<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 7, 1999
REGISTRATION NO. 333-89239
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 2
to
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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XPEDIOR INCORPORATED
(Exact name of Registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 7379 76-0556713
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) No.)
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ONE NORTH FRANKLIN, SUITE 1500
CHICAGO, ILLINOIS 60606
(800) 462-6301
(Address, including zip code, and telephone number, including
area code, of the Registrant's principal executive offices)
MARGARET G. REED
SENIOR VICE PRESIDENT AND
GENERAL COUNSEL
METAMOR WORLDWIDE, INC.
4400 POST OAK PARKWAY, SUITE 1100
HOUSTON, TEXAS 77027-3413
(713) 548-3400
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------
Copies to:
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<S> <C>
ROBERT K. HATCHER SETH R. MOLAY, P.C.
VINSON & ELKINS L.L.P. AKIN, GUMP, STRAUSS, HAUER & FELD L.L.P.
1001 FANNIN, SUITE 2300 1700 PACIFIC AVENUE, SUITE 4100
HOUSTON, TEXAS 77002 DALLAS, TEXAS 75201
(713) 758-2266 (214) 969-2800
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
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, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of this prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
WE WILL AMEND AND COMPLETE THE INFORMATION IN THIS PROSPECTUS. ALTHOUGH WE
ARE PERMITTED BY US FEDERAL SECURITIES LAWS TO OFFER THESE SECURITIES USING
THIS PROSPECTUS, WE MAY NOT SELL THEM OR ACCEPT YOUR OFFER TO BUY THEM
UNTIL THE DOCUMENTATION FILED WITH THE SEC RELATING TO THESE SECURITIES HAS
BEEN DECLARED EFFECTIVE BY THE SEC. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES OR OUR SOLICITATION OF YOUR OFFER TO BUY THESE SECURITIES
IN ANY JURISDICTION WHERE THAT WOULD NOT BE PERMITTED OR LEGAL.
SUBJECT TO COMPLETION -- DECEMBER 7, 1999
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PROSPECTUS
, 1999
[XPEDIOR LOGO]
8,535,000 SHARES OF COMMON STOCK
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XPEDIOR INCORPORATED:
- - We provide innovative and comprehensive eBusiness solutions to Global 2000
companies and emerging Internet businesses.
PROPOSED SYMBOL & MARKET:
- - XPDR/Nasdaq National Market
THE OFFERING:
- - The underwriters have an option to purchase an additional 1,280,250 shares of
common stock from Metamor to cover over-allotments.
- - This is our initial public offering, and no public market currently exists for
our shares.
- - We anticipate that the initial public offering price will be between $14.00
and $16.00 per share.
- - We plan to use the proceeds from this offering to repay outstanding debt and
for general corporate purposes.
- - Closing: , 1999.
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<CAPTION>
PER SHARE TOTAL
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Public offering price: $ $
Underwriting fees:
Proceeds to Xpedior Incorporated:
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</TABLE>
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 5.
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NEITHER THE SEC 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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DONALDSON, LUFKIN & JENRETTE FIRST UNION SECURITIES, INC.
J.P. MORGAN & CO.
THE ROBINSON-HUMPHREY COMPANY
DLJDIRECT INC.
<PAGE> 3
[GRAPHIC DEPICTION OF OPEN ROAD MOUNTAIN SCENERY OVERLAID WITH TEXT BOX]
To soar in today's digital world, companies must increasingly adapt to
rapid, fundamental changes in technology. As both established industry players
and upstart enterprises examine how they can benefit from these changes, they
call on eBusiness consultants to integrate their ideas into sound business
strategy, technical ability and creative design. We believe that there are
relatively few companies that have the experience and technological capability
to deliver comprehensive solutions quickly. Xpedior designs solutions that
satisfy our clients' need to rapidly implement reliable, scalable and
sustainable eBusinesses.
CONTACT US AT:
[email protected]
CORPORATE HEADQUARTERS:
One North Franklin Street
Suite 1500
Chicago, IL 60606
312-251-2000 or
800-462-6301
[XPEDIOR LOGO]
www.xpedior.com
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[GRAPHIC DEPICTION OF SPINNING WHEEL, SPINNING GLOBE
AND SPEEDING THROUGH TUNNEL OVERLAID WITH TEXT BOXES]
OUR TRACK RECORD
With over 1,100 employees at our 12 U.S. and three international offices,
we solve eBusiness challenges in numerous industries, from telecommunications
and high technology to healthcare and financial services. For over five years,
we've designed and deployed innovative, comprehensive eBusiness solutions by
successfully combining technical expertise with market knowledge.
COMPREHENSIVE SOLUTIONS
From back office to front office, Xpedior can rapidly implement reliable,
scalable and sustainable solutions that empower digital-age companies. Our
ability to provide a comprehensive range of services, including eBusiness
intelligence, digital business strategy, knowledge management, digital branding
and eBusiness application and integration, differentiates us from consultants
who lack these broad capabilities.
THE XPEDIOR PROCESS
The Xpedior Process is our five-stage methodology for developing eBusiness
solutions. Together with clients, we envision the future, outline the business
strategy necessary to get there and achieve the identified goals. We work with
our clients through the five stages -- imagine, define, architect, build and
deliver -- to formulate, construct and deploy a dynamic eBusiness solution.
EBUSINESS XPEDIATORS
Our eBusiness Xpediators enable us to deliver our solutions in the rapid
timeframes required to meet our clients' needs. This collection of proven and
reusable solutions includes comprehensive software architectures for developing
large-scale eBusiness applications, reusable software components that implement
commonly used eBusiness functions and prebuilt comprehensive applications for
specific eBusiness functions.
SOLUTION CENTERS
Our solution centers provide a high-tech environment where our
professionals and teams of solution center specialists are able to share
expertise and best practices across client engagements, while maintaining
continuous communications with our clients.
Xpedior delivers experience, international capability and technical,
strategic and creative expertise. We build comprehensive eBusiness solutions.
<PAGE> 5
TABLE OF CONTENTS
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PAGE
<S> <C>
Prospectus Summary............... 1
Risk Factors..................... 5
Special Note Regarding Forward-
Looking Statements............. 16
Where You Can Find More
Information.................... 17
Corporate Information............ 17
Use of Proceeds.................. 18
Dividend Policy.................. 18
Capitalization................... 19
Dilution......................... 20
Selected Consolidated Financial
Data........................... 21
Management's Discussion and
Analysis of Financial Condition
and Results of Operations...... 23
</TABLE>
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<CAPTION>
PAGE
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Xpedior.......................... 35
Business......................... 37
Management....................... 51
Transactions with our Management
and Metamor.................... 59
Principal Stockholders........... 60
Description of Capital Stock..... 61
Shares Eligible for Future
Sale........................... 65
Underwriting..................... 67
Legal Matters.................... 69
Experts.......................... 70
Index to Financial Statements.... F-1
</TABLE>
<PAGE> 6
PROSPECTUS SUMMARY
This summary is qualified by more detailed information appearing in other
sections of this prospectus. The other information is important, so please read
this entire prospectus carefully.
XPEDIOR
Xpedior provides innovative and comprehensive solutions to Global 2000 and
emerging Internet companies that conduct eBusiness -- the transaction of
traditional business over the Internet. We combine extensive technical expertise
with strategic consulting and creative services to build eBusiness solutions
that enable our clients to capitalize on the communications power and
transaction efficiency of the Internet. Our eBusiness solutions include one or
more of the following services, customized to fit our clients' needs:
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<S> <C>
- - Digital Business Strategy
- - Electronic Commerce
- - Digital Branding and User
Experience Design
- - eBusiness Applications and Integration
- - eBusiness Technology Management
- - eBusiness Networks
- - eBusiness Intelligence
- - Enterprise Portals -- internal company
web sites for sharing information -- and
Knowledge Management
</TABLE>
We have over 1,100 employees at our 12 U.S. and three international
offices.
OUR MARKET OPPORTUNITY
International Data Corporation estimates that the worldwide market for
Internet professional services will grow from $7.8 billion in 1998 to $78.5
billion in 2003. Despite the size of this market opportunity, we believe that
there are relatively few service providers that can effectively address the full
range of problems and challenges associated with developing and implementing
comprehensive eBusiness solutions. We believe businesses will increasingly seek
assistance from companies that offer the complete set of services necessary for
them to achieve their eBusiness objectives. In our view, a comprehensive service
offering must include three fundamental eBusiness disciplines -- strategic,
technical and creative. The Xpedior Solution incorporates all three of these
disciplines, allowing our professionals to deliver comprehensive, reliable and
scalable eBusiness solutions in the demanding timeframes often required in the
Internet professional services market.
1
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OUR STRATEGY
Our goal is to become the provider of choice for Global 2000 companies and
emerging Internet businesses that require comprehensive, customized, integrated
eBusiness solutions. To achieve this goal, we plan to:
- extend relationships with existing clients and market to new clients;
- leverage our industry-specific expertise;
- refine and extend the Xpedior Solution through the use and sharing of our
intellectual capital;
- leverage our strategic industry alliances with leading technology
companies;
- attract and retain qualified employees through aggressive recruiting and
competitive compensation packages; and
- build the identity and awareness of the Xpedior brand name.
RELATIONSHIP WITH METAMOR
We are currently a subsidiary of Metamor Worldwide (Nasdaq: MMWW). Prior to
this offering, Metamor owned 99.6% of our common stock. After this offering,
Metamor will own approximately 83% of our outstanding common stock, or 80% if
the underwriters exercise their over-allotment option in full. Metamor has
announced that in 2000 it plans to distribute all of its remaining shares of
Xpedior common stock to its stockholders.
We have agreed to cooperate with Metamor to complete this distribution
because we believe that our complete separation from Metamor will enhance our
ability to pursue our business strategy. Metamor intends to seek a private
letter ruling from the IRS that the distribution of its shares of Xpedior common
stock to its stockholders would be tax-free to Metamor and its stockholders for
U.S. federal income tax purposes. If Metamor does not receive a favorable
ruling, it may not complete the distribution of our common stock, which may
prevent us from achieving the benefits we believe will result from the
separation. Metamor has the sole discretion to determine the timing and
structure of the distribution, if it occurs.
2
<PAGE> 8
THE OFFERING
Common stock offered by Xpedior....... 8,535,000 shares
Common stock to be outstanding after
the offering.......................... 50,000,000 shares(a)
Common stock to be held by Metamor
after the offering.................... 41,285,298 shares(b)
Use of proceeds....................... The net proceeds from this offering
are estimated to be approximately
$116.9 million. We will use the net
proceeds for:
- the repayment of approximately
$100.0 million of outstanding debt
due to Metamor; and
- general corporate purposes.
