel records and
the like) and other information ("Confidential Information"). Confidential
Information does not include (i) information already known or independently
developed by the recipient for which written documentation exists demonstrating
that the recipient knew and developed the confidential information prior to its
disclosure by the disclosing party; (ii) information in the public domain
through no wrongful act of the recipient, or (iii) information received by the
recipient from a third party who was free to disclose it. For these purposes,
Custom Work Product shall be considered the Confidential Information of each
party.
(b) Covenant Not to Disclose. With respect to the other
party's Confidential Information, the recipient hereby agrees that during the
Term and at all times thereafter it shall not use, commercialize or disclose
such Confidential Information to any person or entity, except to its own
employees having a "need to know" (and who are themselves bound by similar
nondisclosure restrictions), and to such other recipients as the other party
may approve in writing; provided, that all such recipients shall have first
executed a confidentiality agreement in a form acceptable to the owner of such
information. Neither party nor any recipient may alter or remove from any
Confidential Information owned or provided by the other party any proprietary,
copyright trademark or trade secret legend. Each party shall use at least the
same degree of care in safeguarding the other party's Confidential Information
as it uses in safeguarding its own confidential information, but in no event
shall a party use less than the care a reasonable person would use to protect
his or her confidential information. The foregoing restrictions specifically
prohibit Customer from providing third party consultants or software developers
access to Alta's Embedded Software unless stated otherwise in the TO.
3
<PAGE> 4
7. Nonsolicitation. During the Term and for a period of two (2)
years thereafter, each party agrees not to hire, solicit, nor attempt to
solicit the services or business of any teaming partner or employee of the
other party without the prior written consent of such other party. Violation
of this provision shall entitle the aggrieved party to assert liquidated
damages against the offending party equal to one hundred fifty (150) percent of
the affected person's annual compensation together with enforcement costs
(including reasonable legal fees).
8. Injunctive Relief. The parties acknowledge that violation by
one party of the provisions of Section 5 ("Proprietary Rights to Software"),
Section 6 ("Confidential Information") or Section 7 ("Nonsolicitation") would
cause irreparable harm to the other party not adequately compensable by
monetary damages. In addition to other relief, it is agreed that temporary and
permanent injunctive relief shall be available, without necessity of posting
bond, to prevent any actual or threatened violation of such provisions.
9. Warranty, Disclaimer. Alta represents and wan-ants that it
will use its best efforts: (a) to perform services in a competent and
workmanlike manner, and (b) to ensure Custom Work Product performs
substantially according to applicable specifications included in the relevant
TO. Alta does not warrant that the services, Custom Work Product or any
Embedded Software or other deliverable provided hereunder will be entirely free
from error or defect. Nothing herein shall preclude Alta from being
compensated at its normal rates for revising or debugging deliverables, which
is a normal part of the design and development process. EXCEPT AS SPECIFICALLY
PROVIDED IN THIS SECTION ("WARRANTIES"), ALTA DISCLAIMS WITH RESPECT TO ALL
SERVICES, CUSTOM WORK PRODUCT, EMBEDDED SOFTWARE OR OTHER DELIVERABLES, ALL
EXPRESS AND IMPLIED WARRANTIES, INCLUDING ANY IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. ANY CHANGES BY CUSTOMER
TO SOURCE CODE FOR A DELIVERABLE SHALL RELEASE ALTA'S WARRANTIES FOR MATERIALLY
AFFECTED CODE.
10. Limitation of Remedies & Liabilities. The parties acknowledge
the following provisions have been negotiated and reflect a fair allocation of
risk:
(a) Remedies. Except for certain injunctive relief
authorized under Section 8 hereof ("Injunctive Relief"), Customer's sole and
exclusive remedies for Alta's default hereunder shall be (i) to obtain the
repair, replacement or correction of the defective services or deliverable to
the extent wan-anted under Section 9 ("Warranties") or, if Alta reasonably
determines that such remedy is not economically or technically feasible, (ii)
to obtain an equitable partial or full refund of amounts paid with respect to
the defective services or deliverable under the TO at issue.
4
<PAGE> 5
(b) Liabilities. ALTA SHALL NOT BE LIABLE FOR ANY AMOUNT
EXCEEDING THE TOTAL PORTION OF THE CONTRACT PRICE ACTUALLY PAID BY CUSTOMER
UNDER THE TO AT ISSUE. EXCEPT FOR EITHER PARTY'S INFRINGEMENT OF THE OTHER
PARTY'S INTELLECTUAL PROPERTY RIGHTS, NEITHER PARTY SHALL BE LIABLE, WHETHER IN
CONTRACT, TORT (INCLUDING NEGLIGENCE) OR OTHERWISE, FOR ANY INDIRECT,
INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING LOST SAVINGS, PROFITS OR
BUSINESS INTERRUPTION EVEN IF NOTIFIED IN ADVANCE OF SUCH POSSIBILITY) ARISING
OUT OF OR PERTAINING TO THE SUBJECT MATTER OF THIS AGREEMENT.
11. Notices. Notices sent to either party shall be effective when
delivered in person or transmitted by telecopier ("fax") machine, one (1) day
after being sent by overnight copier, or two (2) days after being sent by first
class mail postage prepaid to the other party's principal place of business. A
facsimile of this Agreement and notices generated in good form by a fax machine
(as well as a photocopy thereof) shall be treated as "original" documents
admissible into evidence unless a documents authenticity is genuinely placed in
question.
12. Default. Either party may be declared in default of this
Agreement if it breaches any material provision hereof and fails within ten
(10) days after receipt of notice of default to correct such default or to
commence corrective action reasonably acceptable to the other party and proceed
with due diligence to completion. Either party shall be in default hereof if
it becomes insolvent, makes an assignment for the benefit of its creditors, a
receiver is appointed or a petition in Bankruptcy is filed with respect to it
and is not dismissed within thirty (30) days.
13. Disputes, Choice of Law. Except for certain emergency
judicial relief authorized under Section 8 ("Injunctive Relief") which may be
brought at any time, the parties agree that all disputes between them shall
first be subject to the procedures in Section 12 ("Default") and then shall be
submitted for informal resolution to their respective chief information
officers. If the parties are still unable to reconcile their differences, the
dispute may then be taken to court by either party. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF VIRGINIA
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
14. Independent Contractor Status. Each party and its people are
independent contractors in relation to the other party with respect to all
matters arising under this Agreement. Nothing herein shall be deemed to
establish a partnership, joint venture, association or employment relationship
between the parties.
15. Compliance with Export Regulations. Customer has or shall
obtain in a timely manner all necessary or appropriate licenses, permits or
other
5
<PAGE> 6
governmental authorizations or approvals; shall indemnify and hold Alta
harmless from, and bear all expense of, complying with all foreign or domestic
laws, regulations or requirements pertaining to the importation, exportation,
or use of the technology to be developed or provided herein. Customer shall
take no action, nor omit to take any required action, which would cause either
party to violate the Foreign Corrupt Practices Act of 1977 or the U.S. Export
Administration Regulations. The provisions of this section and assurances made
herein shall survive termination of this Agreement.
16. Miscellaneous. This document and any TO from time to time
executed in accordance with Section I ("General Undertaking") constitute the
entire agreement between the parties with respect to the subject matter hereof
and supersede all other communications, whether written or oral. This
Agreement may be modified or amended only by a writing signed on behalf of Alta
by Nelson Carbonell and by an authorized representative of Customer. Except as
specifically permitted herein, neither this Agreement nor any rights or
obligations hereunder may be transferred or assigned without the other party's
prior written consent and any attempt to the contrary shall be void, except
Alta may subcontract portions of the work under a TO. Neither party shall be
liable for delays caused by events beyond its reasonable control. Any provision
hereof found by a tribunal of competent jurisdiction to be illegal or
unenforceable shall be automatically conformed to the minimum requirements of
law and all other provisions shall remain in full force and effect. Waiver of
any provision hereof in one instance shall not preclude enforcement thereof on
future occasions. Headings are for reference purposes only and have no
substantive effect.
IN WITNESS WHEREOF, for adequate consideration and intending to be legally
bound, the parties hereto have caused this Agreement to be executed by their
duly authorized representatives.
Alta Software, Inc.
By: /s/ NELSON CARBONELL
-----------------------------------------------------------------
Nelson Carbonell, President
Sylvan Prometric:
By: /s/ BRUCE DAVIS
----------------------------------------------------------------
Name/Title: Bruce Davis, Vice President
--------------------------------------------------------
Date: 9/9/98
--------------------------------------------------------------
ALTA_BOA
6
<PAGE> 1
EXHIBIT 10.12
BASIC ORDERING AGREEMENT
THIS AGREEMENT ("Agreement") is hereby entered into on May __, 1999 (the
"Effective Date") by and between Alta Software, Inc., 11480 Sunset Hills Road,
Reston, Virginia 20190 ("Alta") and Equifax Secure, Inc., 1600 Peachtree
Street, N.W. Atlanta, Georgia 30309 ("Equifax") subject to the following terms
and conditions. For purposes of this Agreement and any Addendum thereto, Alta
and Equifax shall be collectively referred to as the Parties, and each
individually as a Party.
1. General Undertaking. The Parties are entering into this Agreement to
establish a relationship whereby Equifax may, from time to time, commission
Alta to perform certain technical consulting, software design, development,
training, support or other professional or technical services agreed to by the
Parties.
2. Task Orders.
(a) Work to be performed under this Agreement shall be described
in a Task Order ("TKO"), which in each instance shall become effective and
accordingly be incorporated herein as an Addendum to this Agreement at the time
it is signed by the President of Alta and by an authorized representative of
Equifax. Such execution of a TKO shall represent a commitment by and between
Equifax and Alta whereby Equifax shall commission and pay Alta for, and Alta
shall perform, the services described in such TKO in accordance with the hourly
rates and terms, and subject to the conditions, set forth therein and in this
Agreement. Alta's workers shall maintain contemporaneous daily time records of
every hour spent and all tasks performed, which shall be submitted to Equifax
as written attachments to each invoice. Any total dollar amounts or time
schedules referenced in a TKO shall be considered reasonably accurate
estimates, subject to revision. Alta generally does not perform services on a
fixed price basis, so any exception must be separately negotiated in a TKO with
a clear Statement of Work.
(b) Quality assurance meetings will be held between the designated
representatives of the Parties on a regular basis as described in the project
management plan for each TKO, but in any event at least monthly. At a minimum,
the project management plan will provide for Alta to report to Equifax, in a
mutually agreed upon time frame and report format, orally and in writing, on
the following issues: (i) progress against milestones; (ii) a short description
of technical problems in meeting such milestones (if any); (iii) the proposed
recovery method, if needed, to meet next milestone; (iv) any potential schedule
delays in meeting next
<PAGE> 2
milestone; (v) detailed cost estimates incurred to date (including all hours
billed to Equifax in the previous week); and (vi) if applicable, detailed cost
estimates for suggested recovery methods to meet milestones or costs
attributable to schedule delay in meeting next milestone.
(c) To the extent reasonably required by Alta when Alta is
performing work at the Equifax site, Equifax shall provide the tools,
materials, equipment and other business items necessary to perform the services
as set forth in each TKO.
3. Term.
(a) Generally. This Agreement shall become effective on the
Effective Date and, unless terminated earlier in accordance with Section
3(b)("Early Termination of TKO"), Section 10(c) ("Acceptance Test and Remedy"),
or with Section 12 ('Default"), shall continue in full force and effect for a
period of one (1) year ("Term"), and shall automatically be renewed for
successive one (1) year Terms unless either Party gives the other Party written
notice within thirty (30) days prior to expiration of the then current Term
that the Agreement shall not be renewed; provided, however, that if at the time
such Party notifies the other in writing of its intent not to renew the
Agreement there is outstanding one or more TKOs, then the Term of the Agreement
shall be deemed automatically extended as needed to be coterminous with any
such outstanding TKO.
(b) Early Termination of TKO. The Parties agree that execution of
a TKO establishes a mutual commitment to the project described therein for the
stated duration or, if not stated, the reasonably anticipated duration of the
TKO. If Equifax determines for any reason that it does not want to complete a
TKO, Equifax may terminate the TKO for convenience by giving Alta a minimum of
thirty (30) days written notice of termination (the "Termination Notice"). If
there is an outstanding TKO, Alta may only terminate the TKO if Equifax fails
to cure a material breach of its obligations under this Agreement pursuant to
Section 12 (Default).
(c) Transitional Assistance by Alta. If Equifax determines, in
its sole discretion, that it needs transitional assistance with respect to one
or more outstanding TKOs (the "Transitional Assistance"), Equifax will give
Alta written notice of such need for the Transitional Assistance within five
(5) business days after Equifax delivers the Termination Notice to Alta (the
"Assistance Notice"). Alta hereby agrees that, upon delivery by Equifax of the
Assistance Notice, Alta shall provide to Equifax and its Affiliates, and
Equifax agrees to pay for, at the applicable rates hereunder and in accordance
with Section 3(c)(i) below, the Transitional Assistance. If Equifax is in
material breach of the payment obligations under this Agreement, Alta may
condition Transitional Assistance on payment or mutual resolution of
outstanding amounts due and receiving adequate assurance of
2
<PAGE> 3
prompt payment for the final period of performance, including Transitional
Assistance.
(i) The Transitional Assistance shall be performed as
follows:
(A) Within (5) business days after Equifax delivers the Assistance Notice,
the designated representatives of the Parties will need to assess and agree to
a written list of objectives, services, deliverables, milestones and schedules
that Alta will provide to Equifax and its Affiliates (the "Transitional Plan").
In the event that the Parties cannot complete the Transitional Plan in one
meeting, the designated representatives will set a schedule for finalizing the
Transitional Plan, which must be completed within thirty (30) days following
the date of the Termination Notice, unless otherwise agreed to in a writing
mutually executed by the Parties. If Equifax delivers the Assistance Notice,
each Party agrees that it will commit the reasonably required resources to (a)
finalize the Transitional Plan and (b) meet the objectives and schedule of the
Transitional Plan.
(B) Unless otherwise agreed to in a writing mutually executed by the
Parties, Alta shall commence providing the Transitional Assistance no later
than thirty (30) days following the date of the Termination Notice. Once the
Transitional Assistance begins, Alta agrees that it will provide the
Transitional Assistance for a period of thirty (30) days; provided, however,
that if during the third week of Transitional Assistance, Equifax determines,
in its reasonable discretion, that a critical component(s) of the Transitional
Plan will not be complete by the 30th day of Transitional Assistance, Equifax
will provide written notice thereof to Alta, whereupon Alta agrees that it will
continue to provide for an additional fifteen (15) day period, the reasonable
Transitional Assistance required to address such critical component(s).
(d) Effect of Termination. Termination shall have no effect on
Equifax's obligation to pay the applicable labor rate for services performed
prior to the effective date of termination (including any period of Transition
Assistance). Termination shall have no effect on the provisions of Section
3(c)("Transitional Assistance by Alta"), Section 5 ("Proprietary Rights to
Intellectual Property"), Section 6 ("Confidential Information"), Section 7
("Nonsolicitation"), Section 9 ("Warranties"), Section 10 ("Limitation of
Remedies & Liabilities"), Section 11 ("Notices") or other provision which by
its nature governs post-termination events.
4. Invoices, Payment, Certain Costs & Taxes.
(a) Generally. All services are rendered on a time and materials
basis and shall be invoiced monthly as work progresses. Invoices shall be
submitted monthly and shall be paid within thirty (30) days from date of
Equifax's receipt of the invoice.
3
<PAGE> 4
(b) Payment Disputes. If Equifax disputes any portion of an
invoiced amount, it shall give Alta's Chief Financial Officer notice within
fifteen (15) days after receiving the invoice of the amount in dispute and the
reasons for the dispute. Equifax shall pay the undisputed portion within the
original thirty (30) day payment period. The Parties shall promptly evaluate
the disputed amount and use their commercially reasonable efforts to resolve
the issue within such thirty (30) day payment period. Equifax may not withhold
or "setoff" any undisputed amounts due and Alta reserves the right to cease
work without prejudice if undisputed amounts are not paid when due. Alta may
contest withheld payments by invoking the dispute resolution procedures set
forth in Section 18 ("Dispute Resolution").
(c) Late Payment. Extension of trade credit is conditioned upon
prompt payment of undisputed amounts due hereunder. Any late payment which is
subsequently determined by both Parties or by a court of competent jurisdiction
to be unexcused shall be subject to any costs of collection (including
reasonable legal fees) and shall bear interest which shall commence accruing on
the thirty-first (31st) day following Equifax's receipt of the invoice at the
rate of one (1) percent per month until paid.
(d) Certain Costs and Taxes. Unless otherwise stated in a TKO,
prices quoted do not include, and Equifax shall reimburse Alta for, all costs
of travel (air & cab fare, lodging and auto rental) and out-of-pocket costs for
overnight courier, long-distance telephone and the like, provided such costs of
travel and out-of-pocket costs are pre-approved by Equifax or budgeted in the
respective TKO, or relate to travel made at the specific request of Equifax.
Equifax shall pay, indemnify and hold Alta harmless from all federal state or
local sales, use, value-added, gross receipts, personal property or sales tax,
duty or other levy (other than taxes imposed on the net income, profits or
capital gains of Alta), and any interest or penalties imposed thereon, with
respect to the services or deliverables contemplated herein Alta shall pay,
indemnify and hold Equifax harmless from all workers compensation and payroll
taxes applicable to Alta personnel.
5. Proprietary Rights to Intellectual Property.
(a) Custom Work Product Defined. "Custom Work Product" means the
resulting work product (including all functional and technical designs,
software programs, modules, code, algorithms, flowcharts, data diagrams,
documentation and the like) created by Alta after the Effective Date on behalf
of Equifax and in furtherance of a specific TKO. Custom Work Product does not
include any pre-existing software owned by Alta, its workers or by any third
party that is (i) incorporated or "embedded" into the Custom Work Product; and
(ii) separately identified in writing in an attachment or amendment to the TKO
or otherwise in writing by Alta prior to the work being performed; and (iii)
approved in writing by Equifax's designated project representative(s), for Alta
to incorporate or "embed"
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into the Custom Work Product ((i), (ii) and (iii) collectively referred to
herein as the "Embedded Software").
(b) Ownership of Custom Work Product. Subject only to Equifax's
payment of amounts due hereunder for Custom Work Product at issue:
(i) Work for Hire. Equifax shall own all right, title and interest to all
Custom Work Product. Alta expressly acknowledges and agrees that all such
Custom Work Product constitutes "work made for hire" under the Federal
copyright laws (17 U.S.C. Sec. 101) owned exclusively by Equifax.
(ii) Back--Up Assignment. If and to the extent that Alta may, under
applicable law, be entitled to claim any ownership interest in the Custom Work
Product, Alta irrevocably transfers, grants, conveys, and relinquishes
exclusively to Equifax all of its right, title and interest in the Custom Work
Product under patent, copyright, trade secret, and trademark law, in perpetuity
or for the longest period otherwise permitted by law.
(iii) Further Assurances. Alta shall sign upon request, all documents
necessary to vest title in Equifax to any specific patent, trademark and/or
copyright or application, or filing therefore prepared by Equifax, and covering
the Custom Work Product, or efforts related to the Custom Work Product. Alta
shall also sign upon request, any document necessary for the filing and
prosecution of patent, trademark and/or copyright applications in the United
States and elsewhere, including divisional continuation, revival renewal or
reissue applications. Alta shall cooperate and assist Equifax in preparing,
filing and prosecuting any and all such patent, trademark and copyright
applications during the Term of this Agreement and for two (2) years following
its termination. Equifax shall bear all costs associated with the prosecution
of such patent, trademark and/or copyright applications.
(iv) License to Equifax of Embedded Software. Except as otherwise
specifically set forth in a TKO addressing the subject: (i) this Agreement
conveys no ownership rights to Equifax with respect to Embedded Software, and
(ii) Equifax and its Affidavits are hereby granted a royalty-free,
transferable, perpetual irrevocable, world-wide, nonexclusive right and
license:
A. To use, execute, reproduce, display, perform, and prepare derivative
works of the Embedded Software in conjunction with and as an integral part of,
Equifax's or its Affiliates' use of the Custom Work Product or any derivative
work thereof, or other systems in support of Equifax's or its Affidavits'
business operations including, without limitation, providing so-called "on-
behalf of' processing services or other substantial outsourcing services to
Equifax's or its Affiliates' clients and providing the Services. As used in
this Agreement the term "Services" means the services provided by Equifax and
its Affiliates in the certification authority services, registration authority
services, authentication services, directory services and other
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<PAGE> 6
electronic commerce services Equifax and its Affiliates provides now or in the
future;
B. To authorize third party consultants to exercise the foregoing rights
on behalf of Equifax, subject to such consultants' execution of nondisclosure
agreements in a form substantially similar to that referenced in Section 6
("Confidential Information, or as otherwise agreed by Alta;
C. To sublicense the Embedded Software in executable form as an integral
part of Custom Work Product to Equifax's or its Affiliates' clients to enable
them and their subcontractors to process data in support of their business
operations. Such licenses may not be further sublicensed by Equifax's or its
Affiliates' clients to other parties, except as necessary for such clients to
conduct their normal business operations.
Alta reserves all rights in Embedded Software not expressly granted.
As used in this Agreement, the term Affiliates means with respect to a Party,
any entity or person at any time Controlling, Controlled by or under common
Control with such Party. The terms "Control," "Controlling" and "Controlled"
means possessing, directly or indirectly, the power to direct or cause the
direction of the management and policies of an entity or other person, whether
through ownership of voting securities, by contract or otherwise.
(c) License Back to Alta. Equifax irrevocably grants Alta a
royalty-free, perpetual worldwide, nonexclusive license to use, execute,
reproduce, display, perform, prepare derivative works, sublicense and reuse on
projects to be performed by Alta for other Alta clients any Custom Work Product
of a Generic nature. For these purposes, "Generic" means Custom Work Product
that is of more general application and not uniquely associated with Equifax's
proprietary processes or technology (giving special regard to the competitive
advantage the technology provides Equifax in its actual and demonstrably
anticipated fines of business). To clarify the status of particular
components, the Parties may (but are not required to) identify in the relevant
TKO components that are of a Generic nature, and components that are unique to
Equifax or its Affiliates and that do not fall within the scope of the license
granted by this Subsection 5(c).
6. Confidential Information. The provisions of a certain "Mutual
Nondisclosure Agreement" between the Parties dated November 19, 1998, is hereby
incorporated by reference into this Agreement in its entirety as if fully set
forth herein The Parties agree that the term "Initiative" as defined in Section
Recitals(A.) of the Mutual Nondisclosure Agreement is hereby revised as
follows: "In connection with this Agreement and any current or anticipated TKO
between the parties or any related products, services and/or cooperative
arrangements with respect to or supporting electronic commerce initiatives by
either or both of the parties (the "Initiative") To the extent there is a
conflict between the Mutual Nondisclosure
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<PAGE> 7
Agreement and this Agreement, the terms and conditions of this Agreement shall
control
7. Nonsolicitation. During the Term and for a period of two (2) years
after the termination of this Agreement, each Party agrees not to hire,
solicit, nor attempt to hire or solicit the services or business of any teaming
partner, employee, subcontractor (or employee/second tier subcontractor
thereof) of the other Party or any of its Affiliates without the prior written
consent of such other Party. The covenant against solicitation does not apply
to general solicitation in publications or other media.
8. Injunctive Relief. The Parties acknowledge that violation by one
Party of the provisions of Section 5 ("Proprietary Rights to Intellectual
Property"), Section 6 ("Confidential Information") or Section 7
("Nonsolicitation") may cause irreparable harm to the other Party not
adequately compensable by monetary damages. In addition to other relief it is
agreed that temporary and permanent injunctive relief shall be available to
prevent any actual or threatened violation of such provisions as provided by
law.
9. Warranties. Compliance with the warranty described in Subsection
9(a)("Performance Warranty") shall be determined at the time of final delivery,
either by written Acceptance by Equifax or by substantial beneficial use of the
deliverable by Equifax in a production environment for a period of thirty (30)
consecutive days pursuant to Section 10(c) ("Acceptance Test and Remedy"). The
warranty described in Subsection 9(b)("Year 2000 Warranty") shall not expire
prior to the completion of the one (1) year period immediately following the
date of such Acceptance for all work performed under a specific TKO. The
warranties described in Subsection 9(c)("Non-infringement Warranties") shall
continue during the Term hereof and shall survive the termination of this
Agreement and any TKO.
(a) Performance Warranty. Alta represents and warrants that it
will use its best reasonable efforts to perform services in a competent and
workmanlike manner substantially in accordance with applicable specifications
included in the relevant TKO and to assign personnel having a level of skill
commensurate with the requirements of the work to be performed. Alta does not
warrant that the services, Custom Work Product or any Embedded Software or
other deliverable provided hereunder will be entirely free from error or
defect. Nothing herein shall preclude Alta from being compensated at its
normal rates for revising or debugging deliverables, which is a normal part of
the design and development process.
(b) Year 2000 Warranty. Alta represents and warrants that all
Custom Work Product Embedded Software and all other services or deliverables
developed by Alta personnel under this Agreement ("Alta Deliverables") shall be
Year 2000 compliant. To be Year 2000 Compliant, the Alta Deliverables must at
all times before, during and after January 1, 2000 accurately process and
handle date and
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<PAGE> 8
time data (including, but not limited to, calculating, comparing, storing,
sorting, defining, managing and sequencing) from, into, and between the
twentieth and twenty-first centuries, and the years 1999 and 2000, including
leap year calculations, to the extent that other information technology used in
combination with the Alta Deliverables likewise properly exchanges date/time
data with them in a manner that is similarly Year 2000 Compliant. To the
extent that Alta Deliverables must perform collectively as unified information
processing system, the Alta Deliverables all must properly exchange date/time
data among themselves in accordance with the foregoing "Year 2000 Compliant"
definition. The foregoing warranty does not apply insofar as an Alta
Deliverable derives date functions from other programs (e.g., operating system
run-time libraries, databases or firmware) not developed or provided by Alta
personnel nor does it require Alta to workaround or accommodate other programs
or data (i.e., non-Alta Deliverables) that are not Year 2000 Compliant using
the same or other agreed-upon methodology.
(c) Non-infringement Warranties.
(i) Alta Non-infringement Warranty.
A. Copyrights and Trade Secrets. Alta represents and warrants that none
of the Custom Work Product, Embedded Software, services or deliverables
provided by Alta under this Agreement (collectively the "Intellectual
Property") will violate or infringe any copyright or the trade secrets of any
third party, and Alta further represents and warrants that it is aware of no
claim by any third party regarding the violation or infringement of any such
copyright or trade secrets in the Intellectual Property.
B. Patents. Alta represents and warrants that, to the best of its
knowledge and belief, none of the Intellectual Property will infringe any
Patent, and that to the best of its knowledge and belief Alta is aware of no
claim by any third party regarding any such infringement.
(ii) Certain Limitations. The warranty described in clause (i)
above does not apply to the extent a claimed infringement is caused by Alta's
adherence to Equifax's specifications, or to the extent caused by technology or
services not supplied by Alta. In the event of a breach of this Alta Non-
infringement Warranty, Alta shall at its own expense, either (a) procure for
Equifax and its Affiliates all the rights and licenses granted in this
Agreement with respect to the violating or infringing Intellectual Property,
(b) replace or modify the violating or infringing Intellectual Property to make
it non-infringing while preserving its original functionality, or (c) if
neither of the foregoing remedies (a) and (b) is commercially feasible, remove,
and refund the price paid by Equifax for, the violating or infringing
Intellectual Property.
(iii) Alta Infringement Indemnity. Alta agrees to indemnify, defend
and hold Equifax and its Affiliates and each of their officers, directors,
employees,
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agents, successors and assigns (the "Equifax Group") harmless from and against
any and all losses, liabilities, damages, penalties and claim and all related
costs and expenses (including reasonable attorneys' fees) related to claims
made by third parties against the Equifax Group or against any of its
components alleging a breach of Alta's warranties set forth in Subsection
(c)(i) above. Equifax hereby agrees to promptly give notice to Alta of any
indemnifiable claim. Equifax hereby agrees to cooperate in all reasonable
respects with Alta and its attorneys in the investigation, trial, defense and
settlement of any such claim and any appeal arising therefrom. Alta hereby
agrees and acknowledges that the Equifax Group or any of its components may,
through its attorneys or otherwise, at its own cost and expense, participate in
any such investigation, trial, defense and settlement that is being conducted
by Alta, of any such claim and any appeal arising therefrom No settlement of a
claim that involves a remedy other than the payment of money by Alta shall be
entered into without the consent of Equifax, which consent will not be
unreasonably withheld.
(iv) Equifax Non-infringement Warranty. Equifax represents and
warrants that, to the best of its knowledge and belief there are no third party
patents or other intellectual property rights that would be infringed by Alta's
performance of the Equifax specifications required by any TKO.
(v) No Conflicts Warranty. Alta warrants that it has the full
right, power and authority to enter into and perform its obligations under this
Agreement and to grant the rights and licenses contained in this Agreement.
Alta further warrants that it has neither assigned nor entered into any other
relationship by which it purports to transfer any right, title or interest to
any technology, process, material or intellectual property right that would be
in conflict with the terms of this Agreement, and shall not do so in the
future.
(d) Disclaimer. EXCEPT AS SPECIFICALLY PROVIDED IN THIS SECTION
("WARRANTIES"), ALTA HEREBY DISCLAIMS WITH RESPECT TO ALL SERVICES, CUSTOM WORK
PRODUCT, EMBEDDED SOFTWARE OR OTHER DELIVERABLES PROVIDED HEREUNDER, ALL
EXPRESS AND IMPLIED WARRANTIES, INCLUDING ANY IMPLIED WARRANTIES OF
MERCHANTABILITY, TITLE, ACCURACY, INTEGRATION OR FITNESS FOR A PARTICULAR
PURPOSE.
10. Limitation of Remedies & Liabilities. The Parties acknowledge the
following provisions have been negotiated and reflect a fair allocation of
risk:
(a) Remedies. Except for certain injunctive relief authorized
under Section 8 ("Injunctive Relief') and Section 18 ("Dispute Resolution
Procedures"), and except as otherwise provided in Subsections 9(c)(i) ("Alta
Non-infringement Warranty"), 9(c)(iii) (Alta Infringement Indemnity), Section
10(c) ("Acceptance Test and Remedy"), and Section 16(b) (Indemnity), Equifax's
sole and exclusive remedies
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with respect to Alta's services and Deliverables hereunder shall be (i) to
obtain from Alta the repair, replacement or correction of the defective
services or Alta Deliverables in a manner that provides the same functionality
and performance levels as provided for in Section 9 ("Warranties") and to the
TKO at issue, or, if either Party reasonably determines that such remedy is not
economically, timely or technically feasible, (ii) to obtain a full refund of
amounts paid with respect to the defective services or Alta Deliverables under
the TKO at issue. In the event that either Party determines that such remedy is
not economically, timely or technically feasible, Alta agrees to provide the
transition services to Equifax as set forth in Section 3(c) above.
(b) Liabilities. EXCEPT FOR (I) BREACH OF THE NONINFRINGEMENT
WARRANTIES IN SECTION 9(c)("NON-INFRINGEMENT WARRANTIES"); (II) THE INDEMNITY
DESCRIBED IN SECTION 16(b)("INDEMNITY"); (III) THE RECKLESS OR WILLFUL
MISCONDUCT OF A PARTY OR ITS PERSONNEL ARISING OUT OF OR IN CONNECTION WITH THE
SCOPE OF THEIR DUTIES; OR (IV) FOR NONPAYMENT BY EQUIFAX OF AMOUNTS DUE
HEREUNDER.
(i) THE PARTIES SHALL NOT BE LIABLE FOR ANY AMOUNT EXCEEDING THE TOTAL
PORTION OF THE CONTRACT PRICE ACTUALLY PAID BY EQUIFAX UNDER THE TKO AT ISSUE;
(ii) NEITHER PARTY SHALL BE LIABLE, WHETHER IN CONTRACT, TORT (INCLUDING
NEGLIGENCE) OR OTHERWISE, FOR ANY INDIRECT, INCIDENTAL, SPECIAL, MULTIPLE,
PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES (INCLUDING LOST SAVINGS, LOST
PROFITS, BUSINESS INTERRUPTION OR ATTORNEY FEES, EVEN IF NOTIFIED IN ADVANCE OF
SUCH POSSIBILITY) ARISING OUT OF OR PERTAINING TO THE SUBJECT MATTER OF THIS
AGREEMENT.
(c) Acceptance Test and Remedy.
(i) Acceptance Criteria. Equifax shall in conjunction with Alta, develop
mutually acceptable acceptance criteria for each Custom Work Product, Embedded
Software, service or deliverable developed or provided, or required to be
developed or provided, by Alta under each TKO (collectively the "Deliverables"
and individually a "Deliverable"). All acceptance tests shall be promptly
prepared at the inception of each TKO or as otherwise agreed, shall be signed
by both Parties and shall be attached to the project management plan preferably
at the onset of the work under the applicable TKO, but not later than thirty
(30) days prior to the delivery date for each respective Deliverable
thereunder, and shall form part of this Agreement. If Equifax cannot in good
faith agree with Alta as to the acceptance criteria for an individual TKO,
Equifax may initiate the dispute resolution procedures in Section 18, and if
the dispute is not resolved, may, in its sole
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discretion, terminate the applicable TKO or this Agreement in accordance with
the provisions of Section 3 ("Term").