Proposed Nasdaq National Market
symbol................................ XPDR
Unless stated otherwise, the information in this prospectus:
- assumes that our common stock will be sold at $15.00 per share, which is
the mid-point of the range set forth on the cover of this prospectus;
- assumes that the underwriters' over-allotment option is not exercised;
and
- is presented on a pro forma basis to illustrate the impact of all
businesses acquired through September 30, 1999, as if these acquisitions
were consummated as of the beginning of the periods presented. Unless the
context otherwise requires, all references to Xpedior and its operations
include the acquired companies and their operations prior to their
acquisition.
- ------------------------------
(a) The number of shares of common stock to be outstanding after this offering
excludes (1) options to purchase 9,034,150 shares of common stock granted
through October 31, 1999 at a weighted average exercise price of $7.34 per
share and (2) 5,786,148 shares of common stock reserved for issuance upon
exercise of options that may be granted in the future under our stock
plans.
(b) If the underwriters fully exercise their over-allotment option, Metamor
will own 40,005,048 shares of common stock after this offering.
3
<PAGE> 9
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table presents summary consolidated historical and pro forma
financial data for our business. You should read the following summary
consolidated financial data together with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and our consolidated financial
statements and related notes included elsewhere in this prospectus. The pro
forma information illustrates the impact of all businesses acquired through
September 30, 1999, as if these acquisitions were consummated as of the
beginning of the periods presented, and should be read in conjunction with the
pro forma condensed consolidated financial statements included elsewhere in this
prospectus. The pro forma results of operations for the year ended December 31,
1998 and the results for the nine months ended September 30, 1999 include stock
compensation charges of $30.8 and $0.4 million, respectively. The pro forma
results of operations are not necessarily indicative of the results that would
have occurred had the acquisitions been consummated as of the beginning of the
periods presented.
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<CAPTION>
INCEPTION YEAR ENDED
(MARCH 27,
NINE MONTHS ENDED SEPTEMBER 30,
DECEMBER 31, --------------------------------
1997) TO ------------------- ACTUAL
DECEMBER 31, ACTUAL PRO FORMA ------------------- PRO FORMA
1997 1998 1998 1998 1999 1999
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................. $12,588 $72,267 $100,500 $47,405 $93,359 $102,746
Gross profit......................... 4,414 30,337 42,858 20,204 39,783 44,369
Operating income (loss).............. (1,000) 6,956 (21,793) 4,874 9,044 9,336
Income (loss) from continuing
operations......................... (1,357) 530 (30,420) 471 (737) (778)
</TABLE>
The following table presents summary consolidated balance sheet data as of
September 30, 1999. The pro forma as adjusted information illustrates the impact
of this offering and our proposed use of the estimated net proceeds.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
------------------------
ACTUAL AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash........................................................ $ 194 $ 17,057
Working capital (includes amounts due to Metamor)........... (92,479) 24,384
Total assets................................................ 201,211 218,074
Amounts due to Metamor...................................... 100,000 --
Long-term debt, net of current maturities................... 9,068 9,068
Stockholders' equity........................................ 59,143 176,006
</TABLE>
4
<PAGE> 10
RISK FACTORS
Before you invest in our common stock, you should understand the risk
involved. You should carefully consider these risk factors as well as all of the
other information contained in this prospectus before you decide to purchase
shares of our common stock. If any of the following risks actually occur, our
business, financial condition and operating results could be adversely affected.
As a result, the trading price of our common stock could decline and you may
lose all or part of your investment.
RISKS RELATED TO OUR BUSINESS
OUR QUARTERLY REVENUES AND OPERATING RESULTS ARE VOLATILE AND MAY CAUSE OUR
STOCK PRICE TO FLUCTUATE SIGNIFICANTLY
Our quarterly operating results have varied in the past and are likely to
vary significantly from quarter to quarter in the future. As a result, we
believe that period-to-period comparisons of our results of operations are not a
good indication of our future performance. A number of factors are likely to
cause these variations, including:
- our ability to obtain new client engagements and continue existing
engagements;
- seasonality in revenues relating to the number of billable days in a
given quarter and the budget cycles and budgeting decisions of our
clients;
- our ability to attract, train and retain skilled management, strategic,
technical, design, sales, marketing and support professionals;
- our employee utilization rate, including our ability to move
professionals quickly from completed projects to new engagements;
- the introduction of new services by us or our competitors;
- changes in our pricing policies or those of our competitors;
- our ability to manage costs, including personnel costs and support
services costs; and
- costs related to the expected opening or expansion of our offices.
These quarterly variations may cause our stock price to fluctuate
significantly.
IF WE CANNOT ATTRACT, TRAIN AND RETAIN QUALIFIED EMPLOYEES, WE MAY LOSE CLIENTS
AND RELATED REVENUES
Our future success depends in large part on our ability to hire, train and
retain project and engagement managers, technical architects, strategists,
engineers, design professionals, other technical professionals, and sales and
marketing and other management personnel. Any inability to hire, train and
retain a sufficient number of qualified employees could hinder the growth of our
business. 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 turnover rate for them is high. Consequently, we may have
difficulty hiring our desired numbers of qualified employees. Moreover, even if
we are able to expand our employee base, the resources required to attract and
retain employees may adversely affect our operating margins by increasing
expenses associated with our employees.
5
<PAGE> 11
WE MAY BE SUED BY OUR EMPLOYEES' FORMER EMPLOYERS, WHICH COULD RESULT IN
SIGNIFICANT COSTS AND DIVERT MANAGEMENT'S ATTENTION AWAY FROM OUR BUSINESS
Some companies have adopted a strategy of suing or threatening to sue
former employees and their new employers. As we hire new employees from our
current or potential competitors we are likely to become a party to one or more
lawsuits involving the former employment of our employees. Any future litigation
against us or our employees, regardless of the outcome, may result in
substantial costs and expenses to us and may divert management's attention away
from the operation of our business.
OUR ABILITY TO OBTAIN AND MAINTAIN CLIENT ENGAGEMENTS DEPENDS LARGELY UPON THE
RETENTION OF KEY PERSONNEL, THE LOSS OF WHOM WOULD PROBABLY CAUSE US TO LOSE
CLIENTS
We believe that our success will depend in part on the continued employment
of our senior management team and key technical personnel. This dependence is
particularly important to our business because personal relationships are a
critical element of obtaining and maintaining client engagements. Accordingly,
the loss of any member of our senior management team or key technical personnel
could have a direct, adverse impact on our business. In addition, if any of
these key employees joins a competitor or forms a competing company, some of our
clients might choose to use the services of that competitor or new company
instead of our own. Furthermore, clients or other companies seeking to develop
in-house eBusiness capabilities may hire away some of our key employees. This
would not only result in the loss of key employees but could also result in the
loss of a client relationship or a new business opportunity. Any losses of
client relationships could seriously harm our business.
WE HAVE A LIMITED HISTORY AS A COMBINED COMPANY SO NEITHER OUR HISTORICAL
RESULTS OF OPERATIONS NOR OUR PRO FORMA FINANCIAL INFORMATION MAY BE AN
ACCURATE INDICATOR OF OUR FUTURE RESULTS OR PROSPECTS
We commenced operations in March 1997 with the acquisition of Metamor
Technologies, Ltd. We acquired six other companies in 1998 and one additional
company, Kinderhook Systems, Inc., in September 1999. Although Sage I.T.
Partners, Inc., one of our acquired companies, began operations in 1994, our
limited operating history as a combined company makes an evaluation of our
business and prospects very difficult. The pro forma financial information
included in this prospectus is based on the separate pre-acquisition financial
information of the eight companies. As a result, our historical results of
operations and pro forma financial information may not give you an accurate
indication of what our actual results would have been if the acquisitions had
been completed at the beginning of the periods presented or of our future
results of operations or prospects.
IF WE FAIL TO INTEGRATE ACQUIRED COMPANIES, OUR FUTURE EARNINGS MAY SUFFER AS A
RESULT OF OPERATING INEFFICIENCIES
Although we have commenced the process of integrating the operations of our
acquired companies, our operations are not fully integrated. To date, we have
integrated most of our back office functions and initiated the creation of a
unified brand identity. We are still in the process of integrating our sales,
marketing and human resources functions, our knowledge management systems, the
Xpedior Process and our Xpediators. Our future earnings will depend heavily on
our continued ability to integrate the operations and manage our acquired
companies. Failure to successfully integrate any of the companies we have
acquired may cause significant operating inefficiencies and adversely affect our
earnings.
6
<PAGE> 12
Although we may continue to grow our business through strategic
acquisitions from time to time in the future, we have no immediate plans or
current agreements to acquire any additional companies or businesses. If we
acquire additional companies in the future, however, we will face integration
risks similar to those described above.
COMPETITION FROM BIGGER, MORE ESTABLISHED COMPETITORS WHO HAVE GREATER
FINANCIAL RESOURCES COULD RESULT IN PRICE REDUCTIONS, REDUCED PROFITABILITY AND
LOSS OF MARKET SHARE
While we believe that relatively few companies have the experience and
technological capability to deliver comprehensive eBusiness solutions quickly,
some of our current competitors have longer operating histories, a larger client
base, larger professional staffs, greater brand recognition and greater
financial, technical, marketing and other resources than we do. This may place
us at a disadvantage in responding to our competitors' pricing strategies,
technological advances, advertising campaigns, strategic partnerships and other
initiatives. As a result, our competitors may be able to devote more resources
to the development, promotion and sale of their services than we can.
Competitors that offer more standardized or less customized services than we do
may have a substantial cost advantage, which could force us to lower our prices,
adversely affecting our operating margins.
Current and potential competitors also have established or may establish
cooperative relationships among themselves or with third parties to increase
their ability to address customer needs. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. In addition, some of our competitors may develop
services that are superior to, or have greater market acceptance than, the
services that we offer.
OUR RAPID GROWTH HAS PLACED A STRAIN ON OUR MANAGEMENT AND OUR BUSINESS SYSTEMS
AND MAY DIVERT OUR ATTENTION FROM OUR CLIENTS' NEEDS
We have grown rapidly and expect to continue to grow rapidly both by hiring
new employees and serving new business and geographic markets. Our growth has
placed, and will continue to place, a significant strain on our management and
our operating and financial systems to integrate these new personnel. Our
project personnel, or professional headcount, grew from 166 at December 31, 1997
to 695 at December 31, 1998 and 945 at September 30, 1999. Furthermore, our
Chief Executive Officer has only recently joined Xpedior.