(ii) Acceptance Testing. Following delivery for each respective
Deliverable under any TKO, Equifax will have the right to evaluate and test
each such Deliverable to ensure that the Deliverable meets the acceptance
criteria and the product specifications set out in the applicable TKO. Equifax
shall promptly give notice to Alta after completing the evaluation and testing
whether the Deliverable met the acceptance criteria and is functioning in
accordance with the specifications (the "Acceptance"). Any such notice by
Equifax to Alta that the Deliverables failed to meet the acceptance criteria or
function according to specification shall describe such failure in reasonable
detail.
(iii) Acceptance Remedy and Termination Right. In the event that a
Deliverable fails to meet the acceptance criteria or to function according to
specification, Equifax shall deliver a written prioritized fist of items to be
addressed by Alta. Upon completion of further debugging, Equifax will again
perform the acceptance testing in accordance with Subsection (ii) above. If
Equifax determines that Alta's work does not comply with this Agreement, it may
invoke the procedures set forth in Section 18 ("Dispute Resolution Procedures')
and/or terminate this Agreement or the applicable TKO in accordance with the
procedures set forth in Subsection 3(b)("Early Termination of TKO"). A
deliverable shall be deemed accepted by Equifax if Equifax issues its written
acceptance or if Equifax obtains substantial beneficial use of the deliverable
in a production environment for a period of thirty (30) consecutive days.
11. Notices. Except where written notice is required to be given under
this Agreement, notices required to be given under this Agreement shall be
effective as follows: (a) when delivered in person or successfully transmitted
by telecopier ("fax") machine; (b) 1 day after being sent by overnight courier;
(c) 2 days after being sent by first class mail postage prepaid, to the other
Party's principal place of business; or (d) 24 hours after being successfully
sent by electronic mail return receipt, to the other Party's designated e-mail
address. Where written notice is required to be given under this Agreement,
such written notices sent to either Party shall be effective as follows: (a)
when delivered in person or successfully transmitted by telecopier ("fax")
machine; (b) 1 day after being sent by overnight courier; or (c) 2 days after
being sent by first class mail postage prepaid, to the other Party's principal
place of business. A facsimile of this Agreement and notices generated in good
form by a fax machine (as well as a photocopy thereof) shall be treated as
"original" documents admissible into evidence unless a document's authenticity
is genuinely placed in question.
12. Default. Either Party may be declared in default of this Agreement if
it breaches any material provision hereof and fails within ten (10) days after
receipt of written notice of default to correct such default or to commence
corrective action
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reasonably acceptable to the other Party and proceed with due diligence to
completion. Either Party shall be in default hereof if it becomes insolvent,
makes an assignment for the benefit of its creditors, a receiver is appointed
or a petition in Bankruptcy is filed with respect to it and is not dismissed
within thirty (30) days. In the event of the bankruptcy of Alta pursuant to
the Bankruptcy Act and an attendant rejection of this Agreement or any license
or assignment granted hereunder pursuant to Section 365 thereto the Parties
intend that the provisions of the Bankruptcy Act shall apply and Equifax shall
be entitled to retain possession of all Custom Work Product delivered to it by
Alta under this Agreement and to the extent permitted by law, retain the
license rights granted thereunder, subject to the obligations to pay amounts
due hereunder.
13. Choice of Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE SUBSTANTIVE LAWS OF GEORGIA WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAWS.
14. Contractor Status. Each Party and its people are independent
contractors in relation to the other Party with respect to all matters arising
under this Agreement. Nothing herein shall be deemed to establish a
partnership, joint venture, association or employment relationship between the
Parties.
15. Compliance with Export Regulations. Equifax has or shall obtain in a
timely manner all necessary or appropriate licenses, permits or other
governmental authorizations or approvals; shall indemnify and hold Alta
harmless from and bear all expense of complying with all foreign or domestic
laws, regulations or requirements pertaining to the importation, exportation,
or use of the technology to be developed or provided herein. Equifax shad take
no action, nor omit to take any required action, which would cause either Party
to violate the Foreign Corrupt Practices Act of 1977 or the U.S. Export
Administration Regulations. The provisions of this section and assurances made
herein shall survive termination of this Agreement.
16. Certain Personnel Issues.
(a) Generally. If Equifax believes an individual assigned by Alta
to a TKO does not perform with the level of skill required by this Agreement,
it will give notice thereof to Alta and the Parties will reach a good faith,
reasonable accommodation to the staffing assignments, the TKO, or both, that
most nearly achieves each Party's legitimate interests. It is acknowledged
that Equifax's security and safety policies must be observed at all times while
Alta performs work at Equifax's facilities. Alta may appoint an independent
agent to conduct drug testing or financial credit checks on Alta personnel
assigned to Equifax's premises according to mutually acceptable procedures and
criteria to satisfy Equifax's workplace requirements.
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(b) Indemnity. Alta will defend, indemnify and hold Equifax
harmless from any bodily injury or damage to tangible property caused by the
negligent or will misconduct of Alta personnel acting within the scope of their
duties while at Equifax's premises.
17. Insurance Requirements. Subject to the terms and conditions of this
Agreement, Alta will maintain the following policies of insurance during the
Term hereof:
(a) Worker's compensation insurance in accordance with the
applicable statutory requirements of all states of operation covering all
employees who will be used in the performance of this Agreement;
(b) Employers' Liability insurance with limits no less than
$500,000/$500,000/$500,000.
(c) Commercial General Public Liability insurance with a combined
single limit of not less than $1,000,000 for bodily injury and property damage.
That finance shall include, but not be limited to, contractual liability,
independent contractors, completed operations, broad-form property damage, and
personal injury coverage. Equifax, its officers, agents and employees will be
additional insureds for purposes of this Agreement.
(d) Automobile Liability insurance (including owned, non-owned and
hired vehicles) with a combined single limit of not less than $1,000,000 for
bodily injury and property damage combined. Equifax, its officers, agents, and
employees shall be additional insureds for the operations under this Agreement.
(e) Professional Liability insurance insuring the work performed
for Equifax under this Agreement with limits of liability of not less than $
1,000,000 each claim and $ 1,000,000 aggregate.
(f) A mutually acceptable Fidelity Bond in the amount of $500,000
will be addressed in the TKO.
Alta will place the insurance policies held above with insurance companies who
are licensed to do business in Alta's states of operation. The policies will
not be modified by any endorsement which restricts or reduces the required
coverage, nor will a policy be cancelled until at least thirty (30) days' prior
written notice has been given to Equifax Alta will provide certificates of
insurance to Equifax evidencing the required policies and coverages no later
than thirty (30) days after the effective date of this Agreement and, upon
request, after each policy renewal.
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18. Dispute Resolution Procedures.
(a) Any dispute between the Parties either with respect to the
interpretation of any provision of the Agreement or with respect to the
performance by Equifax or by Alta hereunder shall be resolved as specified in
this Section 18. Upon notice of a dispute ("Dispute Notice") being given by
either Party to the other Party, this dispute resolution procedure may be
invoked. The Dispute Notice should include a detailed description of the
dispute. The Party receiving such Dispute Notice will respond by giving notice
to the other Party ('Dispute Response") within five (5) business days. Within
eight (8) business days of delivery of the Dispute Notice, the designated
representatives of each Party will meet for the purpose of endeavoring to
resolve such dispute. Such representatives shall discuss the problem and
negotiate in good faith, for a period not to exceed 30 days from the date of
the Dispute Notice, in an effort to resolve the dispute without the necessity
of any formal proceeding relating thereto. If such efforts shall fail the
Parties and either of them may bring a civil action with respect to such
dispute in any court with jurisdiction over the matter and Parties.
(b) Notwithstanding anything to the contrary in this Section 18,
the representatives described in this Section 18(a) shall have the authority to
shorten or to stay the time periods set forth in this Section 18 upon the
written consent of both Parties' representatives. Notwithstanding any other
provision of this Section 18, either Party may resort to court action for a
temporary restraining order and/or other injunctive relief at any time if the
processes, time periods and delays attendant with the dispute resolution
processes set forth in this Section 18 might reasonably be considered to permit
or cause irreparable injury or delay to such Party or any third party claiming
against such Party.
19. Miscellaneous. This document, Task Order No. 1, any other TKO from
time to time executed in accordance with Section I ("General Undertaking") and
the Mutual Nondisclosure Agreement referenced in Section 6 ("Confidential
Information") constitute the entire agreement between the Parties with respect
to the subject matter hereof and supersede all other communications, whether
written or oral This Agreement may be modified or amended only by a writing
signed on behalf of Alta by the President and by an authorized representative
of Equifax. Equifax may assign the Agreement or any rights and/or obligations
hereunder to any Equifax Affidavit. Except as specifically permitted herein,
neither this Agreement nor any rights or obligations hereunder may be
transferred or assigned without the other Party's prior written consent and any
attempt to the contrary shall be void, except Alta may subcontract portions of
the work under a TKO. The rights and obligations of the Parties will inure to
the benefit of will be binding upon and will be enforceable by the Parties and
their lawful successors and assigns. Neither Party shall be liable for delays
caused by events beyond its reasonable control. Any provision hereof found by
a tribunal of competent jurisdiction to be illegal or unenforceable shall be
automatically conformed to the minimum
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requirements of law and all other provisions shall remain in full force and
effect. Waiver of any provision hereof in one instance shall not preclude
enforcement thereof on future occasions. Headings are for reference purposes
only and have no substantive effect.
IN WITNESS WHEREOF, for adequate consideration and intending to be legally
bound, the Parties hereto have caused this Agreement to be executed by their
duly authorized representatives.
<TABLE>
<S> <C>
ALTA SOFTWARE, INC. EQUIFAX SECURE, INC.
By: /s/ NELSON CARBONELL By: /s/ JEFFREY R. JOHNSON
------------------------------------------ --------------------------------------------
Nelson Carbonell, President
Name: Jeffrey R. Johnson
------------------------------------------
Date: 5/15/99
-----------------------------------------
Title: President & CEO
-----------------------------------------
Date: 5/5/99
------------------------------------------
</TABLE>
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<PAGE> 1
EXHIBIT 10.13
BASIC ORDERING AGREEMENT
THIS AGREEMENT ("Agreement") is hereby entered into between Alta Software,
Inc., 11480 Sunset Hills Road, Suite 200E, Reston, VA 20190 ("Alta") and
Classified Ventures, L.L.C., 30 South Wacker Drive, 40th Floor, Chicago,
Illinois 60606 (the "CV") on the following terms and conditions:
1. General Undertaking. The parties are entering into this
Agreement to establish a relationship whereby CV may, from time to time,
commission Alta to perform certain technical consulting, feasibility analysis,
software design, prototyping, development, training, support or other
professional or technical services agreed to by the parties. Alta's
development approach contemplates that libraries of generic codes may be drawn
from Alta's object- oriented software framework whenever feasible and that
generic portions of Custom Work Product developed for particular projects will
be added to Alta's accumulated framework and reused by Alta on future,
unrelated projects, provided, however, that the parties agree in writing to the
specific portions of Custom Work Product which may be reused by Alta (such
approval will not be unreasonably withheld). In no event will Alta reuse any
portion of the code which contains any data relating to CV, its clients,
customers or their respective business.
2. Task Orders. Work performed under this Agreement shall be
described in a Task Order ("TO"), which in each instance shall be incorporated
herein as an Addendum to this Agreement and governed by the terms hereof at the
time it is signed by Nelson Carbonell and an authorized representative of the
CV. Execution of a TO shall be considered a commitment by CV to commission and
pay for the services described therein according to the hourly rates, terms and
subject to the conditions of the TO and this Agreement. The terms of a TO, if
in conflict with this Agreement, shall supersede this Agreement. Alta's
workers shall maintain contemporaneous daily time records of hours and tasks
performed; Alta will provide all such time records to CV along with its invoice
to CV. Any total dollar amounts or time schedules referenced in a TO shall be
considered reasonably accurate estimates, and work shall not exceed such amount
unless otherwise agreed in writing. A TO may be modified by a change order by
CV's written notice to Alta. The parties must agree in writing as to the terms
of any such change order, which shall be treated as a new and superseding TO.
3. Term and Termination.
(a) Term. The term of this Agreement ("Term") shall be effective
on the date last below written and, unless terminated earlier
in accordance with Section 12 ("Default"), shall continue in
full force and effect for a period of one (1) year and shall
automatically be renewed for successive one (1) year periods
unless either party notifies the other within thirty (30) days
prior to expiration of the then current Term
<PAGE> 2
that the Agreement shall not be renewed. Except for
nonpayment brought to the attention of CV's management in
writing, Alta may not suspend or terminate work under a
particular TO at any time without CV's written permission.
(b) Termination.
1. The parties will have the right to terminate this
Agreement, or any TO, in the event of a material
breach of any provision of this Agreement by the
other party, unless such breach is cured within
thirty (30) days of the breaching party's receipt of
notice of such breach, or the filing of a bankruptcy
petition by the other party or the execution by the
other party of an assignment for the benefit of its
creditors.
2. Either party may terminate this Agreement or any TO,
effective upon written notice of termination, in the
event that the other party fails to perform any
material obligation, warranty, duty or responsibility
hereunder, or materially breaches any provision of
this Agreement, and such failure and/or breach has
not been cured within thirty (30) days after written
notice thereof.
(c) Effect of Termination.
1. Upon any termination of this Agreement: (i) all TOs
will automatically terminate, effective as of the
date of termination of this Agreement; (ii) each
party will return to the other all materials
embodying or disclosing the Confidential Information
of such other party; (iii) CV will promptly pay Alta
for all work performed by Alta prior to such
termination and not then paid for, provided that Alta
is not in breach of the Agreement with respect to
such services; and (iv) Alta will deliver all work in
process relating to any TO to CV, including but not
limited to all software relating thereto.
2. Survival. Any provisions of this Agreement that by
their sense and context are intended to survive
termination of this Agreement, including, but not
limited to, provisions regarding payment and
confidentiality, will so survive this Agreement.
Specifically, termination shall have no effect on the
provisions of Section 7 ("Nonsolicitation"), Section
9 ("Warranty, Indemnification and Disclaimer") and
Section 10 ("Limitation of Remedies & Liabilities").
4. Invoices, Payment, Certain Costs & Taxes. All services are
rendered on a time & materials basis and shall be invoiced monthly as work
progresses, provided
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that such services shall not exceed the estimate set forth in each TO without
CV's written agreement. Invoices shall be submitted monthly and shall be paid
within thirty (30) days from date of invoice. Extension of trade credit is
conditioned upon prompt payment. Any late payment shall be subject to any
costs of collection (including reasonable legal fees) and shall bear interest
at the rate of one (1) percent per month or fraction thereof until paid.
Unless otherwise stated in a TO, prices quoted do not include costs of travel;
CV shall reimburse Alta for its pre-authorized cost of travel (air & cab fare,
lodging, auto rental) and out-of-pocket costs for overnight courier,
long-distance telephone and the like. CV shall pay, indemnify and hold Alta
harmless from all federal, state or local sales, use, value-added, gross
receipts, personal property or similar tax, duty or other levy (other than
taxes imposed on the net income or profits of Alta), and any interest or
penalties imposed thereon, with respect to the services or deliverables,
provided that ALTA includes such tax, duty or levy in its invoice(s) to CV or
promptly notifies CV of any notice of tax deficiency it may receive from
applicable authorities.
5. Proprietary Rights to Software.
(a) Custom Work Product Defined. "Custom Work Product" means the
resulting work product (including all functional and technical
designs, software prototypes, programs, modules, code,
algorithms, flowcharts, data diagrams, documentation and the
like) created by Alta after the effective date of this
Agreement on behalf of CV and in furtherance of a specific TO.
Custom Work Product does not include any of Alta's proprietary
software that is separately identified and acknowledged in
writing by the parties, including preexisting software
frameworks, libraries or code incorporated or "embedded" into
the Custom Work Product ("Embedded Software").
(b) Ownership of Custom Work Product. Subject to payment for work
performed in due course, CV shall own all right, title and
interest to all Custom Work Product. Alta expressly
acknowledges and agrees that subject to such payment, all such
Custom Work Product constitutes "work made for hire" under the
Federal copyright laws (17 U.S.C. Sec. 101) owned exclusively
by CV and, Alta hereby irrevocably assigns all ownership or
other rights it might have in Custom Work Product to CV. CV
will irrevocably grant Alta a royalty-free, perpetual,
nonexclusive license in source code form to add agreed-upon
certain elements of Custom Work Product to Alta's "framework"
and libraries of code and to modify, sublicense and reuse on
unrelated projects any Custom Work Product of a generic nature
(such approval will be determined on a case-by-case basis and
will not unreasonably be withheld). The agreement must be in
writing for any such license to be effective.
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(c) License to Embedded Software. Except as otherwise
specifically set forth in a TO addressing the subject: (i)
this Agreement conveys no ownership rights to CV with respect
to Embedded Software, and (ii) subject to payment for work
performed in due course, CV is granted a paid-up perpetual,
nonexclusive, nontransferable license to modify and use the
Embedded Software as an integral part of the Custom Work
Product and as it may relate to CV's internal business
operations and operations of its online site. The license may
not be sublicensed or distributed by CV to third parties, but
it may be transferred to a corporate successor-in-interest or
purchaser that acquires the stock or business assets
pertaining to CV operations utilizing the licensed Embedded
Software. The license granted by this Section will include
the right to modify and create derivative works of such
Embedded Products, provided, however, that: (i) no
modification or derivative work shall affect the right, title
and/or interest of Alta in and to such Embedded Software; (ii)
CV shall own the derivative work only to the extent of
substantial new authorship and subject to Alta's right to
create independently a derivative work in substantially the
same form, and (iii) Alta makes no warranty with respect to
code materially affected by the creation by CV of such
derivative works. CV grants Alta a nonexclusive, royalty free
and paid-up license to use and reproduce all such
modifications and derivative works, though CV will have no
duty to disclose or deliver to Alta any such modifications and
derivative works. Alta reserves all rights not expressly
granted. Embedded Software, (particularly any provided in
source code form) will not be disclosed by CV, except to CV
employees and consultants having a legitimate "need to know"
and who are bound by written nondisclosure restrictions and
will not be disassembled, decompiled or reverse engineered.
Embedded Software shall generally be licensed to CV in source
code form subject to confidentiality restrictions of this
Agreement, unless "executables only" are specified in the
applicable TO or unless Alta does not have the source code or
is otherwise legally restricted from delivering it (e.g.,
because the code is licensed from a third party in executable
form or distributable in runtime applications only as
executables).
6. Confidential Information.
(a) Acknowledgment of Confidentiality. Each party hereby
acknowledges that it may be exposed to confidential or
proprietary information belonging to the other party or
relating to its affairs including, without limitation, Custom
Work Product, Embedded Software and other technical
information (including functional and technical
specifications, designs, drawings, analysis, research,
processes, computer programs, methods, ideas, "know how" and
the like),
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business information (sales and marketing research, materials,
plans, accounting and financial information, personnel records
and the like) and other information ("Confidential
Information"). Confidential information does not include (i)
information already known or independently developed by the
recipient; (ii) information in the public domain through no
wrongful act of the recipient, or (iii) information received
by the recipient from a third party who was free to disclose
it. For these purposes, Custom Work Product shall be
considered the Confidential Information of each party.
(b) Obligation to Keep Confidential. During and after the term of
this Agreement and at all times thereafter, the parties will:
(i) hold Confidential Information in confidence and trust;
(ii) not divulge or convey Confidential Information to any
third party other than personnel of the party having a
reasonable need to know such Confidential Information in the
course of their employment or work for the receiving party and
who are obligated to keep such Confidential Information
confidential; (iii) not publish or divulge Confidential
Information of the disclosing party to any third party or in
such a way that it is likely to become part of the public
domain or known in the trade. Nothing in this Agreement shall
limit CV's right to use Embedded Software to further develop,
modify or commercialize its software, and CV may disclose
Embedded Software under customary confidentiality restrictions
to appropriate consultants providing services to CV. A
violation of this Section will be a material violation of this
Agreement and will justify legal and/or equitable relief.
(c) Confidential Information Previously Disclosed. All
Confidential Information obtained by either party prior to the
Effective Date, whether in conjunction with the Project or
otherwise, is subject to this Agreement.
7. Nonsolicitation. During the Term and for one (1) year thereafter,
each party agrees not to hire, solicit, nor attempt to solicit the services or
business of any teaming partner, employee, or subcontractor (or employee/second
tier subcontractor thereof) of the other party without the written consent of
such other party. Nonsolicitation restrictions are not breached merely by
placement of "help wanted" advertisements directed to the public at large
(provided that the no-hire restriction shall continue to apply). A knowing
violation of this provision shall entitle the aggrieved party to assert
liquidated damages against the offending party equal to one hundred fifty (150)
percent of the affected party's annual compensation or expected annual gross
revenue from the relationship, together with enforcement costs (including
reasonable legal fees).
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8. Injunctive Relief. The parties acknowledge that violation of one
party of the provisions of Section 5 ("Proprietary Rights to Software"),
Section 6 ("Confidential Information") or Section 7 ("Nonsolicitation") would
cause irreparable harm to the other party not adequately compensable by
monetary damages. In addition to other relief, it is agreed that temporary and
permanent injunctive relief shall be available, without necessity of posting
bond, to prevent any actual or threatened violation of such provisions.
9. Warranty, Indemnification and Disclaimer.
(a) Ownership of Alta Materials. Alta hereby represents and
warrants to the best of its knowledge and belief that: (i)
Alta will own, or will have obtained from the owners the right
to use, Custom Work Product; (ii) use of the Custom Work
Product and Embedded Software will not violate any applicable
law, regulation, rule or order, or infringe upon or violate
the United States intellectual property rights of any third
party and that Alta is not aware of any actual or threatened
litigation to the contrary; (iii) Alta will provide CV with
all necessary third party licenses prior to delivery of any
deliverable to CV containing third party software, and (iv)
Alta has or will require that all persons who perform services
relating to any TO execute work-for-hire agreements conveying
all rights relating thereto to Alta. The foregoing warranty
does not apply to the extent any infringement is caused by
Alta's adherence to CV technical specifications that dictate a
particular method.
(b) No Surreptitious Code. Alta represents and warrants that to
the best of its knowledge and belief. (i) the Custom Work
Product will not contain any timer, counter, lock or similar
device (other than security features specifically described in
the specifications) that deliberately inhibits or in any way
limits its ability to operate, and (ii) it will scan the
Custom Work Product with commercially available anti-virus
software and shall use due diligence to remove viruses capable
of being detected with such software.
(c) Year 2000 Warranty. Alta represents and warrants it will use
due diligence, to ensure the Custom Work Product records,
stores, recognizes, interprets, processes and presents both
20th and 21st century dates using four digit years
substantially according to formats and assumptions specified
in the Documentation. This warranty does not apply insofar as
the Custom Work Product derives date functions from other
programs (e.g., operating system run-time libraries,
databases or firmware) nor does it require Alta to workaround
or accommodate other programs or data that are not compliant
with Year 2000 standards. Alta reserves its right to
reasonable compensation for
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reported Year 2000 defects that are later determined to
originate in other programs or data.
(d) Products and Services Warranty. Alta represents and warrants
that: (i) it will use its best efforts to complete its work
within Alta's estimated development schedule (which are
provided in good faith, but are subject to revision); (ii) it
will use due diligence to ensure all services rendered by it
in connection with the Project will be performed by qualified
personnel in a diligent and professional manner, and (iii)
that deliverables created by Alta will, as determined at final
acceptance testing, be free from material defects, in good
working order and will materially conform to specifications
contained in the TO at issue. During testing, the parties
will establish a prioritized list of defects and Alta will be
provided a reasonable opportunity to make corrections. Should
material defects persist, Alta's highest management will
ensure the issues are given highest priority and attention.
After final acceptance, Alta shall continue to be available at
its previously existing rates for a period of at least one (1)
year to provide ongoing maintenance and support for Custom
Work Product delivered to CV. Alta's executive management
shall be accessible to CV's executive management to ensure
that Alta's technical personnel respond promptly (no later
than 72 hours) to requests for maintenance service (including
on-site visits by technical personnel to CV's Chicago
facility, as reasonably requested by CV, subject to
reimbursement for any long distance travel).
(e) Certain Conditions. Alta does not warrant that the
deliverables will be entirely free from error or defect. The
foregoing warranties assumes CV has accurately specified all
relevant programming interfaces, has provided prompt and
accurate feedback during testing, that components, software,
data and services not provided or developed by Alta are
properly installed, configured, formatted and operated without
material defect, and no changes have been made to Alta's
source code without Alta's prior written consent. Normal
maintenance and support services beyond final acceptance shall
be addressed in a TO.
(f) Indemnification by Alta. Alta will indemnify CV and its
officers, directors, employees, agents and affiliates from and
against any and all suits, actions, claims, penalties,
liabilities or obligations ("Claims") arising from (i) a
breach of Section 9(a)(" Ownership of Alta Materials") or (ii)
use by Alta of any information retrieved or compiled by or on
behalf of Alta through use of Custom Work Product or any
Embedded
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Product. CV will give Alta prompt notice of each such Claim
and reasonable cooperation in connection with the defense of
each such Claim. Sole control of defense and/or settlement of
each such Claim will reside with Alta. CV may appear at its
own expense and participate in all settlement discussions
through counsel of its choice.
(g) Indemnification by CV. CV will indemnify Alta and its
officers, directors, employees, agents and affiliates from and
against any and all Claims caused by: (i) additions or
alterations by CV to Alta Materials; and (ii) a breach of any
representation or warranty of CV under this Agreement. CV
will give Alta prompt notice from Alta of each such Claim and
reasonable cooperation in connection with the defense of each
such Claim. Sole control of defense and/or settlement of each
such Claim Will reside with CV.
(h) DISCLAIMER OF WARRANTIES. THE WARRANTIES SET FORTH IN SECTION
9 ARE THE ONLY WARRANTIES ALTA MAKES WITH RESPECT TO THE
SERVICES PROVIDED BY ALTA, THE PRODUCT(S) AND THE ALTA
MATERIALS. ALTA HEREBY DISCLAIMS ALL OTHER WARRANTIES,
WHETHER EXPRESS OR IMPLIED, WITH RESPECT TO THE SERVICES
PROVIDED BY ALTA, THE PRODUCT(S) AND THE ALTA MATERIALS OR
OTHERWISE, INCLUDING TITLE, MERCHANTABILITY, INTEGRATION,
ACCURACY, AND FITNESS FOR A PARTICULAR PURPOSE. ANY CHANGES
BY CV TO SOURCE CODE FOR AN ALTA DELIVERABLE (SUCH AS WHEN
CREATING A DERIVATIVE WORK) SHALL RELEASE ALTA'S WARRANTY FOR
MATERIALLY AFFECTED CODE.
10. Limitation of Remedies & Liabilities. The parties acknowledge the
following provisions have been negotiated and reflect a fair allocation of
risk:
(a) Remedies. Except for certain injunctive relief authorized
under Section 8 ("Injunctive Relief'), CV's sole and exclusive
remedies for Alta's default hereunder shall be (i) to obtain
the repair, replacement or correction of the defective
services or deliverable to the extent warranted under Section
9 ("Warranties") or, if such remedy is not economically or
technically feasible, (ii) to obtain an equitable partial or
full refund of amounts paid with respect to the defective
services or deliverable under the TO at issue.
(b) Liabilities. NEITHER PARTY SHALL BE LIABLE FOR ANY AMOUNT
EXCEEDING THE TOTAL CONTRACT PRICE UNDER THE TO AT ISSUE.
EXCEPT FOR A PARTY'S VIOLATION OF ITS NONINFRINGEMENT WARRANTY
OR INDEMNITY SET FORTH
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ABOVE, NEITHER PARTY SHALL BE LIABLE, WHETHER IN CONTRACT,
TORT (INCLUDING NEGLIGENCE) OR OTHERWISE, FOR ANY INDIRECT,
INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING LOST SAVINGS,
PROFITS OR BUSINESS INTERRUPTION EVEN IF NOTIFIED IN ADVANCE
OF SUCH POSSIBILITY) ARISING OUT OF OR PERTAINING TO THE
SUBJECT MATTER OF THIS AGREEMENT.
11. Notices. Notices sent to either party shall be effective when
delivered in person or transmitted by telecopier ("fax") machine, one (1) day
after being sent by overnight courier, or two (2) days after being sent by
first class mail postage prepaid to the other party's principal place of
business. A facsimile of this Agreement and notices generated in good form by
a fax machine (as well as a photocopy thereof) shall be treated as "original"
documents admissible into evidence unless a document's authenticity is
genuinely placed in question.
12. Default. Either party may be declared in default of this
Agreement if it breaches any material provision hereof and fails within ten
(10) days after receipt of notice of default to correct such default or to
commence corrective action reasonably acceptable to the other party and proceed
with due diligence to completion. Either party shall be in default hereof if
it becomes insolvent, makes an assignment for the benefit of its creditors, a
receiver is appointed or a petition in Bankruptcy if filed with respect to it
and is not dismissed within thirty (30) days.
13. Disputes, Choice of Law. Except of certain emergency judicial
relief authorized under Section 8 ("Injunctive Relief') which may be brought at
any time, the parties agree that all disputes between them shall first be
subject to the procedures in Section 12 ("Default") and then shall be submitted
for informal resolution to their respective chief information officers. If the
parties are still unable to reconcile their differences, the dispute may then
be taken to court by either party. This agreement shall be governed by and
construed in accordance with the substantive laws of Illinois without regard to
principles of conflicts of laws. The federal or state courts in Chicago,
Illinois shall, be the exclusive venue for any dispute relating to this
Agreement.
14. Independent Contractor Status. Each party and its people are
independent contractors in relation to the other party with respect to all
matters arising under this Agreement. Nothing herein shall be deemed to
establish a partnership, joint venture, association or employment relationship
between the parties.
15. Compliance with Export Regulations. CV has or shall obtain in
a timely manner all necessary or appropriate licenses, permits or other
governmental authorizations or approvals; shall indemnify and hold Alta
harmless from, and bear all expense of, complying with all foreign or domestic
laws, regulations or requirements pertaining to the importation, exportation,
or use of the technology to
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be developed or provided herein. CV shall take no action, nor omit to take any
required action, which would cause either party to violate the Foreign Corrupt
Practices Act of 1977 or the U.S. Export Administration Regulations. The
provisions of this section and assurances made herein shall survive termination
of this Agreement.
16. Miscellaneous. This document and any TO from time to time
executed in accordance with Section 1 ("General Undertaking") constitute the
entire agreement between the parties with respect to the subject matter hereof
and supersede all other communications, whether written or oral. This
Agreement may be modified or amended only by a writing signed on behalf of Alta
by Nelson Carbonell and by an authorized representative of CV. Except as
specifically permitted herein, neither this Agreement nor any rights or
obligations hereunder may be transferred or assigned by Alta without CV's prior
written consent and any attempt to the contrary shall be void, except Alta may
subcontract portions of the work under a TO. Neither party shall be liable for
delays caused by events beyond its reasonable control. Any provision hereof
found by a tribunal of competent jurisdiction to be illegal or unenforceable
shall be automatically conformed to the minimum requirements of law and other
provisions shall remain in full force and effect. Waiver of any provision
hereof in one instance shall not preclude enforcement thereof on future
occasions. Headings are for reference purposes only and have no substantive
effect.
IN WITNESS WHEREOF, for adequate consideration and intending to be legally
bound, the parties hereto have caused this Agreement to be executed by their
duly authorized representatives.
Alta Software, Inc.
By: /s/ Nelson Carbonell
---------------------------------------------------------------
Nelson Carbonell, President
Classified Ventures, L.L.C.:
By: /s/ Richard W. Burke
---------------------------------------------------------------
Name/Title: Richard W. Burke,
Interim General Counsel
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Date: August 18, 1998
-----------------------------------------------------
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EXHIBIT 10.14
INDEPENDENT CONTRACTOR
SERVICES AGREEMENT
The following confirms the agreement (the "Agreement") between Alta Software,
Inc. (the "Independent Contractor") and Cisco Systems Inc. (the "Company") with
respect to the provision of consulting services to the Company.
1. Term of Agreement. This Agreement is effective as of August 13, 1997, and
will terminate on August 31, 1998, (the "Termination Date") unless
terminated earlier pursuant to Paragraph 10 of this Agreement. The terms
and conditions of this Agreement shall apply to any Work Statement
(Attachment A) issued hereunder, whether or not the Agreement remains in
effect when performance or any claim under the Work Statement is made.
2. Independent Contractor Status. It is the express intention of the parties
to this Agreement that the Independent Contractor is not an employee,
agent, joint venture, or partner of the Company. Nothing in this Agreement
shall be interpreted or construed as creating or establishing an employment
relationship between the Company and the Independent Contractor. Both
parties understand and agree that the Independent Contractor may, and
probably will, perform services for others during the term of this
Agreement.
3. Warranties. Independent Contractor warrants that Company has the right to
make any use of the Work Product and any materials, concepts, processes, or
information contained therein as Company may determine, without violation
of any right of any third party and without creating any obligation on the
part of Company to pay any fee, penalty, or other expense in connection
with Company's use, reproduction, marketing, licensing or sale.
Independent Contractor warrants that he/she is in the business of providing
to other companies services similar to those provided to the Company under
this Agreement; Independent Contractor further warrants that he/she either
is providing, or has provided, such services to other companies.