Our personnel, systems, procedures and controls may be inadequate to
support our future operations. In order to accommodate the increased number of
engagements, the increased number of clients and the increased size of our
operations, we will need to hire, train and retain sufficient personnel to
manage our operations. We will also need to continually improve our financial
and management controls, reporting systems and operating systems as the size of
our company increases. We may encounter difficulties in developing and
implementing such controls and other systems. If we encounter such difficulties,
we may not be able to successfully focus on serving our clients' needs and our
financial results will suffer.
OUR EXPANSION INTO INTERNATIONAL MARKETS WILL INCREASE OUR COSTS AND COULD
NEGATIVELY IMPACT OUR BUSINESS
We plan to expand our operations internationally but may be unable to
successfully market, sell, deliver and support our services in international
markets. If we are unable to expand our international operations successfully,
our business, financial condition and operating results could
7
<PAGE> 13
be seriously harmed because of the costs associated with international expansion
and the diversion of management's attention. We will need to devote significant
management and financial resources to our international expansion. In
particular, we will have to attract and retain experienced management,
strategic, technical, design, sales, marketing and support personnel for our
international offices. Competition for such personnel is intense, and we may be
unable to attract and retain qualified personnel.
We have limited experience in marketing, selling and supporting our
services in foreign countries. Development of these skills may be more difficult
or take longer than we anticipate, especially due to language barriers, currency
exchange risks and the fact that the Internet infrastructure in foreign
countries may be less advanced than the United States' Internet infrastructure.
We intend to expand our operations internationally in future periods by opening
additional international offices, hiring additional international management,
strategic, technical, design, sales, marketing and support personnel, and will
consider entering through acquisitions.
International markets, however, may also be affected by additional risks
that could impact the timing and degree of our international expansion plans.
These risks include the following:
- the establishment of a market for eBusiness internationally;
- longer payment cycles and problems collecting accounts receivable;
- reduced protection for intellectual property and proprietary rights in
some countries; and
- seasonal declines in business activity in certain international regions.
OUR INABILITY TO ACCURATELY PREDICT REVENUES ASSOCIATED WITH SHORT-TERM
CONTRACTS MAY RESULT IN HIGH COSTS AND UNDERUTILIZATION OF OUR EMPLOYEES
Our clients generally retain us on an engagement-by-engagement basis,
rather than under long-term contracts. As a result, our revenues are difficult
to predict. Our operating expenses are relatively fixed and cannot be reduced on
short notice to compensate for unanticipated variations in the number or size of
engagements in progress. Because we incur costs based on our expectations of
future revenues, our failure to predict our revenues accurately may seriously
harm our financial condition and results of operations. Since large client
projects involve multiple engagements or stages, there is a risk that a client
may choose not to retain us for additional stages of a project or that the
client will cancel or delay additional planned projects. These cancellations or
delays could result from factors unrelated to our work product or the progress
of the project, but could be related to general business or financial conditions
of the client. Nevertheless, if a client defers, modifies or cancels an
engagement or chooses not to retain us for additional phases of a project, we
must be able to rapidly move our employees to other engagements to limit
underutilization of our employees and the resulting harm to our operating
results. The underutilization of our employees negatively impacts our
profitability because the expenses associated with our employees are fixed while
the revenues generated by our employees vary by the level of their utilization.
OUR INABILITY TO ACCURATELY CALCULATE THE TIME AND RESOURCES NEEDED TO FULFILL
A CONTRACT MAY CAUSE US TO LOSE MONEY ON CERTAIN FIXED-FEE CONTRACTS
We received approximately 14% of our pro forma revenues in 1998 from
fixed-fee contracts, and this percentage may increase in the future. Fixed-fee
contracts have a significantly greater risk than time-and-materials contracts.
If we miscalculate the resources or time we need to complete engagements with
capped or fixed fees, our operating results could be seriously harmed.
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The risk of these miscalculations for us is high because we work with complex
technologies in short timeframes. As a result, it is difficult to judge the time
and resources necessary to complete a project. If we fail to accurately price
these fixed-fee contracts, our profitability could be adversely affected.
OUR AGREEMENTS NOT TO PERFORM SERVICES FOR OUR CLIENTS' COMPETITORS LIMIT OUR
ABILITY TO SERVICE ADDITIONAL PROSPECTIVE CLIENTS
We sometimes agree not to perform services for competitors of our clients
for limited periods of time. These non-compete agreements reduce the number of
our prospective clients and the number of potential sources of revenue. In
addition, these agreements increase the significance of our client selection
process because many of our clients compete in markets where only a limited
number of players gain meaningful market share. If we agree not to perform
services for a particular client's competitors and our client fails to capture a
significant portion of its market, we are unlikely to receive future revenues in
that particular market.
OUR EFFORTS TO DEVELOP BRAND AWARENESS OF OUR SERVICES MAY REDUCE OUR OPERATING
MARGINS AND MAY NOT BE SUCCESSFUL IF OUR CLIENTS ARE NOT SUCCESSFUL OR WE FAIL
TO MAINTAIN OUR BRAND
An important element of our business strategy is to develop and maintain
widespread awareness of the Xpedior brand name. To promote our brand name,
beginning in the third quarter of fiscal 1999, we substantially increased our
marketing expenses, which may cause our operating margins to decline. Moreover,
our brand may be closely associated with the business success or failure of some
of our high-profile clients, some of whom are pursuing unproven business models
in competitive markets. As a result, the failure or difficulties of one of our
high-profile clients may damage our brand. If we fail to successfully promote
and maintain our brand name or incur significant additional expenses in
developing or defending our brand name, our operating margins and our growth may
decline.
OUR FAILURE TO MEET CLIENT EXPECTATIONS OR DELIVER ERROR-FREE SERVICES COULD
REDUCE REVENUES AND RESULT IN NEGATIVE PUBLICITY
We create, implement and maintain eBusiness systems and other applications
that are often critical to our clients' businesses. Any defects or errors in
these applications or failure to meet clients' expectations could result in:
- delayed or lost revenues due to adverse client reaction;
- requirements to provide additional services to a client at no charge;
- negative publicity regarding us and our services, which could adversely
affect our ability to attract or retain clients; and
- claims for substantial damages against us, regardless of our
responsibility.
Our contracts generally limit our liability for damages that may arise from
negligent acts, errors, mistakes or omissions in rendering services to our
clients. However, we cannot be sure that these contractual provisions will
protect us from liability for damages if we are sued. Furthermore, our general
liability insurance coverage may not continue to be available on reasonable
terms or in sufficient amounts to cover one or more large claims, or the insurer
may disclaim coverage as to any future claim. The successful assertion of any
large claim against us could seriously harm our business, financial condition
and operating results. Even if not
9
<PAGE> 15
successful, these claims could result in significant legal or other costs and
may be a distraction to management.
YEAR 2000 ISSUES COULD IMPACT OUR NEAR-TERM SALES AND REVENUES
Efforts by our current and future clients to address Year 2000 issues may
absorb a substantial part of their information technology budgets in the near
term. As a result, our future sales and revenues could be harmed. For a more
detailed description of our Year 2000 assessment, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Year 2000
Readiness."
OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS ARE DIFFICULT TO ENFORCE AND
CAN BE THE SOURCE OF EXPENSIVE AND COMPLICATED LITIGATION
We cannot guarantee that the steps we have taken to protect our proprietary
rights will be adequate to deter misappropriation of our intellectual property.
In addition, we may not be able to detect unauthorized use of our intellectual
property and take appropriate steps to enforce our rights. The loss of revenue
associated with any infringement or misappropriation of our trade secrets,
copyrights, trademarks or other proprietary information could seriously harm our
business. In addition, although we believe that our intellectual property and
proprietary rights do not infringe the intellectual property rights of others,
other parties may assert infringement claims against us or claim that we have
violated their intellectual property rights. These claims could result in
significant legal and other costs and may be a distraction to management. Any
claims relating to our use of our trademarks could result in significant costs
to defend our use or in establishing replacement trademarks and associated
branding efforts. In addition, protection of intellectual property in many
foreign countries is weaker and less reliable than in the United States, so if
our international operations expand, risks associated with protecting our
intellectual property will increase.
Our business often involves the development of software applications for
specific client engagements. We often retain the right to use any intellectual
property that is developed during a client engagement that is of general
applicability and is not specific to the client's project. We also develop
software applications for our own internal use and we retain ownership of these
applications. We cannot assure you that clients will not demand assignment of
ownership or restrictions on our use of the work that we produce for clients in
the future. Issues relating to the ownership of and rights to use software can
be complicated, and there can be no assurance that disputes will not arise that
affect our ability to reuse this software, which could harm our business
results.
WE HAVE AGREED TO PAY ADDITIONAL CASH CONSIDERATION IN THE FIRST HALF OF 2000
TO THE FORMER OWNERS OF THE COMPANIES WE HAVE ACQUIRED, WHICH AMOUNTS MAY
DEPLETE OUR CASH RESOURCES OR REQUIRE US TO BORROW FUNDS
Under the terms of their acquisition agreements, the former owners of five
of our acquired companies have the right to receive additional cash
consideration upon satisfaction of financial and operational conditions. Payment
of these obligations may substantially deplete our cash reserves or require us
to borrow funds. The additional consideration will create additional goodwill
and increase the related amortization expense. In mid-1999, the aggregate amount
of the remaining contingent payments was approximately $36.1 million, of which
approximately $19.8 million was fixed. All remaining contingent payments are due
in March and April 2000. In addition, we have assumed liabilities associated
with a guarantee of the value of approximately
10
<PAGE> 16
308,000 shares of Metamor common stock issued in connection with one of our
acquisitions. In the event the fair market value of these shares is less than
$14.0 million based upon the average market price during the 20 trading days
preceding April 16, 2000, we will be obligated to pay the difference. We expect
that approximately one-half of our contingent payment obligation to NDC, or a
maximum of $7.5 million, and one-half of any payments to settle the stock
guarantee are to be paid in Metamor common stock. Metamor has agreed to
contribute to the capital of Xpedior the fair value of any common stock Metamor
issues to satisfy these contingent obligations. Based on the last reported
market price of Metamor common stock on December 6, 1999, our obligation under
this guarantee would have been approximately $2.0 million.