4. Services/Ownership. Independent Contractor shall provide the services
described in any Work Statement to which this Agreement relates (the
"Services"). "Work Product" shall mean all deliverables, recommendations,
reports, designs, diagrams, specifications, writings of any nature,
photographs, artwork, audio and audio-visual works, computer programs,
inventions, discoveries and improvements developed, conceived or reduced to
practice in the course of or arising out of any Services. A Work Statement
may only be changed in writing, signed by both parties. The parties
understand and agree that Independent Contractor will have the sole
discretion to determine the method, means, and location of performing the
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Services, and that the Company has no right to, and will not, control or
determine the method, means, or place of the performance of the Services.
All Work Product shall be disclosed promptly to Company and will be the
exclusive property of Company. Independent Contractor transfers and assigns
to Company all right, title and interest in the Work Product, including all
rights in any patents, copyrights, trade secrets, inventions, copyrightable
materials or other intellectual property rights relating to the Work
Product. Independent Contractor shall execute any documents and otherwise
cooperate with Company in any action Company deems necessary to secure
fully to Company all rights in the Work Product or to obtain, maintain or
defend for Company's benefit any of the intellectual property rights
identified above.
5. Employment of Assistants. Should the Independent Contractor, in his/her
sole discretion, deem it necessary to employ assistants to aid him/her in
the performance of the Services, the parties agree that the Company will
not direct, supervise or control in any way such assistants to the
Independent Contractor in their performance of Services. The parties
further agree that such assistants are employed solely by the Independent
Contractor, and that he/she alone is responsible for providing workers'
compensation insurance for his/her employees, for paying the salaries and
wages of his/her employees, for ensuring that all required tax withholdings
are made, and for ensuring that the employee has the legal right to work in
the United States at Cisco and has obtained the proper I-9 verification.
Independent Contractor further represents and warrants that it maintains
workers' compensation insurance coverage for his/her employees and
acknowledges that it alone has responsibility for such coverage.
6. Obligations of the Independent Contractor.
a. The Independent Contractor will supply all tools and equipment necessary
to perform the Services unless otherwise agreed on each Work Statement.
b. Independent Contractor is solely responsible for all taxes, withholdings
and other similar statutory obligations; and Independent Contractor agrees
to defend, indemnify and hold Company harmless from any and all claims made
by any entity on account of an alleged failure by the Independent
Contractor to satisfy any such tax or withholding obligations.
c. Independent Contractor will use its best efforts to perform all work in
a competent and workmanlike manner substantially to agreed-to
specifications. ALL OTHER WARRANTIES, INCLUDING MERCHANTABILITY AND
FITNESS, ARE DISCLAIMED. NEITHER PARTY IS LIABLE FOR DIRECT DAMAGES
EXCEEDING THE PRICE OR
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FOR ANY INDIRECT DAMAGES EXCEEDING THE PRICE OR FOR ANY INDIRECT,
INCIDENTAL OR CONSEQUENTIAL DAMAGES.
7. Reporting to the Company's Facilities. Independent Contractor is not
required to report to work at the offices of the Company during any
particular work hours. Rather, Independent Contractor is free to report or
not report to the Company's offices as he/she sees fit. When Independent
Contractor does visit the Company's offices, he/she will be required to
sign in and be issued a temporary identification badge like any other
non-employee visitor to the Company's facilities.
8. Compensation. Unless designated as a "firm fixed price" and matched to a
clear statement of work all dollar figures are deemed reasonably accurate
estimates. Independent Contractor shall be paid as specified on each
Individual Work Statement. Independent Contractor shall submit to the
Company invoices for all services rendered and, assuming performance of the
work as required herein, the Company agrees to adhere to the payment
schedule as agreed upon in each Work Statement. The foregoing fees are
Independent Contractor's sole compensation for rendering Services to the
Company. Except for reimbursement of Independent Contractor's reasonable,
documented travel costs, the parties agree that the Company is not
responsible to reimburse any costs or expenses incurred by Independent
Contractor in performing the Services unless otherwise agreed to in a Work
Statement.
9. Confidential Information. Independent Contractor understands that the
Company possesses Proprietary Information as defined below which is
important to its business and that this Agreement creates a relationship of
confidence and trust between Independent Contractor and the Company with
regard to Proprietary Information.
a. For purposes of this Agreement, "Proprietary Information" is information
that was or will be developed, created or discovered by or on behalf of the
Company, or is developed, created or discovered by Independent Contractor
while performing Services, or which became or will become known by, or
was/is conveyed to the Company which has commercial value in the Company's
business. "Proprietary Information" includes, but is not limited to, trade
secrets, computer programs, ideas, techniques, inventions (whether
patentable or not), business and product development plans, customers and
other information concerning the Company's actual or anticipated business,
research or development, personnel information, Inventions (as defined in
subsection e. below), or which is received in confidence by or for the
Company from any other person. Proprietary Information does not include any
information independently developed by Independent Contractor outside the
scope of this Agreement. Nothing herein precludes Independent Contractor
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from re-using general technical expertise not involving Proprietary
Information.
b. At all times, both during the term of this Agreement and after its
termination, Independent Contractor will keep in confidence and trust, and
will not use or disclose, any Proprietary Information without the prior
written consent of an officer of the Company, except as may be necessary in
the ordinary course of performing the Services under this Agreement. In the
case whereby Independent Contractor employs an assistant, the Independent
Contractor shall require the assistant to sign a Confidential Information
agreement containing the same conditions as this Section 9 and all benefits
shall enure to Company.
c. Independent Contractor understands that the Company possesses or will
possess "Company Documents" which are important to its business. For
purposes of this Agreement, "Company Documents" are documents or other
media that contain or embody Proprietary Information or any other
information concerning the business, operations or plans of the Company,
whether such documents have been prepared by Independent Contractor or by
others. "Company Documents" include, but are not limited to, blueprints,
drawings, photographs, charts, graphs, notebooks, customer lists, computer
disks, personnel files, tapes or printouts, sound recordings and other
printed, typewritten or handwritten documents. All Company Documents are
and shall remain the sole property of the Company. Independent Contractor
agrees not to remove any Company Documents from the business premises of
the Company or deliver any Company Documents to any person or entity
outside the Company, except as required in connection with performance of
the Services under this Agreement. Independent Contractor further agrees
that, immediately upon the Company's request and in any event upon
completion of the Services, Independent Contractor shall deliver to the
Company all Company Documents, apparatus, equipment and other physical
property or any reproduction of such property, excepting only Independent
Contractor's copy of this Agreement.
d. During the term of this Agreement and for two (2) years thereafter,
neither party will hire or solicit any employee of the other party to leave
the other party for any reason. Violation of this provision may be enforced
by injunctive relief.
e. Independent Contractor will promptly disclose in writing to the Company
all "Inventions" (which term includes improvements, inventions, designs,
formulas, works of authorship, trade secrets, technology, mask works,
circuits, layouts, algorithms, computer programs, ideas, processes,
techniques, know-how and data, whether or not patentable) made, conceived,
reduced to practice or developed by Independent Contractor, either alone or
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jointly with others, during the term of this Agreement in connection with
the Services or which relate to any Proprietary Information.
All Proprietary Information and all title, patents, patent rights,
copyrights, mask work rights, trade secret rights and other intellectual
property and rights anywhere in the world (collectively "Rights") in
connection therewith shall be the sole property of the Company. Independent
Contractor hereby assigns to the Company any Rights Independent Contractor
may have or acquire in such Proprietary Information.
Independent Contractor agrees that all Inventions which Independent
Contractor makes, conceives, reduces to practice or develops (in whole or
in part, either alone or jointly with others) during the term of this
Agreement in connection with the Services or which relate to any
Proprietary Information shall be the sole property of the Company.
Independent Contractor agrees to assign and hereby assigns to the Company
all Rights to any such Inventions.
f. Independent Contractor agrees to perform, during and after the term of
this Agreement, all acts deemed necessary or desirable by the Company to
permit and assist it, at Independent Contractor's reasonable rate, in
evidencing, perfecting, obtaining, maintaining, defending and enforcing
Rights and/or Independent Contractor's assignment with respect to such
Inventions in any and all countries. Such acts may include, but are not
limited to, execution of documents and assistance or cooperation in legal
proceedings, Independent Contractor hereby irrevocably designates and
appoints the Company and its duly authorized officers and agents, as
Independent Contractor's agents and attorneys-in-fact to act for and in
behalf and instead of Independent Contractor, to execute and file any
documents and to do all other lawfully permitted acts to further the above
purposes with the same legal force and effect as if executed by Independent
Contractor.
g. Independent Contractor represents that performance of all the terms of
this Agreement will not breach any agreement to keep in confidence
Proprietary Information acquired by Independent Contractor in confidence or
in trust prior to the execution of this Agreement. Independent Contractor
has not entered into, and Independent Contractor agrees not to enter into,
any agreement either written or oral that conflicts or might conflict with
Independent Contractor's performance of the Services under this Agreement.
h. If any Rights or Inventions assigned hereunder are based on, or
incorporate, or are improvements or derivatives of, or cannot be reasonably
made, used, reproduced and distributed without using or violating
technology or Rights owned or licensed by Independent Contractor and not
assigned hereunder, Independent Contractor hereby grants the Company a
perpetual, worldwide royalty-free, non-exclusive sublicensable right and
license to
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<PAGE> 6
exploit and exercise all such technology and Rights in support of the
Company's exercise or exploitation or any assigned Rights or Inventions
(including any modifications, improvements and derivatives thereof).
10. Termination of Agreement. This Agreement or any Work Statement may be
terminated by either the Company or the Independent Contractor at any time
prior to the Termination Date by written notice of termination. Such notice
may be given at any time for any reason, with or without cause.
11. Enforceability of Agreement. Independent Contractor agrees that any dispute
in the meaning, effect or validity of this Agreement shall be resolved in
accordance with the laws of the State of California without regard to the
conflict of law provisions thereof. Independent Contractor further agrees
that if one or more provisions of this Agreement are held to be
unenforceable under applicable California law, such provision(s) shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision(s) were so excluded and shall be
enforceable in accordance with the terms.
12. Assignment. This Agreement shall not be assignable by either the
Independent Contractor or the Company without the express written consent
of the other party.
13. Arbitration. Any controversy between the parties hereto involving the
construction or application of any terms, covenants or conditions of this
Agreement or any claim arising out of or relating to this Agreement will be
submitted to and be settled by final and binding arbitration in San Jose,
California, in accordance with the rules of the American Arbitration
Association then in effect, and judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof.
14. Entire Understanding. This Agreement contains the entire understanding of
the parties regarding its subject matter and can only be modified by a
subsequent written agreement executed by the Independent Contractor and the
Vice President of Human Resources.
15. Notices. All notices required or given herewith shall be addressed to the
Company or Independent Contractor at the designated addresses shown below
by registered mail, special delivery or by certified courier service:
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<PAGE> 7
<TABLE>
<S> <C>
a. To Company: b. To Independent Contractor
Cisco Systems, Inc. Alta Software, Inc.
170 West Tasman Drive 11480 Sunset Hills Road, Suite 200E
San Jose, CA 95134 Reston, VA 20190
</TABLE>
16. Attorneys' Fees. If any action at law or in equity is necessary to enforce
or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements,
in addition to any other relief to which the party may be entitled.
Cisco Systems, Inc. Independent Contractor
Dated: 8/13/97 Dated: Aug. 13, 1997
--------------------------- ------------------------------
By: /s/ M. Bloom By: /s/ Nelson Carbonell
------------------------------ ---------------------------------
Title: Commodity Mgr. Title: Chairman
--------------------------- ------------------------------
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<PAGE> 1
EXHIBIT 10.15
CONSULTING AGREEMENT
BETWEEN
UOP LLC
AND
ALTA SOFTWARE, INC.
<PAGE> 2
THIS AGREEMENT, effective as of April 21, 1999, by and between UOP LLC, a
limited liability company of Delaware ("UOP"), and ALTA SOFTWARE, INC., a
corporation of Virginia, ("CONSULTANT"),
WITNESSETH:
ARTICLE I
APPOINTMENT
Effective as of the date stated in Article II below, UOP retains CONSULTANT and
CONSULTANT agrees to provide UOP with the services stated in Schedule A attached
to this agreement. CONSULTANT represents and warrants that with respect to prior
consulting contracts to which it was a party there is no conflict of interest
which will prevent CONSULTANT or its employees from performing services for UOP
as described in Schedule A.
ARTICLE II
DURATION
CONSULTANT's services to UOP, within the above defined field, shall be available
to UOP for such number of days as may be agreed upon from time to time by UOP
and CONSULTANT, for the period of four (4) months beginning May 1, 1999 and
ending August 31, 1999.
ARTICLE III
FEES AND EXPENSES
As consideration for services rendered, UOP agrees to pay CONSULTANT a fee in
the amount of two hundred and fifty dollars ($250) per hour of actual service
rendered, plus such approved travel and related expenses or charges (such as
work related long distance telephone calls) as CONSULTANT may be reasonably
required to incur doing the work under this agreement. Payment by UOP for
services rendered and reimbursement for authorized expenditures shall be made
within thirty (30) days of presentation of an itemized invoice, including
receipts or other evidence of any such expenditures. Extension of trade credit
and any price discounts are conditioned upon timely payment. Late payments shall
bear costs of collection (including reasonable legal fees) and shall bear
interest at the rate of one (1) percent per month or fraction thereof until
paid. CONSULTANT may cease work without prejudice if amounts are not paid when
due. UOP shall pay all sales, use or other similar taxes (including interest and
penalties) hereunder other than taxes based on the net income or profits of
CONSULTANT.
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<PAGE> 3
ARTICLE IV
FAILURE TO PERFORM
1. In the event CONSULTANT, during the contract period, is unwilling or unable
at any time for any reason, to perform services to UOP's satisfaction for a
period totaling fourteen (14) days (not necessarily consecutive days), UOP
shall have the option of terminating this agreement immediately upon giving
CONSULTANT written notice. In such event UOP shall pay CONSULTANT in
accordance with the conditions of Article III for the period up to and
including the termination date. Nothing contained in this Article IV shall
be construed as extending in any way the contract period defined in Article
II.
2. In the event CONSULTANT selects and/or changes personnel to perform the
work under this agreement, which personnel UOP in its sole discretion and
for whatever reason deems to be unsatisfactory, UOP shall have the option
of terminating this agreement at any time upon five (5) days' prior written
notice, the effective date of termination then being the last day of the
5-day notice period. In such event UOP shall only be responsible for
contractual fees due CONSULTANT in accordance with the conditions of
Article III as of the effective date of termination of this agreement.
ARTICLE V
REPORTING RESPONSIBILITY
UOP shall select, at the commencement date of this agreement, one or more of its
officers or employees to whom CONSULTANT shall be responsible. Such selected
officers or employees may be changed from time to time by UOP. The selected
officers or employees shall designate the services to be performed by
CONSULTANT, authorize travel or other expenditures by CONSULTANT, and arrange
any necessary conferences between CONSULTANT and other officers or employees of
UOP. Until otherwise changed by UOP the selected person to whom CONSULTANT shall
be responsible shall be Crawford Ward.
ARTICLE VI
INDEPENDENT CONTRACTOR
It is understood that CONSULTANT shall perform its services for UOP pursuant to
this agreement as an independent contractor. Nothing in this agreement shall be
construed to create the relationship of employer and employee between the
parties. CONSULTANT further agrees that no statute, rule, or custom providing
for termination indemnities or like social benefits is applicable to the
relationship established by this agreement and CONSULTANT hereby waives any
right to demand any such indemnities or benefits under any statute, rule or
custom.
2
<PAGE> 4
ARTICLE VII
CONFIDENTIAL INFORMATION
1 CONSULTANT recognizes that by virtue of this agreement it may be exposed to
confidential or proprietary information belonging to UOP or relating to its
affairs. Accordingly, CONSULTANT agrees to receive and hold in confidence
and not to use or disclose any technical information and any other
information imparted to CONSULTANT by UOP which pertains to UOP business
activity in any manner except as is necessary to carry out the duties of
CONSULTANT under this agreement. (As used in this agreement, the term
"technical information and any other information" includes, for example the
management policies, economic policies, operating methods, technical
information, know-how and plans which enable UOP to maintain its goodwill
and competitive position in the business world.)
2. Additionally, CONSULTANT agrees that all data, papers, drawings, computer
software and other records supplied by UOP to CONSULTANT in connection with
this Agreement shall remain UOP property and all originals and copies shall
be returned to UOP at their request or at the end of the project whichever
is sooner. All data, papers, drawings, computer software and other records
developed by CONSULTANT after the effective date hereof and within the
scope of this Agreement shall, upon receipt of applicable payment
therefore, become the property of UOP and shall be delivered to UOP at upon
UOP's written request.
3. CONSULTANT will cause all of its employees who are involved in performing
services for UOP regardless of the location at which such services are to
be rendered to execute a UOP confidentiality agreement in the form
specified in Schedule B annexed to this agreement which agreement will
survive termination of said employee's employment with CONSULTANT and which
further will obligate these employees to keep such technical information
confidential and to restrict the use to the same extent as CONSULTANT is
obligated.
4. Still further, CONSULTANT agrees that there shall be no publication of any
work product developed under this Agreement and owned by UOP without the
prior written permission of UOP.
5. It is understood that the foregoing restrictions shall not apply with
respect to any portion of such information (i) which corresponds in
substance to that developed by CONSULTANT and in CONSULTANT's possession
prior to CONSULTANT's receipt of same from UOP, (ii) which at the time of
disclosure by UOP to CONSULTANT is or becomes through no act or failure to
act on CONSULTANT's part, part of the public domain by publication or
otherwise, or (iii) which corresponds in substance to that furnished to
CONSULTANT by others as a matter of right without restriction on
disclosure; and provided further that the occurrence of (i), (ii) or (iii)
above shall not be construed as granting any rights,
3
<PAGE> 5
either express or implied, under patents of UOP which relate to technical
information furnished to CONSULTANT. Technical information disclosed under
this agreement shall not be deemed to be within the foregoing exceptions
merely because such information is embraced by more general information in
the public domain or in CONSULTANT's possession. In addition, any
combination of features shall not be deemed to be within the foregoing
exceptions merely because individual features are in the public domain or
in CONSULTANT's possession, but only if the combination itself and its
principle of operation are in the public domain or in CONSULTANT's
possession.
6. CONSULTANT will receive confidential third party information from both UOP
and from the third party involved in this project. CONSULTANT will enter in
to an appropriate non-disclosure agreement with the third party prior to
commencement of services under this agreement.
7. Finally, CONSULTANT understands that it is the policy of UOP that
CONSULTANT not disclose or utilize in CONSULTANT's work, any confidential
information or trade secrets of others without proper authorization, except
where CONSULTANT is no longer subject to any obligations of confidentiality
with respect to such confidential information or trade secret, or except
where CONSULTANT identifies the source, but not the substance of any such
information that may be beneficial to UOP and gives UOP the opportunity to
negotiate with such source for permission to use such information.
ARTICLE VIII
PATENT RIGHTS AND COPYRIGHTS
1. in order that UOP may benefit fully from the services performed by
CONSULTANT all inventions, patent rights and copyrights (domestic and
foreign), developments or other rights of any nature, resulting from the
work undertaken by CONSULTANT after the effective date hereof and under
this agreement, shall upon payment of the amount due under this agreement
for the work at issue, be vested in UOP as UOP's exclusive property.
CONSULTANT further agrees to, and to cause its employees to, execute and
deliver all papers, documents, drawings and descriptions (including
executed patent applications, assignments, affidavits and the like) and
render such further assistance as may from time to time be deemed desirable
or necessary to vest and maintain in UOP the entire right, title and
availability in, to and of such inventions, patent rights and copyrights,
developments and other rights; provided, however, that UOP shall reimburse
CONSULTANT for proper and approved expenses incurred by CONSULTANT in
carrying out CONSULTANT's obligations under this Article VIII.
2. CONSULTANT warrants that it has no existing contract obligations to assign
inventions, patent rights, copyrights, developments and/or other rights
that it may invent or discover while doing work for UOP under this
agreement, and
4
<PAGE> 6
CONSULTANT shall enter into no other contract that would prevent CONSULTANT
from fulfilling its duties under this agreement or would cause a conflict
of interest with this agreement.
ARTICLE IX
INDEMNITY
1. Each party shall indemnify and save the other party harmless from and
against any and all claims for injury or death to third parties, its own
employees or agents and/or damage to tangible property of third parties,
its own employees or agents (including costs of litigation and attorneys'
fees) in any manner caused by, arising from, incident to, or growing out of
the activities performed under this agreement, except to the extent any
damage is caused in whole or in part by the willful misconduct or negligent
action of the party. Each party will notify the other party in writing of
any such claims setting forth all known details.
2. CONSULTANT shall maintain the following insurance.
(a) Workers' Compensation Insurance in compliance with the Workmen's
Compensation Act of the state wherein the work is to be performed.
(b) Employers' Liability Insurance on all employees not covered by a
Workers' Compensation Act, for occupational accidents or diseases,
with limits of liability of not less than $1,000,000 for any one
accident or disease.
(c) Comprehensive General Liability Insurance, including Contractual
Liability Insurance, with limits of liability of not less than
$1,000,000 each occurrence for bodily injury including death and for
tangible property damage.
(d) Automobile and Truck Liability Insurance (including hired car and
nonownership liability insurance if any automobiles or trucks will be
hired by CONSULTANT, or its employees will use their personally owned
vehicles in the business of CONSULTANT) with limits of liability of
not less than $1,000,000 each occurrence for bodily injury including
death and for property damage.
Certificates of Insurance showing compliance with these requirements and
naming UOP as an additional insured shall be furnished by CONSULTANT prior
to commencement of the work to UOP. The Certificates shall provide that the
policies will not be canceled or altered without at least ten (10) days'
prior written notice to UOP.
5
<PAGE> 7
ARTICLE X
WARRANTY & LIABILITY
CONSULTANT shall use its best reasonable efforts to perform its work
substantially according to the agreed-upon specifications contained in Schedule
A. CONSULTANT does not warrant that its work will be entirely free from error or
defect. Nothing herein shall preclude CONSULTANT from being paid its normal
rates for revising or debugging deliverables, which is a normal part of the
development process. EXCEPT AS STATED ABOVE, CONSULTANT DISCLAIMS ALL
WARRANTIES, INCLUDING MERCHANTABILITY, TITLE, ACCURACY, QUALITY, INTEGRATION OR
FITNESS FOR A PARTICULAR PURPOSE.
Except for certain injunctive relief authorized hereunder, UOP's sole and
exclusive remedy for CONSULTANT's default hereunder shall be to obtain the
repair, replacement or correction of work to the extent warranted, or to obtain
an equitable refund of amounts paid for defective work. CONSULTANT IS NOT LIABLE
FOR DIRECT DAMAGES EXCEEDING THE PRICE PAID FOR DEFECTIVE WORK, NOR FOR ANY
INDIRECT, INCIDENTAL, CONSEQUENTIAL OR OTHER DAMAGES (WHETHER IN CONTRACT, TORT
OR OTHERWISE) OR FOR ANY BUSINESS INTERRUPTION, LOST SALES, LOST PROFITS, LOST
SAVINGS OR ATTORNEY FEES, ARISING OUT OF OR RELATING TO THIS AGREEMENT.
ARTICLE XI
ASSIGNMENTS
This agreement is personal between the parties and shall not be assigned by
either party without the prior written consent of the other party, except that
it may be assigned without such consent to the successor of a party, to a
person, firm or consultant acquiring all, or substantially all, of the business
and assets of a party, or to a wholly or partially owned subsidiary of a party.
ARTICLE XII
MISCELLANEOUS
1. Each party hereby agrees that in the performance of its services or
activities hereunder, it will, to the best of its knowledge, comply with
all laws of the United States of America and of the various states of the
United States, and of any country in which the party performs services
hereunder, and of the rules and regulations issued by any governmental
entity of such other country, except to the extent that such compliance is
prohibited by or penalized under the laws of the United States of America,
including but not limited to the Internal Revenue Code of 1986, as amended,
and the Export Administration Act of 1969, as amended.
6
<PAGE> 8
2. Either party may disclose the content of this agreement as needed to comply
with governmental or court order, or to enforce its terms. Furthermore,
CONSULTANT agrees to abide by the policy of UOP as described in Schedule C
attached to this agreement in the performance of all services under this
agreement.
ARTICLE XIII
NONSOLICITATION
During the Term hereof and for two (2) years thereafter, neither party shall
hire, solicit or attempt to solicit the other party's employees or personnel
without the prior written consent of the other party. Violation of this
provision shall entitle the aggrieved party to obtain injunctive relief, without
necessity of posting bond, to prevent any actual or threatened violation of such
provision.
ARTICLE XIV
NOTICES
All notices provided for in this agreement shall be given in writing, either by
personal delivery of such notice or by the mailing thereof postpaid to the
parties respectively at the following addresses:
UOP: UOP LLC
25 East Algonquin Road
Des Plaines, Illinois 60017-5017 U.S.A.
Attention: President
CONSULTANT: Alta Software, Inc.
11480 Sunset Hills Road, Suite 200E
Reston, VA 20190
ARTICLE XV
TERMINATION
Either party may terminate this Agreement upon thirty (30) days prior written
notice, or as otherwise set forth in this agreement. Termination of this
agreement shall not relieve CONSULTANT of its obligations under Articles VII,
VIII and IX.
ARTICLE XVI
GOVERNING LAW
This agreement shall be construed and the legal relations of the parties
determined in accordance with the laws of the State of Illinois, United States
of America.
7
<PAGE> 9
ARTICLE XVII
ENTIRE AGREEMENT
This agreement is executed and delivered with the understanding that it embodies
the entire agreement between the parties, and that there are no prior
representations, warranties or agreements relating to the subject matter of this
agreement.
ARTICLE XVIII
EFFECTIVE DATE
This agreement shall not become effective until executed by UOP at its principal
office designated for UOP in Article XIV and by Nelson Carbonell for CONSULTANT.
No change in, addition to, or waiver of the terms and provisions hereof shall be
binding upon either party unless approved in writing by its authorized
representative.
IN WITNESS WHEREOF, for adequate consideration and intending to be legally
bound, the parties hereto have caused this agreement to be executed in duplicate
and their signatures affixed thereto as of the date and year first above
written.
AGREED: AGREED:
ALTA SOFTWARE, INC. UOP LLC
By: /s/ NELSON CARBONELL By /s/ WILLIAM C. TIERNAN
-------------------------------------- --------------------------------
Nelson Carbonell William C. Tiernan
Title: President Title:Vice President, Technology
- ----------------------------------------
Federal Tax Identification No.
8
<PAGE> 10
SCHEDULE A
1. Technical services relating to the evaluation of possible change to CASA
involving the move to a three tier DNA based architecture using a
relational database. This rewriting of CASA involves partnering with an
outside company who would license it to others.
CONSULTANT will consider the question of performance relative to the
current version of CASA that could occur because of the change from the
current object oriented database to a relational database. CONSULTANT will
prepare a written report answering the following questions:
(a) Will the performance of the new application be acceptable for UOP's
Engineering department use? Will the business drivers be satisfied?
Aspects to consider are:
o Functionality
o Response time
(b) What are the pros and cons of adopting either relational or
object-oriented database technology for this type of application? Does
either approach entail any significant pitfalls? Can the application
be effectively maintained and enhanced with either technology?
(c) What are the business drivers for the party maintaining the new
application with respect to future enhancements? Are those drivers
sufficient to assure responsiveness to the software enhancement needs
presented by UOP Engineering?
To prepare the report CONSULTANT will:
(1) Review background material that we would provide that would describe
both the current and future versions of CASA.
(2) Visit UOP in Des Plaines for about a half day for discussions about
CASA and a demonstration of its current state.
(3) Visit our partner at his location on the east coast of the US for
about a half day for discussions during the week of May 17, 1999.
The written report is expected to be delivered to UOP on or before June 7, 1999.
2. Such additional services as may be mutually agreed upon by the
parties.
9
<PAGE> 11
SCHEDULE B
CONFIDENTIAL INFORMATION AGREEMENT
1,_____________________ , am an employee of _____________________
("CORPORATION"), and have been assigned to serve as consultant to UOP.
As part of the consideration for the employment of my services by CORPORATION
pursuant to the above stated assignment, I personally recognize and agree that
all information and records relating to inventions, patent rights, copyrights,
developments or other rights of any nature germane to the technical field of
such consultation and originating with UOP or developed under this assignment
shall belong exclusively to UOP. Accordingly, I agree to receive and hold in
confidence all technical information and any other information imparted to
CORPORATION and/or myself by UOP which pertains to UOP business activity in any
manner and which is not the subject of general public knowledge. (As used in
this agreement, the term "technical information and any other information"
includes, but is not necessarily limited to the management policies, economic
policies, operating methods, technical information, know-how and plans.)
Additionally, I agree that all papers, drawings, computer software and other
records in my possession created after the effective date of the agreement and
within the scope of projects undertaken by CORPORATION pursuant to this
agreement shall become the property of UOP and shall be delivered to UOP at any
time upon UOP's request.
I also understand that it is the policy of UOP that I am not to disclose or to
utilize in my work, any confidential information or trade secrets of others,
(including CONSULTANT and any other of my current or previous employers) without
proper authorization, except where I am no longer subject to any obligations of
confidentiality with respect to such confidential information or trade secret,
or except where I identify the source, but not the substance of any such
information that may be beneficial to UOP and give UOP the opportunity to
negotiate with such source for permission to use such information,
I further understand that my obligations hereunder will survive termination of
my employment with CORPORATION.
---------------------------------
(employee name)
Date:
----------------------------
10
<PAGE> 12
SCHEDULE C
UOP AND SUBSIDIARIES
POLICY STATEMENT FOR AVOIDANCE OF
QUESTIONABLE BUSINESS TRANSACTIONS
1. No employee, agent, sales representative or consultant shall have any
understanding, written or verbal, that any payments are to be made or
received:
(a) which involve any illegal purpose, or
(b) whether legal or illegal, which involve government officials or
employees, political candidates or parties, or kickbacks or bribes.
2. Documentation of all business transactions shall properly describe the
pertinent events and such records must not be false, distorted or
misleading. No undisclosed or unrecorded fund or asset shall be established
for any purpose.
3. Agreements with agents, sales representatives, or consultants should
clearly set forth the actual services to be performed, the basis for
earning the fee involved, and the applicable rate along with all other
terms and conditions. Payments under any such agreements must be reasonable
in amount and bear a reasonable relationship to the value of the services
rendered. Documentary support of all payments or other related business
transactions must be complete and conclusive, clearly defining the nature
and purpose of the transaction. The agent, sales representative, or
consultant must be informed that the agreement may be publicly disclosed
and must agree to such public disclosure.
11
<PAGE> 1
EXHIBIT 10.17
Private Client Group
MERRILL LYNCH BUSINESS
FINANCIAL SERVICES INC.
33 West Monroe Street
22nd Floor
Chicago, Illinois 60603
312/269-4438
FAX 312/368-0723
June 1, 1998
Alta Software, Inc.
11480 Sunset Hills Road, Suite 200E
Reston, VA 20190
RE: WCMA LINE OF CREDIT INCREASE
Ladies And Gentlemen:
This Letter Agreement will serve to confirm certain agreements of Merrill Lynch
Business Financial Services Inc. ("MLBFS") and Alta Software, Inc. ("Customer")
with respect to: (i) that certain WCMA NOTE, LOAN AND SECURITY AGREEMENT NO.
795-07601 between MLBFS and Customer (including any previous amendments and
extensions thereof), and (ii) all other agreements between MLBFS and Customer
or any party who has guaranteed or provided collateral for Customer's
obligations to MLBFS ("Guarantor") in connection therewith (collectively, the
"Loan Documents"). Capitalized terms used herein and not defined herein shall
have the meaning set forth in the Loan Documents.
Subject to the terms hereof, effective as of the "Effective Date" the Loan
Documents are hereby amended as follows:
1. The term "Maximum WCMA Line of Credit" shall mean $1,000,000.00.
2. The annual "Line Fee" during the period ending 795-07601, is hereby
increased to $5,000.00, of which $1,041.67 (the "Additional Fee") is now due
and owing. Customer hereby authorizes and directs MLBFS to charge the
Additional Fee to WCMA Account No. 795-07601 on or at any time after the
Effective Date.
3. The term "Interest Rate" shall mean a fluctuating per annum rate equal to
the sum of (i) 2.9%, and (ii) the interest rate from time to time published in
the "Money Rates" section of The Wall Street Journal for 30-day Commercial
Paper (i.e. high-grade unsecured notes sold through dealers by major
corporations). The Interest Rate will change as of the date of publication in
The Wall Street Journal of a 30-day Commercial Paper rate that is different
from that published on the preceding Business Day.
Except as expressly modified hereby, the Loan Documents shall continue in full
force and effect upon all of their terms and conditions. Nothing herein shall
be deemed to extend the Maturity Date of the WCMA Line of Credit.
By their execution of this Letter Agreement, the below-named Guarantors hereby
consent to the foregoing modifications to the Loan Documents, and hereby agree
that the "Obligations" under their respective Unconditional Guaranty and/or
agreement providing collateral shall extend to and include the Obligations of
Customer under the Loan Documents, as amended hereby.
Customer and said Guarantors acknowledge, warrant and agree, as a primary
inducement to MLBFS to enter into this Agreement, that: (i) no default or Event
of Default has occurred and is continuing under the
<PAGE> 2
Alta Software, Inc.