OUR WORKING CAPITAL REQUIREMENTS MAY NEGATIVELY IMPACT OUR ABILITY TO MEET OUR
FUTURE CAPITAL AND LIQUIDITY REQUIREMENTS
Our working capital requirements and cash flow provided by operating
activities can vary greatly from quarter to quarter, depending on the volume of
business during the period and the payment terms with our customers. We expect
that the net proceeds from this offering and the availability of borrowings
under our proposed credit facility will be sufficient to meet our working
capital and capital expenditure needs for at least the next 12 months. After
that, we may need to raise additional funds or sell equity and/or debt
securities, and we cannot assure you that we will be able to obtain additional
financing or sell securities on favorable terms or at all. We will not be able
to issue a significant amount of common stock prior to our separation from
Metamor. Although Metamor has agreed to provide funding for our working capital
requirements until a credit facility is in place, we may not be able to attract
lenders for an appropriate credit facility on terms acceptable to us. If we need
additional capital and cannot raise it on acceptable terms and Metamor is
unwilling to provide additional capital, we may not be able to:
- open new offices, in the United States or internationally;
- create additional market-specific business units;
- enhance our infrastructure and leveragable assets;
- hire, train and retain professionals;
- respond to competitive pressures or unanticipated requirements; or
- pursue acquisition opportunities.
Our failure to do any of these things could seriously harm our financial
condition by preventing us from being able to take advantage of new business
opportunities.
THE INDEMNIFICATION PROVISIONS OF THE ACQUISITION AGREEMENTS MAY NOT FULLY
PROTECT US AND MAY RESULT IN UNEXPECTED LIABILITIES
Some of the former owners of each acquired company are required to
indemnify us against liabilities related to the operation of their company
before we acquired it. The acquisition agreements include provisions for the
indemnification of Xpedior by the former owners of each company for breaches of
their representations and warranties in the acquisition agreements and
inaccuracy of the information provided by them for use in this prospectus. In
some cases, these former owners may not have the financial ability to meet their
indemnification responsibilities. If this occurs, we may incur unexpected
liabilities.
11
<PAGE> 17
WE HAVE VARIOUS MECHANISMS IN PLACE TO DISCOURAGE TAKEOVER ATTEMPTS, WHICH MAY
REDUCE OR ELIMINATE YOUR ABILITY TO SELL YOUR SHARES FOR A PREMIUM IN A CHANGE
OF CONTROL TRANSACTION
Once Metamor's ownership is reduced to a level where it no longer controls
Xpedior, various provisions of our certificate of incorporation and bylaws may
still discourage, delay or prevent a change in control of Xpedior that a
stockholder may consider favorable. These provisions include:
- authorizing the issuance of "blank check" preferred stock that could be
issued by our board of directors to increase the number of outstanding
shares and thwart a takeover attempt;
- establishing a classified board of directors with staggered, three-year
terms, which may lengthen the time required to gain control of our board
of directors;
- prohibiting cumulative voting in the election of directors, which would
otherwise allow less than a majority of stockholders to elect director
candidates;
- requiring super-majority voting for certain amendments to our certificate
of incorporation and bylaws;
- limitations on who may call special meetings of stockholders;
- prohibiting stockholder action by written consent, which requires all
actions to be taken at a meeting of the stockholders; and
- establishing advance notice requirements for nominations of candidates
for election to the board of directors or for proposing matters that can
be acted upon by stockholders at stockholder meetings.
In addition, Section 203 of the Delaware General Corporation Law and our
stock incentive plans may discourage, delay or prevent a change in control of
Xpedior.
PURCHASERS IN THIS OFFERING WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price of our common stock will be substantially
higher than the book value per share of the outstanding common stock. As a
result, if we were liquidated for book value immediately following this
offering, each stockholder purchasing in this offering would receive less than
the price they paid for their common stock. In addition, because our success is
so heavily dependent on our ability to attract and retain talented personnel, we
expect to offer a significant number of stock options to employees in the
future. These issuances may cause further dilution to investors.
RISKS RELATED TO OUR RELATIONSHIP WITH METAMOR
METAMOR WILL CONTROL THE OUTCOME OF STOCKHOLDER VOTING AND MAY EXERCISE ITS
VOTING POWER IN A MANNER ADVERSE TO YOU
Metamor currently owns 99.6% of our outstanding common stock. Following
completion of this offering, Metamor will own approximately 83% of our
outstanding common stock, or 80% if the underwriters' over-allotment option is
exercised in full. To date, Metamor has appointed all of our directors.
Following this offering, as long as Metamor owns a majority of our outstanding
voting stock, Metamor will have the right to elect or replace all of our
directors. As a result, following this offering, Metamor will continue to have
the ability to control the policies, management and affairs of Xpedior and will
control the outcome of corporate actions requiring
12
<PAGE> 18
stockholder approval, including the approval of transactions involving a change
in control of Xpedior. Metamor's interests may differ from those of our other
stockholders. As a result, Metamor may vote its Xpedior common stock in a manner
adverse to our other stockholders.
FAILURE OF METAMOR TO COMPLETE THE DISTRIBUTION OF OUR COMMON STOCK MAY PREVENT
US FROM TAKING ADVANTAGE OF NEAR-TERM BENEFITS IMPORTANT TO OUR BUSINESS
STRATEGY
If Metamor fails to complete the distribution of our common stock within
the time contemplated, our business may be adversely affected. Specifically, we
would likely not realize the increased brand identity, improved relationships
with our professionals and other benefits we expect to achieve as an independent
company not controlled by Metamor. Although we have undertaken a significant
branding program, we believe that operating outside of Metamor will further
position us as a pure eBusiness services company. In addition, our current
option program provides that the options granted to our management and
professionals may not be sold until the earlier of a distribution by Metamor of
our common stock or two years after our initial public offering. As a result, we
believe that our separation from Metamor will increase our competitiveness over
time by improving our relationships with our professionals through the granting
of stock options and practices appropriate to an eBusiness services company.
This is very important to our business because our professionals place a high
value on direct participation in our company. However, we cannot assure you as
to when or the extent to which we will be able to achieve these benefits.
Although Metamor has advised us that it currently plans to complete its
divestiture of our company in 2000, it is not obligated to do so and we cannot
assure you as to whether or when the divestiture will occur. This means that we
cannot assure you when, or even if, we will obtain the expected benefits.
BECAUSE TWO OF OUR DIRECTORS ARE AFFILIATES OF METAMOR, CONFLICTS OF INTEREST
BETWEEN THE TWO COMPANIES MAY ARISE AND NEGATIVELY IMPACT XPEDIOR
Currently, one of our directors, Mr. Dameris, is also President, Chief
Executive Officer and Chairman of the Board of Metamor and one of our director
nominees, Mr. Hatcher, will manage Metamor's corporate strategy and development
activities beginning in January 2000. These relationships may create conflicts
of interest. The directors and officers of Metamor have fiduciary duties to
manage Metamor, including its investments in subsidiaries and affiliates such as
Xpedior, in a manner beneficial to Metamor and its stockholders. Similarly, our
directors and officers have fiduciary duties to manage Xpedior in a manner
beneficial to Xpedior and its stockholders. The duties of these affiliates of
Metamor may conflict with their duties as directors of Xpedior. In addition,
other conflicts of interest exist and may arise in the future as a result of the
extensive relationships between Metamor and Xpedior. Until Metamor completes the
distribution of our common stock, the risks relating to Metamor's control of our
company, the potential business conflicts of interest between our company and
Metamor and the potential conflicts of interest that may arise as a result of
our common board member will continue to be relevant to our stockholders.
13
<PAGE> 19
WE MAY LOSE BUSINESS OPPORTUNITIES AS A RESULT OF CONFLICTS OF INTEREST WITH
METAMOR
Unless and until Metamor completes its divestiture of our common stock, it
will continue to be our controlling stockholder. As a result, conflicts of
interest may arise between us and Metamor in the following areas:
- business opportunities that may be attractive to both Metamor and our
company;
- tax and other matters arising from the separation of our company from
Metamor;
- the incurrence of debt by our company;
- sales or distributions by Metamor of all or any portion of its ownership
interest in our company; and
- Metamor's ability to control the management and affairs of our company.
We cannot assure you that we will be able to resolve any potential conflicts or
that, if resolved, we would not be able to receive more favorable resolution if
we were dealing with an unaffiliated party.
OUR COSTS RELATED TO CORPORATE SERVICES COULD INCREASE AS OUR RELATIONSHIP WITH
METAMOR CHANGES IN THE FUTURE
We have entered into an agreement with Metamor under which Metamor provides
corporate support services to us. We also may use Metamor's legal, tax, risk and
cash management departments. In addition, Xpedior will continue to participate
in Metamor's corporate insurance program.
Our agreement with Metamor is for a one year term, but may be terminated on
60 days' notice by us. Further, following Metamor's distribution of our common
stock, we would expect to terminate this agreement after some interim
transitional period. If the agreement is terminated, we expect that we would be
able to arrange alternate suppliers for all the services important to our
business. We expect that these services would be available from third parties at
costs similar to those we pay Metamor. However, if we have to replicate
facilities, services or employees that we are not using full time, our costs
would increase. It is not possible to predict the specific areas where our costs
would increase, as that depends on the growth and needs of our business at the
time the agreement is terminated.
WE MAY INCUR MATERIAL COSTS IN CONNECTION WITH OUR SEPARATION FROM METAMOR
We may incur costs and expenses, potentially including additional taxes and
employee costs, greater than those we have planned for in connection with our
separation from Metamor. In this regard, if 50% or more of the stock of Xpedior
or Metamor is acquired within two years of the separation, it is possible that a
significant tax liability could result. We cannot assure you that these costs
will not be material to our business.
OUR HISTORICAL FINANCIAL INFORMATION MAY NOT BE REPRESENTATIVE OF OUR RESULTS
AS A SEPARATE COMPANY BECAUSE OUR ACTUAL COST MAY DIFFER FROM THE ALLOCATIONS
AND ADJUSTMENTS MADE IN OUR FINANCIAL STATEMENTS
The historical financial information we have included in this prospectus
may not reflect what our results of operations, financial position and cash
flows would have been had we been a
14
<PAGE> 20
separate, stand-alone entity during the periods presented or what our results of
operations, financial position and cash flows will be in the future. This is
because:
- Metamor did not account for us as, and we were not operated as, a single
stand-alone business for all periods presented and we have made
adjustments and allocations to our financial information to take this
fact into account; and
- the information does not reflect many significant changes that will occur
in our funding and operations as a result of our separation from Metamor,
including employee and tax matters.
We cannot assure you that the adjustments and allocations we have made in
preparing our historical consolidated financial statements have produced
financial statements accurately reflecting what our operations would have been
during this period if we had in fact operated as a stand-alone entity. In
addition, we cannot assure you that our historical results of operations are
indicative of our future operating or financial performance.