June 1, 1998
Page 2
Loan Documents; (ii) each of the warranties of Customer in the Loan Documents
are true and correct as of the date hereof and shall be deemed remade as of the
date hereof; (iii) neither Customer nor any of said Guarantors has any claim
against MLBFS or any of its affiliates arising out of or in connection with the
Loan Documents or any other matter whatsoever and (iv) neither Customer nor any
of said Guarantors has any defense to payment of any amounts owing, or any
right of counterclaim for any reason under, the Loan Documents.
Provided that no Event of Default, or event which with the giving of notice,
passage of time, or both, would constitute an Event of Default, shall then have
occurred and be continuing under the terms of the Loan Documents, the
amendments and agreements in this Letter Agreement will become effective on the
date (the "Effective Date") upon which: (i) Customer and the Guarantors shall
have executed and returned the duplicate copy of this Letter Agreement enclosed
herewith; (ii) an officer of MLBFS shall have reviewed and approved this Letter
Agreement as being consistent in all respects with the original internal
authorization hereof; and (iii) to the extent applicable, MLBFS shall have
entered such amendments and agreements in its computer system (which MLBFS
agrees to do promptly after the receipt of such executed duplicate copy).
Notwithstanding the foregoing, if for any reason other than the sole fault of
MLBFS the Effective Date shall not occur within 14 days from the date of this
Letter Agreement, then all of said amendments and agreements herein will, at
the sole option of MLBFS, be void.
Very truly yours,
MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.
By: /s/ DUSTIN VAN PEURSEM
---------------------------------------------------------
Dustin Van Peursem
Credit Analyst
<PAGE> 3
Alta Software, Inc.
June 1, 1998
Page 3
Accepted:
ALTA SOFTWARE, INC.
By: /s/ JOHN R. LUND
---------------------------------------------------------
Printed Name: John R. Lund
-----------------------------------------------
Title: CFO and President
------------------------------------------------------
Approved:
/s/ ERIC J. MAGLEBY
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ERIC J. MAGLEBY
/s/ NELSON A. CARBONELL, JR.
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NELSON A. CARBONELL, JR.
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Merrill Lynch No. 795-07601
SECURITY AGREEMENT
SECURITY AGREEMENT ("Agreement") dated as of June 1, 1998, between ALTA
SOFTWARE, INC., a corporation organized and existing under the laws of the
State of Virginia having its principal office at 11480 Sunset Hills Rd., Suite
200E, Reston, VA 20190 ("Customer'), and MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC., a corporation organized and existing under the laws of the State
of Delaware having its principal office at 33 West Monroe Street, Chicago, IL
60603 ("MLBFS").
In order to induce MLBFS to extend or continue to extend credit to Customer,
under the Loan Agreement (as defined below) or otherwise, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Customer hereby agrees with MLBFS as follows:
1. DEFINITIONS
(a) SPECIFIC TERMS. In addition to terms defined elsewhere in this Agreement,
when used herein the following terms shall have the following meanings:
(i) "Account Debtor" shall mean any party who is or may become obligated with
respect to an Account or Chattel Paper.
(ii) "Bankruptcy Event" shall mean any of the following: (A) a proceeding
under any bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt or receivership law or statute shall be filed or consented to by Customer;
or (B) any such proceeding shall be filed against Customer and shall not be
dismissed or withdrawn within sixty (60) days after filing; or (C) Customer
shall make a general assignment for the benefit of creditors; or (D) Customer
shall generally fail to pay or admit in writing its inability to pay its debts
as they become due; or (E) Customer shall be adjudicated a bankrupt or
insolvent.
(iii) "Business Day" shall mean any day other than a Saturday, Sunday, federal
holiday or other day on which the New York Stock Exchange is regularly closed.
(iv) "Collateral" shall mean all Accounts, Chattel Paper, Contract Rights,
Inventory, Equipment, Fixtures, General Intangibles, Deposit Accounts,
Documents and Instruments of Customer, howsoever arising, whether now owned or
existing or hereafter acquired or arising, and wherever located; together with
all parts thereof (including spare parts), all accessories and accessions
thereto, all books and records (including computer records) directly related
thereto, all proceeds thereof (including, without limitation, proceeds in the
form of Accounts and insurance proceeds), and the additional collateral
described in Section 7 (b) hereof.
(v) "Default" shall mean an "Event of Default", as defined in Section 6 hereof,
or any event which with the giving of notice, passage of time, or both, would
constitute such an Event of Default.
(vi) "Loan Agreement" shall mean that certain WCMA NOTE, LOAN AND SECURITY
AGREEMENT NO. 795-07601 between Customer and MLBFS, as the same may from time
to time be or have been amended, restated, extended or supplemented.
(vii) "Location of Tangible Collateral" shall mean the address of Customer set
forth at the beginning of this Agreement, together with any other address or
addresses set forth on any exhibit hereto as being a Location of Tangible
Collateral.
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(viii) "Obligations" shall mean all liabilities, indebtedness and other
obligations of Customer to MLBFS, howsoever created, arising or evidenced,
whether now existing or hereafter arising, whether direct or indirect, absolute
or contingent, due or to become due, primarily or secondary or joint or
several, and, without limiting the foregoing, shall include interest accruing
after the filing of any petition in bankruptcy, and all present and future
liabilities, indebtedness and obligations of Customer under the Loan Agreement
and the agreements, instruments and documents executed pursuant thereto, and
under this Agreement.
(ix) "Permitted Liens" shall mean with respect to the Collateral: (A) liens
for current taxes not delinquent, other non-consensual liens arising in the
ordinary course of business for sums not due, and, if MLBFS' rights to and
interest in the Collateral are not materially and adversely affected thereby,
any such liens for taxes or other non-consensual liens arising in the ordinary
course of business being contested in good faith by appropriate proceedings;
(B) liens in favor of MLBFS; and (C) any other liens expressly permitted in
writing by MLBFS.
(b) OTHER TERMS. Except as otherwise defined herein, all terms used in this
Agreement which are defined in the Uniform Commercial Code of Illinois ("UCC")
shall have the meanings set forth in the UCC.
2. COLLATERAL
(a) PLEDGE OF COLLATERAL. To secure payment and performance of the
Obligations, Customer hereby pledges, assigns, transfers and sets over to
MLBFS, and grants to MLBFS a first lien and security interest in and upon all
of the Collateral, subject only to Permitted Liens.
(b) LIENS. Except upon the prior written consent of MLBFS, Customer shall not
create or permit to exist any lien, encumbrance or security interest upon or
with respect to any Collateral now owned or hereafter acquired other than
Permitted Liens.
(c) PERFORMANCE OF OBLIGATIONS. Customer shall perform all of its obligations
owing on account of or with respect to the Collateral; it being understood that
nothing herein, and no action or inaction by MLBFS, under this Agreement or
otherwise, shall be deemed an assumption by MLBFS of any of Customer's said
obligations.
(d) NOTICE OF CERTAIN EVENTS. Customer shall give MLBFS immediate notice of
any attachment, lien, judicial process, encumbrance or claim affecting or
involving $25,000.00 or more of the Collateral.
(e) INDEMNIFICATION. Customer shall indemnify, defend and save MLBFS harmless
from and against any and all claims, losses, costs, expenses (including,
without limitation, reasonable attorneys' fees and expenses), demands,
liabilities, penalties, fines and forfeitures of any nature whatsoever which
may be asserted against or incurred by MLBFS arising out of or in any manner
occasioned by (i) the ownership, use, operation, condition or maintenance of
any Collateral, or (ii) any failure by Customer to perform any of its
obligations hereunder; excluding, however, from said indemnity any such claims,
losses, etc., arising out of the willful wrongful act or active gross
negligence of MLBFS. This indemnity shall survive the expiration or
termination of this Agreement as to all matters arising or accruing prior to
such expiration or termination.
(f) INSURANCE. Customer shall insure all of the tangible Collateral with an
insurer or insurers reasonably acceptable to MLBFS, under a policy or policies
of physical damage insurance reasonably acceptable to MLBFS providing that (i)
losses will be payable to MLBFS as its interests may appear pursuant to a
Lender's Loss Payable endorsement, and (ii) MLBFS will receive not less than 10
days prior written notice of any cancellation; and containing such other
provisions as may be reasonably required by MLBFS. Customer shall maintain
such other insurance as may be required by law or otherwise reasonably required
by MLBFS. Customer shall furnish MLBFS with a copy or certificate of each such
policy or policies and, prior to any expiration or cancellation, each renewal
or replacement thereof.
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(g) EVENT OF LOSS. Customer shall at its expense promptly repair all
repairable damage to any tangible Collateral. In the event that any tangible
Collateral is damaged beyond repair, lost, totally destroyed or confiscated (an
"Event of Loss") and such Collateral had a value prior to such Event of Loss of
$25,000.00 or more, then, on or before the first to occur of (i) 90 days after
the occurrence of such Event of Loss, or (ii) 10 Business Days after the date
on which either Customer or MLBFS shall receive any proceeds of insurance on
account of such Event of Loss, or any underwriter of insurance on such tangible
Collateral shall advise either Customer or MLBFS that it disclaims liability in
respect of such Event of Loss, Customer shall, at Customer's option, either
replace the Collateral subject to such Event of Loss with comparable Collateral
free of all liens other than Permitted Liens (in which event Customer shall be
entitled to utilize the proceeds of insurance on account of such Event of Loss
for such purpose, and may retain any excess proceeds of such insurance), or pay
to MLBFS on account of the Obligations an amount equal to the actual cash value
of such Collateral as determined by either the applicable insurance company's
payment (plus any applicable deductible) or, in absence of insurance company
payment, as reasonably determined by MLBFS. Notwithstanding the foregoing, if
at the time of occurrence of such Event of Loss or any time thereafter prior to
replacement or payment, as aforesaid, an Event of Default shall have occurred
and be continuing hereunder, then MLBFS may at its sole option, exercisable at
any time while such Event of Default shall be continuing, require Customer to
either replace such Collateral or make a payment on account of the Obligations,
as aforesaid.
(h) SALES AND COLLECTIONS. So long as no Event of Default shall have occurred
and be continuing, Customer may in the ordinary course of its business: (i)
sell any Inventory normally held by Customer for sale, (ii) use or consume any
materials and supplies normally held by Customer for use or consumption, and
(iii) collect all of its Accounts. Customer shall take such action with
respect to protection of its Inventory and the other Collateral and the
collection of its Accounts as MLBFS may from time to time reasonably request.
(i) ACCOUNT SCHEDULES. Upon the request of MLBFS, made now or at any time or
times hereafter, Customer shall deliver to MLBFS, in addition to the other
information required hereunder, a schedule identifying, for each Account and
all Chattel Paper subject to MLBFS' security interests hereunder, each Account
Debtor by name and address and amount, invoice number and date of each invoice.
Customer shall furnish to MLBFS such additional information with respect to the
Collateral, and amounts received by Customer as proceeds of any of the
Collateral, as MLBFS may from time to time reasonably request.
(j) LOCATION. Except for movements in the ordinary course of its business,
Customer shall give MLBFS 30 days' prior written notice of the placing at or
movement of any tangible Collateral to any location other than a Location of
Tangible Collateral. In no event shall Customer cause or permit any tangible
Collateral to be removed from the United States without the express prior
written consent of MLBFS.
(k) ALTERATIONS AND MAINTENANCE. Except upon the prior written consent of
MLBFS, Customer shall not make or permit any material alterations to any
tangible Collateral which might materially reduce or impair its market value or
utility. Customer shall at all times keep the tangible Collateral in good
condition and repair and shall pay or cause to be paid all obligations arising
from the repair and maintenance of such Collateral, as well as all obligations
with respect to each Location of Tangible Collateral, except for any such
obligations being contested by Customer in good faith by appropriate
proceedings.
3. REPRESENTATIONS AND WARRANTIES
Customer represents and warrants to MLBFS that:
(a) CUSTOMER. Customer is a corporation, duly organized and validly existing
in good standing under the laws of the State of Virginia and is qualified to do
business and in good standing in each other state where the nature of its
business or the property owned by it make such qualification necessary.
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(b) EXECUTION, DELIVERY AND PERFORMANCE. The execution, delivery and
performance by Customer of this Agreement have been duly authorized by all
requisite action, do not and will not violate or conflict with any law or other
governmental requirement, or any of the agreements, instruments or documents
which formed or governed Customer, and do not and will not breach or violate
any of the provisions of, and will not result in a default by Customer under,
any other agreement, instrument or document to which it is a party or by which
it or its properties are bound.
(c) NOTICE OR CONSENT. Except as may have been given or obtained, no notice to
or consent or approval of any governmental body or authority or other third
party whatsoever (including, without limitation, any other creditor) is
required in connection with the execution, delivery or performance by Customer
of this Agreement.
(d) VALID AND BINDING. This Agreement is the legal, valid and binding
obligation of Customer, enforceable against it in accordance with its terms,
except as enforceability may be limited by bankruptcy and other similar laws
affecting the rights of creditors generally or by general principles of equity.
(e) FINANCIAL STATEMENTS. Except as expressly set forth in Customer's
financial statements, all financial statements of Customer furnished to MLBFS
have been prepared in conformity with generally accepted accounting principles,
consistently applied, are true and correct, and fairly present the financial
condition of it as at such dates and the results of its operations for the
periods then ended; and since the most recent date covered by such financial
statements, there has been no material adverse change in any such financial
condition or operation.
(f) LITIGATION, ETC. No litigation, arbitration, administrative or
governmental proceedings are pending or threatened against Customer, which
would, if adversely determined, materially and adversely affect the financial
condition or continued operations of Customer, or the liens and security
interests of MLBFS hereunder.
(g) TAXES. All federal, state and local tax returns, reports and statements
required to be filed by Customer have been filed with the appropriate
governmental agencies and all taxes due and payable by Customer have been
timely paid (except to the extent that any such failure to file or pay will not
materially and adversely affect either the liens and security interests of
MLBFS hereunder or the financial condition or continued operations of
Customer).
(h) COLLATERAL. Customer has good and marketable title to the Collateral, and,
except for any Permitted Liens: (i) none of the Collateral is subject to any
lien, encumbrance or security interest, and (ii) upon the filing of all Uniform
Commercial Code financing statements executed by Customer with respect to the
Collateral or a copy of this Agreement in the appropriate jurisdiction(s)
and/or the completion of any other action required by applicable law to perfect
is lien and security interests, MLBFS will have valid and perfected first liens
and security interests upon all of the Collateral.
Each of the foregoing representations and warranties has been and will be
relied upon as an inducement to MLBFS to advance funds or extend or continue to
extend credit to Customer, and is continuing and shall be deemed remade by
Customer concurrently with each such advance or extension of credit by MLBFS to
Customer.
4. FINANCIAL AND OTHER INFORMATION
Customer covenants and agrees that Customer will furnish or cause to be
furnished to MLBFS during the term of this Agreement such financial and other
information as may be required by the Loan Agreement or any other document
evidencing the Obligations or as MLBFS may from time to time reasonably request
relating to Customer or the Collateral.
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5. OTHER COVENANTS
Customer further agrees during the term of this Agreement that:
(a) FINANCIAL RECORDS; INSPECTION. Customer will: (i) maintain complete and
accurate books and records at its principal place of business, and maintain all
of its financial records in a manner consistent with the financial statements
heretofore furnished to MLBFS, or prepared on such other basis as may be
approved in writing by MLBFS; and (ii) permit MLBFS or its duly authorized
representatives, upon reasonable notice and at reasonable times, to inspect its
properties (both real and personal), operations, books and records.
(b) TAXES. Customer will pay when due all taxes, assessments and other
governmental charges, howsoever designated, and all other liabilities and
obligations, except to the extent that any such failure to pay will not
materially and adversely affect either the liens and security interests of
MLBFS hereunder, or the financial condition or continued operations of
Customer.
(c) COMPLIANCE WITH LAWS AND AGREEMENTS. Customer will not violate any law,
regulation or other governmental requirement, any judgment or order of any
court or governmental agency or authority, or any agreement, instrument or
document to which it is a party or by which it is bound, if any such violation
will materially and adversely affect either the liens and security interests of
MLBFS hereunder, or the financial condition or continued operations of
Customer.
(d) NOTIFICATION BY CUSTOMER. Customer shall provide MLBFS with prompt written
notification of: (i) any Default; (ii) any materially adverse change in the
business, financial condition or operations of Customer; and (iii) any
information which indicates that any financial statements of Customer fail in
any material respect to present fairly the financial condition and results of
operations purported to be presented in such statements. Each notification by
Customer pursuant hereto shall specify the event or information causing such
notification, and, to the extent applicable, shall specify the steps being
taken to rectify or remedy such event or information.
(e) NOTICE OF CHANGE. Customer shall give MLBFS not less than 30 days prior
written notice of any change in the name (including any fictitious name) or
principal place of business of Customer.