RISKS RELATED TO THE EBUSINESS INDUSTRY
OUR FUTURE SUCCESS DEPENDS ON INCREASED ADOPTION OF THE INTERNET BY BUSINESSES
AND CONSUMERS
The widespread acceptance and adoption of the Internet for conducting
business is likely only if the Internet provides businesses and consumers with
greater efficiencies and other advantages. If commerce on the Internet does not
continue to grow, or grows more slowly than expected, our growth would decline
and our business would be seriously harmed. Consumers and businesses may reject
the Internet as a viable commercial medium for a number of reasons, including:
- potentially inadequate network infrastructure;
- delay in the development of Internet-enabling technologies and
performance improvements;
- delay in the development or adoption of new standards and protocols
required to handle increased levels of Internet activity;
- delay in the development of security and authentication technology
necessary for the secure transmission of confidential information;
- change in, or insufficient availability of, telecommunications services
to support the Internet; and
- failure of companies to meet their customers' expectations in delivering
goods and services over the Internet.
INCREASING GOVERNMENT REGULATION COULD SLOW THE GROWTH OF THE INTERNET AND
SERIOUSLY HARM OUR BUSINESS
We are subject not only to regulations applicable to businesses generally,
but also to laws and regulations directly applicable to electronic commerce.
Although there are currently few of these laws and regulations, both state,
federal and foreign governments may adopt more of these laws and regulations.
Any legislation or regulations of this type could dampen the growth of the
Internet and decrease its acceptance as a communications and commercial medium.
If this decline occurs, companies may decide in the future not to use our
services to create an electronic
15
<PAGE> 21
business channel. This decrease in the demand for our services would seriously
harm our business and operating results.
Any new laws and regulations may govern or restrict any of the following
issues:
- user privacy;
- the pricing and taxation of goods and services offered over the Internet;
- the content of web sites;
- consumer protection; and
- the characteristics and quality of products and services offered over the
Internet.
For example, the Telecommunications Act of 1996 prohibits the transmission
of some types of information over the Internet. The scope of the Act's
prohibition is currently unsettled. In addition, although courts recently held
unconstitutional substantial portions of the Communications Decency Act, federal
or state governments may enact, and courts may uphold, similar legislation in
the future. Future legislation could expose companies involved in Internet
commerce to liability.
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. All projections contained in this prospectus,
including those set forth in "Management's Discussion and Analysis of Financial
Condition and Results of Operations," are forward-looking statements. These
statements involve known and unknown risks, uncertainties and other factors that
may cause our or our industry's actual results, levels of activity, performance
or achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by these
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 like "may," "will," "should," "expects," "plans," "projected,"
"anticipates," "believes," "estimates," "predicts," "potential" or "continue" or
the negative of these 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 results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of these statements. We
are under no duty to update any of the forward-looking statements after the date
of this prospectus to conform these statements to actual results and do not
intend to do so.
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<PAGE> 22
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 relating to the common stock
being sold in this offering. This prospectus constitutes a part of that
registration statement. This prospectus does not contain all of the information
set forth in the registration statement and the exhibits and schedules to the
registration statement because some parts have been omitted in accordance with
the rules and regulations of the Commission. For further information about us
and the common stock being sold in this offering, you should refer to the
registration statement and the exhibits and schedules filed as a part of the
registration statement. Statements contained in this prospectus regarding the
contents of any agreement, contract or other document referred to are not
necessarily complete; reference is made in each instance to the copy of the
contract or document filed as an exhibit to the registration statement. Each
statement is qualified by reference to the exhibit. The registration statement,
including related exhibits and schedules, may be inspected without charge at the
Commission's principal office in Washington, D.C. Copies of all or any part of
the registration statement may be obtained after payment of fees prescribed by
the Commission from:
- the Commission's Public Reference Room at the Commission's principal
office, 450 Fifth Street, N.W., Washington, D.C. 20549; or
- the Commission's regional offices in:
- New York, located at 7 World Trade Center, Suite 1300, New York, New
York 10048; or
- Chicago, located at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661.
You may obtain information regarding the operation of the Public Reference
Room by calling the Commission at 1-800-SEC-0330. The Commission maintains a web
site that contains reports, proxy and information statements and other
information regarding registrants, including us, that file electronically with
the Commission. The address of the site is www.sec.gov.
We intend to furnish holders of our common stock with annual reports
containing audited financial statements certified by an independent public
accounting firm and quarterly reports containing unaudited condensed financial
information for the first three quarters of each fiscal year. We intend to
furnish other reports as we may determine or as may be required by law.
CORPORATE INFORMATION
Xpedior Incorporated is a Delaware corporation. We incorporated in December
1997 under the name Metamor Solutions Holdings, Inc. In November 1998, we
changed our name to Metamor Consulting Solutions, Inc., and in August 1999, we
changed our name to Xpedior Incorporated. Our principal executive offices are
located at One North Franklin, Suite 1500, Chicago, Illinois 60606, and our
telephone number is (800) 462-6301. We invite you to visit our Internet site at
www.xpedior.com. The information on our web site does not constitute a part of
this prospectus. In addition, we have recently received publicity from several
widely disseminated publications. The information regarding us, our business and
our affiliates in these publications does not constitute a part of this
prospectus.
"Xpedior," "The Xpedior Process" and "eBusiness Xpediators" are trademarks
of Xpedior. This prospectus also contains trademarks and trade names of other
companies.
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<PAGE> 23
USE OF PROCEEDS
The net proceeds from the sale of the 8,535,000 shares of common stock
offered by us will be approximately $116.9 million, based on an assumed initial
public offering price of $15.00 per share and after deducting the underwriting
discounts and commissions and estimated offering expenses. We will not receive
any proceeds from the sale of the shares to be sold by Metamor if the
underwriters exercise their over-allotment option.
The primary purposes of this offering are to provide a means of incentive
to our professionals through stock options, 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 from this offering for:
- the repayment of $100.0 million of outstanding debt due to Metamor, plus
accrued interest since September 30, 1999; and
- general corporate purposes.
We currently owe $100.0 million in outstanding principal to Metamor for
notes issued by us in connection with:
- the initial capitalization of each of the acquired companies and
additional consideration paid after closing those acquisitions based on
increases in earnings before interest and taxes; and
- advances for working capital.
These notes are payable on demand and bear interest at the prime rate plus
3%, which at September 30, 1999 was 11.5%. Metamor has agreed to provide funding
for our working capital requirements and, after the initial public offering, to
reduce the interest rate on our outstanding intercompany indebtedness to its
incremental borrowing rate, which at September 30, 1999 was approximately 6.9%.
Management will have broad discretion in the allocation of the net proceeds
after the retirement of debt. Pending these uses, the proceeds of this offering
will be invested in short-term, investment grade, interest-bearing securities.
DIVIDEND POLICY
We have not paid any cash dividends since our inception and do not
anticipate paying any cash dividends. Instead, we will retain our earnings to
finance the expansion of our business and for general corporate purposes. Our
board of directors will have the authority to declare and pay dividends on the
common stock, in its discretion, as long as there are funds legally available to
do so.
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<PAGE> 24
CAPITALIZATION
The following table illustrates our short-term debt and capitalization as
of September 30, 1999. The as adjusted information reflects the receipt of the
estimated net proceeds from our sale of 8,535,000 shares of common stock at an
assumed initial offering price of $15.00 per share, after deducting the
estimated underwriting discounts and commissions and estimated offering
expenses. This table should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the financial
statements and accompanying notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
------------------------
ACTUAL AS ADJUSTED
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
<S> <C> <C>
Cash........................................................ $ 194 $ 17,057
======== ========
Amounts due to Metamor...................................... $100,000 $ --
======== ========
7% convertible subordinated notes........................... $ 9,068 $ 9,068
-------- --------
Total long-term debt.............................. 9,068 9,068
-------- --------
Stockholders' equity:
Preferred stock, $.01 par value per share, 5,000,000
shares authorized...................................... -- --
Common stock, $.01 par value per share, 100,000,000 shares
authorized, 41,465,000 shares issued and outstanding
actual and pro forma, 50,000,000 shares outstanding pro
forma as adjusted(a)................................... 415 500
Additional paid-in capital................................ 55,925 172,703
Retained earnings......................................... 4,230 4,230
-------- --------
60,570 177,433
-------- --------
Less -- receivable from stockholder....................... (1,000) (1,000)
Less -- deferred compensation............................. (427) (427)
-------- --------
Total stockholders' equity........................ 59,143 176,006
-------- --------
Total capitalization............................ $ 68,211 $185,074
======== ========
</TABLE>
- ------------------------------
(a) The number of shares of common stock to be outstanding after this offering
excludes:
- options to purchase 9,034,150 shares of common stock granted through
October 31, 1999 at a weighted average exercise price of $7.34 per
share; and
- 5,786,148 shares of common stock reserved for issuance upon exercise of
options that may be granted in the future under our stock plans.
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<PAGE> 25
DILUTION
The net tangible book value of our common stock as of September 30, 1999
was $(90.9) million or approximately $(2.19) per share. Net tangible book value
per share represents the amount of our stockholders' equity less intangible
assets, divided by 41,465,000 shares of common stock.
Net tangible book value 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. Following:
- our sale of 8,535,000 shares of common stock in this offering at an
assumed initial public offering price of $15.00 per share, and after
deducting:
- the estimated underwriting discounts and commissions; and
- the estimated offering expenses; and
- the application of the estimated net proceeds from this offering,
our pro forma net tangible book value as of September 30, 1999 would have been
$26.0 million, or $0.52 per share. This represents an immediate increase in net
tangible book value of $2.71 per share to existing stockholders and an immediate
dilution in net tangible book value of $14.48 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............. $15.00
------
Net tangible book value per share as of September 30,
1999................................................... $(2.19)
Increase per share attributable to new investors.......... 2.71
------
Net tangible book value per share after this offering....... 0.52
------
Dilution per share to new investors......................... $14.48
======
</TABLE>
The following table illustrates on a pro forma basis as of September 30,
1999 the difference between the number of shares of common stock purchased from
us, the total consideration paid to us and the average price paid by existing
stockholders and by the new investors purchasing shares of common stock in this
offering, before deduction of estimated discounts and commissions and estimated
offering expenses payable by us:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing stockholders................... 41,465,000 82.9% $ 55,562,000 30.3% $ 1.34
New stockholders........................ 8,535,000 17.1 128,025,000 69.7 15.00
---------- ----- ------------ -----
Total......................... 50,000,000 100.0% $183,587,000 100.0%
========== ===== ============ =====
</TABLE>
The foregoing table excludes:
- options to purchase 8,805,100 shares of common stock granted through
September 30, 1999 at a weighted average exercise price of $7.25 per
share; if all outstanding options were exercised, dilution to new
investors would equal $13.00 per share; and
- 6,015,198 shares of common stock reserved for issuance as of September
30, 1999 upon exercise of options that may be granted in the future under
our stock plans.
20
<PAGE> 26
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data are derived from our
consolidated financial statements and from the financial statements of Metamor
Technologies, Ltd., our predecessor company. This data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and is qualified by reference to the consolidated
financial statements and related notes appearing elsewhere in this prospectus.
The selected financial data as of and for the years ended December 31, 1994 and
1995 have been derived from the unaudited financial statements of the
predecessor. The selected financial data:
- as of and for the year ended December 31, 1996;
- as of March 26, 1997; and
- for the period from January 1, 1997 to March 26, 1997
have been derived from the audited financial statements of the predecessor
included elsewhere in this prospectus. The selected consolidated financial data:
- as of December 31, 1997 and 1998 and September 30, 1999;
- for the period from inception (March 27, 1997) to December 31, 1997;
- for the year ended December 31, 1998; and
- for the nine months ended September 30, 1999
have been derived from our audited consolidated financial statements included
elsewhere in this prospectus. The selected consolidated financial data as of and
for the nine months ended September 30, 1998 have been derived from our
unaudited consolidated financial statements included elsewhere in this
prospectus. In the opinion of management, the unaudited consolidated financial
statements include all adjustments, consisting of normal recurring adjustments,
necessary for the fair presentation of the results of operations for this
period. Operating results for the nine months ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the entire year
ending December 31, 1999.
21
<PAGE> 27
The pro forma consolidated financial data illustrate the impact of all
businesses acquired through September 30, 1999 as if these acquisitions were
consummated as of the beginning of the periods presented. The pro forma
consolidated financial data should be read in conjunction with the pro forma
condensed consolidated financial statements included elsewhere in this
prospectus. The pro forma consolidated results of operations are not necessarily
indicative of the results that would have occurred had the acquisitions been
consummated as of the beginning of the periods presented or that might be
attained in the future.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY(A)
--------------------------------------
PERIOD FROM
YEAR ENDED JANUARY 1,
DECEMBER 31, 1997 TO
------------------------ MARCH 26,
1994 1995 1996 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................ $3,729 $4,081 $6,605 $ 2,578
Cost of services.................... 2,737 3,719 4,256 1,853
------ ------ ------ -------
Gross profit........................ 992 362 2,349 725
Operating costs and expenses:
Selling, general and
administrative.................. 841 704 1,825 404
Stock compensation................ -- -- -- 6,328
Depreciation and amortization..... 41 96 133 105
------ ------ ------ -------
Total operating costs and
expenses.................. 882 800 1,958 6,837
------ ------ ------ -------
Operating income (loss)............. 110 (438) 391 (6,112)
Other expense....................... -- 49 34 7
------ ------ ------ -------
Income (loss) from continuing
operations before income taxes.... 110 (487) 357 (6,119)
Provision (benefit) for income
taxes............................. -- (42) 8 7
------ ------ ------ -------
Income (loss) from continuing
operations........................ $ 110 $ (445) $ 349 $(6,126)
====== ====== ====== =======
Earnings (loss) from continuing
operations per share (diluted)....
Number of shares used in computing
diluted earnings (loss) per
share(b)..........................
<CAPTION>
XPEDIOR INCORPORATED
--------------------------------------------------------------------
YEAR ENDED
INCEPTION DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
(MARCH 27, ------------------- -------------------------------
1997) TO ACTUAL
DECEMBER 31, ACTUAL PRO FORMA ------------------- PRO FORMA
1997 1998 1998 1998 1999 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................ $12,588 $72,267 $100,500 $47,405 $93,359 $102,746
Cost of services.................... 8,174 41,930 57,642 27,201 53,576 58,377
------- ------- -------- ------- ------- --------
Gross profit........................ 4,414 30,337 42,858 20,204 39,783 44,369
Operating costs and expenses:
Selling, general and
administrative.................. 4,904 20,558 29,660 13,528 26,212 30,066
Stock compensation................ -- -- 30,809 -- 426 426
Depreciation and amortization..... 510 2,823 4,182 1,802 4,101 4,541
------- ------- -------- ------- ------- --------
Total operating costs and
expenses.................. 5,414 23,381 64,651 15,330 30,739 35,033
------- ------- -------- ------- ------- --------
Operating income (loss)............. (1,000) 6,956 (21,793) 4,874 9,044 9,336
Other expense....................... 1,228 5,537 9,395 3,613 9,231 9,599
------- ------- -------- ------- ------- --------
Income (loss) from continuing
operations before income taxes.... (2,228) 1,419 (31,188) 1,261 (187) (263)
Provision (benefit) for income
taxes............................. (871) 889 (768) 790 550 515
------- ------- -------- ------- ------- --------
Income (loss) from continuing
operations........................ $(1,357) $ 530 $(30,420) $ 471 $ (737) $ (778)
======= ======= ======== ======= ======= ========
Earnings (loss) from continuing
operations per share (diluted).... $ (0.03) $ 0.01 $ (0.74) $ 0.01 $ (0.02) $ (0.02)
Number of shares used in computing
diluted earnings (loss) per
share(b).......................... 41,285 41,285 41,285 41,285 41,341 41,341
</TABLE>
<TABLE>
<CAPTION>
XPEDIOR INCORPORATED
PREDECESSOR COMPANY --------------------------------------------------
AS OF DECEMBER 31, AS OF DECEMBER 31, AS OF SEPTEMBER 30, 1999
----------------------- --------------------- ------------------------
1994 1995 1996 1997 1998 ACTUAL AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash................................... $ -- $ -- $ 245 $ 2 $ 191 $ 194 $ 17,057
Working capital (includes amounts due
to Metamor).......................... (200) 486 1,338 (25,332) (95,229) (92,479) 24,384
Total assets........................... 815 1,468 3,771 34,408 139,876 201,211 218,074
Amounts due to Metamor................. -- -- -- 16,253 77,929 100,000 --
Long-term debt, net of current
maturities........................... -- -- -- -- -- 9,068 9,068
Stockholders' equity................... 353 1,053 2,399 2,969 19,028 59,143 176,006
</TABLE>
- ------------------------------
(a) On March 27, 1997, Metamor acquired Metamor Technologies, Ltd., our
predecessor company. Metamor contributed the stock of this company to us on
April 30, 1999.
(b) Reflects a 41,285-for-1 stock split. See Note 2 to our consolidated
financial statements included elsewhere in this prospectus.
22
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Consolidated Financial Data" and the Company's Pro Forma Condensed Consolidated
Financial Statements and Consolidated Financial Statements included elsewhere in
this prospectus. This discussion and analysis contains forward-looking
statements that involve risks and uncertainties. Examples of forward-looking
statements include statements regarding our future financial results, operating
results, market positions, product and services successes, business strategies,
projected costs, future products, competitive positions and plans and objectives
of management for future operations. Our actual results may differ materially
from those anticipated in these forward-looking statements as a result of risks
and uncertainties and other important factors, including those set forth under
"Risk Factors" included elsewhere in this prospectus.
INTRODUCTION
We were formed by Metamor to be the holding company for its eBusiness
solutions unit. Metamor commenced operations of this unit with the acquisition
of Metamor Technologies, Ltd., our predecessor company, on March 27, 1997, and
acquired six additional companies in 1998 as part of the eBusiness solutions
unit. Effective April 30, 1999, Metamor contributed to Xpedior all the
outstanding capital stock of the seven companies comprising its eBusiness
solutions unit. All seven companies were wholly owned subsidiaries of Metamor.
As the entities were under common control, the contribution has been accounted
for at historical cost in a manner similar to a pooling of interests. In
September 1999, we acquired one additional company, Kinderhook Systems, Inc.
Effective October 1, 1999, we distributed to Metamor a segment of our
business that provided non-eBusiness outsourcing services. This segment was a
services unit of Metamor Technologies. This segment has been reflected as
discontinued operations in our financial statements. Revenues from discontinued
operations were $13.2 million for the period from inception (March 27, 1997) to
December 31, 1997, $22.7 million for the year ended December 31, 1998, $17.0
million for the nine months ended September 30, 1998 and $15.6 million for the
nine months ended September 30, 1999.
All of the eBusiness unit companies were acquired in transactions that were
accounted for using the purchase method. The accompanying financial statements
reflect Metamor's purchase accounting adjustments to the acquired eBusiness
companies and include the results of operations of each of the companies from
the date of their acquisition. Our historical consolidated operating results
have been significantly affected by the number, timing, and size of the
acquisitions. Accordingly, pro forma financial data are provided in this
prospectus to provide a more meaningful period-to-period comparison of our
operating results. The pro forma financial data have been prepared and included
in this prospectus to illustrate the impact of the acquisitions as if they
occurred at the beginning of the periods presented. On a pro forma basis, we
estimate that our 1999 consolidated revenues will be approximately $143 million.
The pro forma financial data are not necessarily indicative of results of
operations that would have occurred had the acquisitions of the eBusiness
companies been consummated as of the beginning of the periods presented or that
might be attained in the future.
Before Metamor acquired them, our eBusiness unit companies were managed as
independent, private companies. As a consequence, their operating procedures and
results reflected different financial objectives, business practices, service
offerings and tax structures
23
<PAGE> 29
(S corporations and C corporations), which influenced their historical
operations, client base and compensation levels. Since mid-1998, we have been
integrating our eBusiness companies to implement a collective corporate
strategy. The major initiative of our integration process has been to leverage
the success of our eBusiness companies by sharing our expertise and practices
over a unified platform. The Xpedior Process and our best practices and
procedures have been refined and are being implemented throughout our company.
We have also analyzed and reviewed our internally developed solutions to develop
our Xpediators. This integration of methodologies and reusable solutions from
the best practices found within our organization may present opportunities to
increase revenues and reduce costs, but may also necessitate additional costs
and expenditures for corporate administration, including expenses necessary to
continue to train our professionals and implement our unified Xpedior Process.
These various costs and possible cost-saving and revenue enhancements may make
historical operating results difficult to compare with, and not indicative of,
future performance.
We contract on the basis that best fits our clients' needs. Our primary
form of offering services is on a time-and-materials basis. In this form of
contracting, we get paid at an agreed upon hourly rate for the time that we
expend on our clients' projects, and revenues are recorded at the time services
are performed. We also offer our services on a fixed-fee basis. This form of
contracting represented approximately 14% of our total pro forma revenues for
the year ended December 31, 1998. When we contract on a fixed-fee basis, we
realize revenues on a percentage of completion basis. Payments on our fixed-fee
contracts usually require an advance payment from the client with additional
payments due on either a milestone or a predetermined schedule. Payments billed
in excess of revenues earned are recorded as deferred revenues. Revenues earned
but not yet billed are recorded as work in process.