(f) CONTINUITY. Except upon the prior written consent of MLBFS, which consent
will not be unreasonably withheld: (i) Customer shall not be a party to any
merger or consolidation with, or purchase or otherwise acquire all or
substantially all of the assets of, or any material stock, partnership, joint
venture or other equity interest in, any person or entity, or sell, transfer or
lease all or any substantial part of its assets, if any such action would
result in either: (A) a material change in the principal business, ownership
or control of Customer, or (B) a material adverse change in the financial
condition or operations of Customer; (ii) Customer shall preserve its existence
and good standing in the jurisdiction(s) of establishment and operation, (iii)
Customer shall not engage in any material business substantially different from
its business in effect as of the date of application by Customer for credit
from MLBFS, or cease operating any such material business; (iv) Customer shall
not cause or permit any other person or entity to assume or succeed to any
material business or operations of Customer; and (iv) Customer shall not cause
or permit any material change in its controlling ownership.
6. EVENTS OF DEFAULT
The occurrence of any of the following events shall constitute an "Event of
Default" under this Agreement:
(a) DEFAULT UNDER LOAN AGREEMENT. An Event of Default shall occur under the
terms of the Loan Agreement.
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(b) FAILURE TO PERFORM. Customer shall default in the performance or
observance of any covenant or agreement on its part to be performed or observed
under this Agreement (not constituting an Event of Default under any other
clause of this Section), and such default shall continue unremedied for 10
Business Days after written notice thereof shall have been given by MLBFS to
Customer.
(c) BREACH OF WARRANTY. Any representation or warranty made by Customer
contained in this Agreement shall at any time prove to have been incorrect in
any material respect when made.
(d) DEFAULT UNDER OTHER AGREEMENT. A default or Event of Default by Customer
shall occur under the terms of any other agreement, instrument or document with
or intended for the benefit of MLBFS, Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S") or any of their affiliates, and any required notice
shall have been given and required passage of time shall have elapsed.
(e) SEIZURE OR ABUSE OF COLLATERAL. The Collateral, or any material part
thereof, shall be or become subject to any levy, attachment, seizure or
confiscation which is not released within 10 Business Days.
(f) BANKRUPTCY EVENT. Any Bankruptcy Event shall occur.
(g) MATERIAL IMPAIRMENT. Any event shall occur which shall reasonably cause
MLBFS to in good faith believe that the prospect of payment or performance by
Customer has been materially impaired.
(h) ACCELERATION OF DEBT TO OTHER CREDITORS. Any event shall occur which
results in the acceleration of the maturity of any indebtedness of $100,000.00
or more of Customer to another creditor under any indenture, agreement,
undertaking, or otherwise.
7. REMEDIES
(a) REMEDIES UPON DEFAULT. Upon the occurrence and during the continuance of
any Event of Default, MLBFS may at its sole option do any one or more or all of
the following, at such time and in such order as MLBFS may in its sole
discretion choose:
(i) ACCELERATION. MLBFS may declare all Obligations to be forthwith due and
payable, whereupon all such amounts shall be immediately due and payable,
without presentment, demand for payment, protest and notice of protest, notice
of dishonor, notice of acceleration, notice of intent to accelerate or other
notice or formality of any kind, all of which are hereby expressly waived;
provided, however, that upon the occurrence of any Bankruptcy Event all
Obligations shall automatically become due and payable without any action on
the part of MLBFS.
(ii) EXERCISE RIGHTS OF SECURED PARTY. MLBFS may exercise any or all of the
remedies of a secured party under applicable law, including, but not limited
to, the UCC, and any or all of its other rights and remedies under this
Agreement.
(iii) POSSESSION. MLBFS may require Customer to make the Collateral and the
records pertaining to the Collateral available to MLBFS at a place designated
by MLBFS which is reasonably convenient to Customer, or may take possession of
the Collateral and the records pertaining to the Collateral without the use of
any judicial process and without any prior notice to Customer.
(iv) SALE. MLBFS may sell any or all of the Collateral at public or private
sale upon such terms and conditions as MLBFS may reasonably deem proper, and
MLBFS may purchase any Collateral at any such public sale; and the net proceeds
of any such public or private sale and all other amounts actually collected or
received by MLBFS pursuant hereto, after deducting all costs and expenses
incurred at any time in the collection of the Obligations and in the
protection, collection and sale of the Collateral, will be applied to the
payment of the Obligations, with any remaining proceeds paid to Customer or
whoever else
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may be entitled thereto, and with Customer and each guarantor of Customer's
obligations remaining jointly and severally liable for any amount remaining
unpaid after such application.
(v) DELIVERY OF CASH, CHECKS, ETC. MLBFS may require Customer to forthwith upon
receipt, transmit and deliver to MLBFS in the form received, all cash, checks,
drafts and other instruments for the payment of money (properly endorsed, where
required, so that such items may be collected by MLBFS) which may be received
by Customer at any time in full or partial payment of any Collateral, and
require that Customer not commingle any such items which may be so received by
Customer with any other of its funds or property but instead hold them separate
and apart and in trust for MLBFS until delivery is made to MLBFS.
(vi) NOTIFICATION OF ACCOUNT DEBTORS. MLBFS may notify any Account Debtor that
its Account or Chattel Paper has been assigned to MLBFS and direct such Account
Debtor to make payment directly to MLBFS of all amounts due or becoming due
with respect to such Account or Chattel Paper; and MLBFS may enforce payment
and collect, by legal proceedings or otherwise, such Account or Chattel Paper.
(vii) CONTROL OF COLLATERAL. MLBFS may otherwise take control in any lawful
manner of any cash or non-cash items of payment or proceeds of Collateral and
of any rejected, returned, stopped in transit or repossessed goods included in
the Collateral and endorse Customer name on any item of payment on or proceeds
of the Collateral, and, in connection therewith, MLBFS may notify the postal
authorities to change the address for delivery of mail addressed to Customer to
such address as MLBFS may designate.
(b) SET-OFF. MLBFS shall have the further right upon the occurrence and during
the continuance of an Event of Default to set-off, appropriate and apply toward
payment of any of the Obligations, in such order of application as MLBFS may
from time to time and at any time elect, any cash, credits, deposits, accounts,
securities and any other property of Customer which is in transit to or in the
possession, custody or control of MLBFS, MLPF&S or any agent, bailee, or
affiliate of MLBFS or MLPF&S, including, without limitation, all securities
accounts with MLPF&S and all cash and securities and other financial assets
therein or controlled thereby, and all proceeds thereof. Customer hereby
collaterally assigns and grants to MLBFS a security interest in all such
property as additional Collateral.
(c) POWER OF ATTORNEY. Effective upon the occurrence and during the
continuance of an Event of Default, Customer hereby irrevocably appoints MLBFS
as its attorney-in-fact, with full power of substitution, in its place and
stead and in its name or in the name of MLBFS, to from time to time in MLBFS'
sole discretion take any action and to execute any instrument which MLBFS may
deem necessary or advisable to accomplish the purposes of this Agreement,
including, but not limited to, to receive, endorse and collect all checks,
drafts and other instruments for the payment of money made payable to Customer
included in the Collateral.
(d) REMEDIES ARE SEVERABLE AND CUMULATIVE. All rights and remedies of MLBFS
herein are severable and cumulative and in addition to all other rights and
remedies available at law or in equity, and any one or more of such rights and
remedies may be exercised simultaneously or successively. Any notice required
under this Agreement or under applicable law shall be deemed reasonably and
properly given to Customer if given at the address and by any of the methods of
giving notice set forth in this Agreement at least 5 Business Days before
taking any action specified in such notice.
(e) NOTICES. To the fullest extent permitted by applicable law, Customer
hereby irrevocably waives and releases MLBFS of and from any and all
liabilities and penalties for failure of MLBFS to comply with any statutory or
other requirement imposed upon MLBFS relating to notices of sale, holding of
sale or reporting of any sale, and Customer waives all rights of redemption or
reinstatement from any such sale. MLBFS shall have the right to postpone or
adjourn any sale or other disposition of Collateral at any time without giving
notice of any such postponed or adjourned date. In the event MLBFS seeks to
take possession of any or all of the Collateral by court process, Customer
further irrevocably waives to the fullest extent permitted by law any bonds and
any surety or security relating thereto required by any statute, court rule
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or otherwise as an incident to such possession, and any demand for possession
prior to the commencement of any suit or action.
8. MISCELLANEOUS
(a) NON-WAIVER. No failure or delay on the part of MLBFS in exercising any
right, power or remedy pursuant to this Agreement shall operate as a waiver
thereof, and no single or partial exercise of any such right, power or remedy
shall preclude any other or further exercise thereof, or the exercise of any
other right, power or remedy. Neither any waiver of any provision of this
Agreement, nor any consent to any departure by Customer therefrom, shall be
effective unless the same shall be in writing and signed by MLBFS. Any waiver
of any provision of this Agreement and any consent to any departure by Customer
from the terms of this Agreement shall be effective only in the specific
instance and for the specific purpose for which given. Except as otherwise
expressly provided herein, no notice to or demand on Customer shall in any case
entitle Customer to any other or further notice or demand in similar or other
circumstances.
(b) COMMUNICATIONS. All notices and other communications required or permitted
hereunder shall be in writing, and shall be either delivered personally, mailed
by postage prepaid certified mail or sent by express overnight courier or by
facsimile. Such notices and communications shall be deemed to be given on the
date of personal delivery, facsimile transmission or actual delivery of
certified mail, or one Business Day after delivery to an express overnight
courier. Unless otherwise specified in a notice sent or delivered in
accordance with the terms hereof, notices and other communications in writing
shall be given to the parties hereto at their respective addresses set forth at
the beginning of this Agreement, and, in the case of facsimile transmission, to
the parties at their respective regular facsimile telephone number.
(c) COSTS, EXPENSES AND TAXES. Customer shall pay or reimburse MLBFS upon
demand for: (i) all Uniform Commercial Code filing and search fees and
expenses incurred by MLBFS in connection with the verification, perfection or
preservation of MLBFS' rights hereunder or in the Collateral; (ii) any and all
stamp, transfer and other taxes and fees payable or determined to be payable in
connection with the execution, delivery and/or recording of this Agreement; and
(iii) all reasonable fees and out-of-pocket expenses (including, but not
limited to, reasonable fees and expenses of outside counsel) incurred by MLBFS
in connection with the enforcement of this Agreement or the protection of
MLBFS' rights hereunder, excluding, however, salaries and expenses of MLBFS'
employees. The obligations of Customer under this paragraph shall survive the
expiration or termination of this Agreement and the discharge of the other
Obligations.
(d) RIGHT TO PERFORM OBLIGATIONS. If Customer shall fail to do any act or
thing which it has covenanted to do under this Agreement or any representation
or warranty on the part of Customer contained in this Agreement shall be
breached, MLBFS may, in its sole discretion, after 5 Business Days written
notice is sent to Customer (or such lesser notice, including no notice, as is
reasonable under the circumstances), do the same or cause it to be done or
remedy any such breach, and may expend its funds for such purpose. Any and all
reasonable amounts so expended by MLBFS shall be repayable to MLBFS by Customer
upon demand, with interest at the "Interest Rate" (as that term is defined in
the Loan Agreement or any document incorporated into the Loan Agreement) during
the period from and including the date funds are so expended by MLBFS to the
date of repayment, and any such amounts due and owing MLBFS shall be additional
Obligations. The payment or performance by MLBFS of any of Customer's
obligations hereunder shall not relieve Customer of said obligations or of the
consequences of having failed to pay or perform the same, and shall not waive
or be deemed a cure of any Default.
(e) FURTHER ASSURANCES. Customer agrees to do such further acts and things and
to execute and deliver to MLBFS such additional agreements, instruments and
documents as MLBFS may reasonably require or deem advisable to effectuate the
purposes of this Agreement, or to establish, perfect and maintain MLBFS'
security interests and liens upon the Collateral, including, but not limited
to: (i) executing financing statements or amendments thereto when and as
reasonably requested by MLBFS; and (ii) if in
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the reasonable judgment of MLBFS it is required by local law, causing the
owners and/or mortgagees of the real property on which any Collateral may be
located to execute and deliver to MLBFS waivers or subordinations reasonably
satisfactory to MLBFS with respect to any rights in such Collateral.
(f) BINDING EFFECT. This Agreement shall be binding upon Customer and its
successors and assigns, and shall inure to the benefit of MLBFS and its
successors and assigns.
(g) HEADINGS. Captions and section and paragraph headings in this Agreement
are inserted only as a matter of convenience, and shall not affect the
interpretation hereof.
(h) GOVERNING LAW. This Agreement shall be governed in all respects by the
laws of the State of Illinois.
(i) SEVERABILITY OF PROVISIONS. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective only to the extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
(j) TERM. This Agreement shall become effective upon acceptance by MLBFS, and,
subject to the terms hereof, shall continue in effect so long thereafter as
either MLBFS shall be committed to advance funds or extend credit to Customer
or there shall be any Obligations outstanding.
(k) COUNTERPARTS. This Agreement may be executed in one or more counterparts
which, when taken together, constitute one and the same agreement.
(l) JURISDICTION; WAIVER. CUSTOMER ACKNOWLEDGES THAT THIS AGREEMENT IS BEING
ACCEPTED BY MLBFS IN PARTIAL CONSIDERATION OF MLBFS' RIGHT AND OPTION, IN ITS
SOLE DISCRETION, TO ENFORCE THIS AGREEMENT IN EITHER THE STATE OF ILLINOIS OR
IN ANY OTHER JURISDICTION WHERE CUSTOMER OR ANY COLLATERAL FOR THE OBLIGATIONS
MAY BE LOCATED. CUSTOMER CONSENTS TO JURISDICTION IN THE STATE OF ILLINOIS AND
VENUE IN ANY STATE OR FEDERAL COURT IN THE COUNTY OF COOK FOR SUCH PURPOSES,
AND CUSTOMER WAIVES ANY AND ALL RIGHTS TO CONTEST SAID JURISDICTION AND VENUE.
CUSTOMER FURTHER WAIVES ANY RIGHTS TO COMMENCE ANY ACTION AGAINST MLBFS IN ANY
JURISDICTION EXCEPT IN THE COUNTY OF COOK AND STATE OF ILLINOIS, MLBFS AND
CUSTOMER HEREBY EACH EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST
THE OTHER PARTY WITH RESPECT TO ANY MATTER RELATING TO, ARISING OUT OF OR IN
ANY WAY CONNECTED WITH THE LOAN AGREEMENT, THIS AGREEMENT AND/OR ANY OF THE
TRANSACTIONS WHICH ARE THE SUBJECT MATTER OF THE LOAN AGREEMENT OR THIS
AGREEMENT.
(m) INTEGRATION. THIS WRITTEN AGREEMENT CONSTITUTES THE ENTIRE UNDERSTANDING
AND REPRESENTS THE FULL AND FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO
THE SUBJECT MATTER HEREOF, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR
WRITTEN AGREEMENTS OR PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF
THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS OF THE PARTIES. NO
AMENDMENT OR MODIFICATION OF THIS AGREEMENT SHALL BE EFFECTIVE UNLESS IN A
WRITING SIGNED BY BOTH MLBFS AND CUSTOMER.
9
<PAGE> 13
IN WITNESS WHEREOF, this Agreement has been executed as of the day and year
first above written.
<TABLE>
<S> <C>
ALTA SOFTWARE, INC.
By: /s/ Nelson A. Carbonell /s/ John R. Lund
-------------------------------------------------------------------------------------------
Signature (1) Signature (2)
By: Nelson A. Carbonell John R. Lund
-------------------------------------------------------------------------------------------
Printed Name Printed Name
By: CEO and President CFO and Treasurer
-------------------------------------------------------------------------------------------
Title Title
Accepted at Chicago, Illinois:
MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC.
By:
---------------------------------------------------------
</TABLE>
10
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected Financial
Data" and "Experts" and to the use of our reports dated January 14, 1999, except
for Note 11, as to which the date is August 19, 1999, in the Registration
Statement (Form S-1, No. 333-___) and related Prospectus of Cysive, Inc.
(formerly Alta Software, Inc.) for the registration of shares of its common
stock.
Vienna, Virginia Ernst & Young LLP
August 19, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 JUN-30-1999
<CASH> 612 869
<SECURITIES> 0 0
<RECEIVABLES> 2,070 4,058
<ALLOWANCES> 160 506
<INVENTORY> 0 0
<CURRENT-ASSETS> 2,794 5,170
<PP&E> 756 866
<DEPRECIATION> 417 439
<TOTAL-ASSETS> 3,163 5,792
<CURRENT-LIABILITIES> 644 1,806
<BONDS> 0 0
0 0
0 0
<COMMON> 30 36
<OTHER-SE> 2,489 3,950
<TOTAL-LIABILITY-AND-EQUITY> 3,163 5,792
<SALES> 9,142 9,424
<TOTAL-REVENUES> 9,142 9,424
<CGS> 3,742 3,473
<TOTAL-COSTS> 3,742 3,473
<OTHER-EXPENSES> 4,619 5,093
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 796 883
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 796 883
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 796 883
<EPS-BASIC> .26 .24
<EPS-DILUTED> .23 .21
</TABLE>