During the year ended December 31, 1998, our largest ten clients
represented approximately 33% of our pro forma revenues. Our largest 50 clients
during the year ended December 31, 1998 represented approximately 70% of our pro
forma revenues. Historically, we begin a client relationship with a single
project and, as our relationship grows, we increase both the number of projects
that we perform for a particular client and the size of the engagement.
Our most significant expense is cost of services, which consists primarily
of project personnel salaries, benefits and non-reimbursed direct expenses
incurred to complete projects. The number of professionals assigned to a project
will vary according to the size, complexity, duration and demands of the
project. An unanticipated termination of a significant project could also cause
us to experience lower revenues and gross profit.
To sustain our growth and improve profitability, we have made and continue
to make substantial investments in the infrastructure of our business. These
investments include the addition of senior management, administrative personnel,
business development managers, facilities and recruiting capabilities. Selling,
general and administrative expenses include the costs of recruiting, training,
marketing, facilities, as well as administrative and executive compensation
consisting of salaries, bonuses and benefits.
Pre-acquisition stock compensation expenses or stock compensation charges
consist of non-cash compensation expenses incurred in connection with the
issuances, exchanges or cancellations of stock options and other stock awards.
24
<PAGE> 30
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH THE NINE MONTHS ENDED
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------- -------------------
1998 1999 1998 1999
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................. $47,405 $93,359 $ 72,071 $102,746
Cost of services..................................... 27,201 53,576 40,910 58,377
------- ------- -------- --------
Gross profit......................................... 20,204 39,783 31,161 44,369
Operating costs and expenses:
Selling, general and administrative................ 13,528 26,212 20,816 30,066
Stock compensation................................. -- 426 30,809 426
Depreciation and amortization...................... 1,802 4,101 3,009 4,541
------- ------- -------- --------
Total operating costs and expenses......... 15,330 30,739 54,634 35,033
------- ------- -------- --------
Operating income (loss).............................. 4,874 9,044 (23,473) 9,336
Other expense........................................ 3,613 9,231 6,212 9,599
Provision (benefit) for income taxes................. 790 550 (206) 515
------- ------- -------- --------
Income (loss) from continuing operations............. $ 471 $ (737) $(29,479) (778)
======= ======= ======== ========
AS A PERCENTAGE OF REVENUES:
Revenues............................................. 100.0% 100.0% 100.0% 100.0%
Cost of services..................................... 57.4 57.4 56.8 56.8
------- ------- -------- --------
Gross profit......................................... 42.6 42.6 43.2 43.2
Operating costs and expenses:
Selling, general and administrative................ 28.5 28.1 28.9 29.3
Stock compensation................................. -- 0.5 42.7 0.4
Depreciation and amortization...................... 3.8 4.4 4.2 4.4
------- ------- -------- --------
Operating income (loss).............................. 10.3 9.7 (32.6) 9.1
</TABLE>
HISTORICAL OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
COMPARED WITH THE NINE MONTHS ENDED SEPTEMBER 30, 1998
Revenues. Revenues increased 96.9% to $93.4 million for the nine months
ended September 30, 1999 from $47.4 million for the nine months ended September
30, 1998. The increase in revenues was primarily a result of the increase in
project personnel. This growth was primarily a result of the acquisition of the
seven businesses and the growth in headcount post-acquisition. Headcount at
September 30, 1999 was 945 compared with 642 at September 30, 1998. Headcount
for the nine months ended September 30, 1999 included the full benefit of
headcount added through the acquisitions of five businesses during 1998, whereas
the nine months ended September 30, 1998 included only the benefit of those
acquisitions from the date of their acquisition. Average billing rates and
utilization rates were comparable during the two periods.
Cost of Services. Cost of services increased 97.0% to $53.6 million for
the nine months ended September 30, 1999 from $27.2 million for the nine months
ended September 30, 1998. The increase in cost of services was primarily a
result of the growth in headcount noted above.
Operating Costs and Expenses. Selling, general and administrative expenses
increased 93.8% to $26.2 million for the nine months ended September 30, 1999
from $13.5 million for the nine months ended September 30, 1998. This increase
primarily related to $6.2 million in incremental expenses of the businesses
acquired in 1998 and investments in infrastructure
25
<PAGE> 31
necessary to support growth of the business. The 1999 period includes expenses
for the full period for acquisitions made in 1998, whereas the 1998 period
includes the expenses of the acquired businesses from the date of their
acquisitions. Selling, general and administrative expenses decreased as a
percentage of revenues to 28.1% for the nine months ended September 30, 1999
from 28.5% for the nine months ended September 30, 1998.
Depreciation increased to $2.0 million for the nine months ended September
30, 1999 from $0.8 million for the nine months ended September 30, 1998. The
increase in depreciation primarily related to the fixed assets of the businesses
acquired and, to a lesser extent, depreciation on capital expenditures made
post-acquisition. Amortization increased to $2.1 million for the nine months
ended September 30, 1999 from $1.0 million for the nine months ended September
30, 1998. The increase in amortization related to amortization of intangible
assets of the acquired businesses. Depreciation and amortization increased as a
percentage of revenues to 4.4% for the nine months ended September 30, 1999 from
3.8% for the nine months ended September 30, 1998.
Other Expense. Interest expense increased 151.9% to $9.1 million for the
nine months ended September 30, 1999 from $3.6 million for the nine months ended
September 30, 1998. The increase in interest expense related to borrowings from
Metamor to fund the purchase of the acquired companies and the payments of the
post-closing contingent consideration, or earnouts, paid to the sellers of the
acquired companies and our working capital requirements.
Provision (Benefit) for Income Taxes. The provision for income taxes for
the nine months ended September 30, 1999 was $0.6 million, compared with $0.8
million for the nine months ended September 30, 1998. The provision for income
taxes for the nine months ended September 30, 1999 and 1998 represented an
effective tax rate of 294.1% and 62.6%, respectively. Our effective tax rate
includes the effects of permanent differences related to state income taxes, net
of the benefit for federal taxes, and the portion of goodwill amortization,
business meals, entertainment and stock compensation charges not deductible for
federal income tax purposes. The tax effect of these permanent differences
totaled $0.6 million and $0.2 million after tax for the nine months ended
September 30, 1999 and 1998, respectively.
PRO FORMA OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
COMPARED WITH THE NINE MONTHS ENDED SEPTEMBER 30, 1998
Revenues. Revenues increased 42.6% to $102.7 million for the nine months
ended September 30, 1999 from $72.1 million for the nine months ended September
30, 1998. The increase in revenues primarily related to the increase in project
personnel headcount and, to a lesser extent, increases in billing rates.
Headcount increased 30.0% to 945 at September 30, 1999 from 727 at September 30,
1998.
Cost of Services. Cost of services increased 42.7% to $58.4 million for
the nine months ended September 30, 1999 from $40.9 million for the nine months
ended September 30, 1998. The increase in cost of services was primarily a
result of the growth in headcount noted above. Cost of services remained
consistent as a percentage of revenues at 56.8% for the nine months ended
September 30, 1999 and 1998, respectively.
Operating Costs and Expenses. Selling, general and administrative expenses
increased 44.4% to $30.1 million for the nine months ended September 30, 1999
from $20.8 million for the nine months ended September 30, 1998. The increase in
selling, general and administrative expenses primarily resulted from investments
in infrastructure of approximately $6.0 million necessary to support growth of
the business. Selling, general and administrative expenses increased as a
percentage of revenues to 29.3% for the nine months ended September 30, 1999
26
<PAGE> 32
from 28.9% for the nine months ended September 30, 1998. The increase in
selling, general and administrative expenses as a percentage of revenues
primarily resulted from investments in infrastructure necessary to support
growth of the business and position it as a free-standing, publicly held
company. During the nine months ended September 30, 1998, three constituent
companies incurred pre-acquisition stock compensation charges totaling $30.8
million.
Depreciation increased to $2.0 million for the nine months ended September
30, 1999 from $1.1 million for the nine months ended September 30, 1998. The
increase in depreciation related to the increased capital expenditures necessary
to support growth in the business. Amortization increased to $2.5 million for
the nine months ended September 30, 1999 from $1.9 million for the nine months
ended September 30, 1998. The increase in amortization related to amortization
of intangible assets of the acquired businesses. Depreciation and amortization
as a percentage of revenues increased to 4.4% for the nine months ended
September 30, 1999 from 4.2% for the nine months ended September 30, 1998.
Other Expense. Interest expense increased 52.4% to $9.6 million for the
nine months ended September 30, 1999 from $6.3 million for the nine months ended
September 30, 1998. The increase in interest expense related to borrowings from
Metamor to fund earnouts of the acquired companies and our working capital
requirements during the nine months ended September 30, 1999.
Provision (Benefit) for Income Taxes. The provision for income taxes for
the nine months ended September 30, 1999 was $0.5 million compared with a
benefit of $(0.2) million for the nine months ended September 30, 1998. The
provision (benefit) for income taxes for the nine months ended September 30,
1999 and 1998 represented an effective tax rate of 195.8% and (0.7%),
respectively. Our effective tax rate includes the effects of permanent
differences related to state income taxes, net of the federal income tax
benefit, and the portion of goodwill amortization, business meals and
entertainment and the stock compensation charges not deductible for federal
income tax purposes. The tax effect of these permanent differences totaled $1.4
million and $29.1 million after tax for the nine months ended September 30, 1999
and 1998, respectively.
27
<PAGE> 33
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1997
The historical statement of operations data for the year ended December 31,
1997 was derived by combining the predecessor's results of operations for the
period from January 1, 1997 to March 26, 1997 with Xpedior's results of
operations from inception (March 27, 1997) to December 31, 1997. The results of
operations for the period from inception (March 27, 1997) to December 31, 1997
reflect Metamor's purchase accounting adjustments. These results are not
necessarily indicative of operations that would have occurred had the
acquisition occurred as of the beginning of the period presented.
<TABLE>
<CAPTION>
HISTORICAL
YEAR ENDED
DECEMBER 31,
----------------------
1997 1998
(DOLLARS IN THOUSANDS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $15,166 $72,267
Cost of services............................................ 10,027 41,930
------- -------
Gross profit................................................ 5,139 30,337
Operating costs and expenses:
Selling, general and administrative....................... 5,308 20,558
Stock compensation........................................ 6,328 --
Depreciation and amortization............................. 615 2,823
------- -------
Total operating costs and expenses................. 12,251 23,381
Operating income (loss)..................................... (7,112) 6,956
Other expense............................................... 1,235 5,537
Provision (benefit) for income taxes........................ (864) 889
------- -------
Income (loss) from continuing operations.................... $(7,483) $ 530
======= =======
AS A PERCENTAGE OF REVENUES:
Revenues.................................................... 100.0% 100.0%
Cost of services............................................ 66.1 58.0
------- -------
Gross profit................................................ 33.9 42.0
Operating costs and expenses:
Selling, general and administrative....................... 35.0 28.4
Stock compensation........................................ 41.7 --
Depreciation and amortization............................. 4.1 3.9
------- -------
Operating income (loss)..................................... (46.9) 9.6
</TABLE>
HISTORICAL OPERATING RESULTS FOR THE YEAR ENDED DECEMBER 31, 1998 COMPARED
WITH THE HISTORICAL COMBINED OPERATING RESULTS FOR THE YEAR ENDED DECEMBER 31,
1997
Revenues. Revenues increased 376.5% to $72.3 million for the year ended
December 31, 1998 from $15.2 million for the year ended December 31, 1997. The
increase in revenues was primarily a result of a 318.7% increase in project
personnel to 695 at December 31, 1998 from 166 at December 31, 1997. The growth
in headcount was primarily a result of the acquisition of the six businesses
acquired in 1998.
Cost of Services. Cost of services increased 318.2% to $41.9 million for
the year ended December 31, 1998 from $10.0 million for the year ended December
31, 1997. The increase in cost of services was primarily a result of the growth
in headcount noted above. Cost of services decreased as a percentage of revenues
to 58.0% for the year ended December 31, 1998 from 66.1% for the year ended
December 31, 1997. This improvement primarily related to: (1) the higher gross
margins of the businesses acquired in 1998 compared with the gross margins of
the predecessor in 1997 and (2) expansion in the gross margins of the
predecessor primarily due to improved utilization and billing rate increases.
Operating Costs and Expenses. Selling, general and administrative expenses
increased 287.3% to $20.6 million for the year ended December 31, 1998 from $5.3
million for the year ended December 31, 1997. This increase primarily related to
$11.7 million in incremental expenses of the acquired businesses and, to a
lesser extent, investments in infrastructure
28
<PAGE> 34
necessary to support growth of the business. Selling, general and administrative
expenses decreased as a percentage of revenues to 28.4% for the year ended
December 31, 1998 from 35.0% for the year ended December 31, 1997. The decrease
in selling, general and administrative expenses as a percentage of revenues
primarily resulted from (1) acquisitions of businesses that had lower selling,
general and administrative expense margins and (2) our improved operating
leverage. During 1997, our predecessor incurred pre-acquisition stock
compensation charges totaling $6.3 million.
Depreciation increased to $1.2 million for the year ended December 31, 1998
from $0.4 million for the year ended December 31, 1997. The increase in
depreciation primarily related to the fixed assets of the businesses acquired
and, to a lesser extent, depreciation on capital expenditures made
post-acquisition. Amortization increased to $1.6 million for the year ended
December 31, 1998 from $0.2 million for the year ended December 31, 1997. The
increase in amortization related to amortization of intangible assets of the
acquired businesses. Depreciation and amortization decreased as a percentage of
revenues to 3.9% for the year ended December 31, 1998 from 4.1% for the year
ended December 31, 1997.
Other Expense. Interest expense increased 351.8% to $5.6 million for the
year ended December 31, 1998 from $1.2 million for the year ended December 31,
1997. The increase in interest expense related to borrowings from Metamor to
fund the purchase of the acquired companies, including earnouts, and our working
capital requirements.
Provision (Benefit) for Income Taxes. The provision for income taxes for
the year ended December 31, 1998 was $0.9 million, compared with a benefit of
$(0.9) million for the year ended December 31, 1997. The provision (benefit) for
income taxes for the years ended December 31, 1998 and 1997 represented an
effective tax rate of 62.7% and (10.4)%, respectively. Our effective tax rate
includes the effects of permanent differences related to state income taxes, net
of the federal income tax benefit, and the portion of goodwill amortization and
business meals and entertainment not deductible for federal income tax purposes.
The tax effect of these permanent differences totaled $0.3 million after tax for
the year ended December 31, 1998. The effective tax rate for 1997 includes the
pre-acquisition period of the predecessor, which was an S corporation and
therefore not required to pay federal income tax.
HISTORICAL COMBINED OPERATING RESULTS FOR THE YEAR ENDED DECEMBER 31, 1997
COMPARED WITH THE HISTORICAL OPERATING RESULTS OF THE PREDECESSOR FOR THE YEAR
ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
HISTORICAL
YEAR ENDED
DECEMBER 31,
---------------------
1996 1997
(DOLLARS)IN THOUSANDS
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $6,605 $15,166
Cost of services............................................ 4,256 10,027
------ -------
Gross profit................................................ 2,349 5,139
Operating costs and expenses:
Selling, general and administrative....................... 1,825 5,308
Stock compensation........................................ -- 6,328
Depreciation and amortization............................. 133 615
------ -------
Total operating costs and expenses................ 1,958 12,251
Operating income (loss)..................................... 391 (7,112)
Other expense............................................... 34 1,235
Provision (benefit) for income taxes........................ 8 (864)
------ -------
Income (loss) from continuing operations.................... $ 349 $(7,483)
====== =======
</TABLE>
29
<PAGE> 35
<TABLE>
<CAPTION>
HISTORICAL
YEAR ENDED
DECEMBER 31,
---------------------
1996 1997
(DOLLARS)IN THOUSANDS
<S> <C> <C>
AS A PERCENTAGE OF REVENUES:
Revenues.................................................... 100.0% 100.0%
Cost of services............................................ 64.4 66.1
------ -------
Gross profit................................................ 35.6 33.9
Operating costs and expenses:
Selling, general and administrative....................... 27.6 35.0
Stock compensation........................................ -- 41.7
Depreciation and amortization............................. 2.0 4.1
------ -------
Operating income (loss)..................................... 5.9 (46.9)
</TABLE>
Revenues. Revenues increased 129.6% to $15.2 million for the year ended
December 31, 1997 from $6.6 million for the year ended December 31, 1996. The
increase in revenues primarily related to the increase in project personnel
headcount and, to a lesser extent, increases in billing rates. Headcount
increased 104.9% to 166 at December 31, 1997 from 81 at December 31, 1996.
Cost of Services. Cost of services increased 135.6% to $10.0 million for
the year ended December 31, 1997 from $4.3 million for the year ended December
31, 1996. The increase in cost of services was primarily a result of the growth
in headcount noted above. Cost of services increased as a percentage of revenues
to 66.1% for the year ended December 31, 1997 from 64.4% for the year ended
December 31, 1996. This increase was primarily due to personnel cost increases
in excess of the related billing rate increases.
Operating Costs and Expenses. Selling, general and administrative expenses
increased 190.8% to $5.3 million for the year ended December 31, 1997 from $1.8
million for the year ended December 31, 1996. The increase in selling, general
and administrative expenses and selling, general and administrative expenses as
a percentage of revenues was primarily due to investments in infrastructure
necessary to support the growth in the business. During the year ended December
31, 1997, the predecessor incurred pre-acquisition stock compensation charges
totaling $6.3 million. Selling, general and administrative expenses increased as
a percentage of revenues to 35.0% for the year ended December 31, 1997 from
27.6% for the year ended December 31, 1996.
Depreciation totaled $0.4 million and $0.1 million for the years ended
December 31, 1997 and 1996, respectively. Amortization expense totaled $0.2
million for the year ended December 31, 1997 and related to the acquisition of
the predecessor. Depreciation and amortization increased as a percentage of
revenues to 4.1% for the year ended December 31, 1997 from 2.0% for the year
ended December 31, 1996.
Other Expense. Interest expense for the year ended December 31, 1997
totaled $1.2 million and related to the interest on debt in connection with the
acquisition of the predecessor.
Provision (Benefit) for Income Taxes. The benefit for income taxes for the
year ended December 31, 1997 was $(0.9) million. The benefit for income taxes
for the year ended December 31, 1997 represented an effective tax rate of
(10.4)%. The predecessor was an S corporation and, accordingly, federal income
taxes were the responsibility of the individual stockholders.
30
<PAGE> 36
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth unaudited quarterly financial data for the
periods indicated. We obtained this information from unaudited quarterly
consolidated financial statements and, in the opinion of our management, it
includes all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the financial results for the periods.
The accompanying unaudited quarterly pro forma financial statements are
based on adjustments to the historical consolidated financial statements to
illustrate the impact of the acquisitions as if those acquisitions were
consummated as of January 1, 1998. The adjustments are the same as those used in
preparing the Unaudited Pro Forma Financial Statements included elsewhere in
this prospectus and should be read in conjunction with those statements. The
quarterly pro forma consolidated statements of operations assume the
acquisitions were consummated as of the beginning of the periods presented. The
quarterly pro forma consolidated statements of operations are not necessarily
indicative of results that would have occurred had the acquisitions been
consummated as of January 1, 1998 or that might be attained in the future.
Certain information normally included in financial statements prepared in
accordance with generally accepted accounting principles has been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission. The quarterly pro forma financial statements should be read in
conjunction with the historical consolidated financial statements of Xpedior,
the historical financial statements of the Acquired Companies and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
QUARTERS ENDED
----------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1998 1998 1998 1998 1999 1999 1999
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL STATEMENT OF OPERATIONS DATA:
Revenues................................. $9,852 $15,158 $22,395 $24,862 $27,769 $31,044 $34,546
Cost of services......................... 6,207 8,538 12,456 14,729 16,044 17,618 19,914
------ ------- ------- ------- ------- ------- -------
Gross profit............................. 3,645 6,620 9,939 10,133 11,725 13,426 14,632
Operating costs and expenses:
Selling, general and administrative.... 2,811 4,434 6,283 7,030 7,334 8,358 10,520
Stock compensation..................... -- -- -- -- -- -- 426
Depreciation and amortization.......... 436 598 768 1,021 1,270 1,337 1,494
------ ------- ------- ------- ------- ------- -------
Total operating costs and
expenses....................... 3,247 5,032 7,051 8,051 8,604 9,695 12,440
------ ------- ------- ------- ------- ------- -------
Operating income......................... 398 1,588 2,888 2,082 3,121 3,731 2,192
Other expense............................ 903 1,266 1,444 1,924 2,308 3,231 3,692
------ ------- ------- ------- ------- ------- -------
Income (loss) from continuing operations
before income taxes.................... (505) 322 1,444 158 813 500 (1,500)
Provision (benefit) for income taxes..... (150) 207 733 99 432 287 (169)
------ ------- ------- ------- ------- ------- -------
Income (loss) from continuing
operations............................. $ (355) $ 115 $ 711 $ 59 $ 381 $ 213 $(1,331)
====== ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
QUARTERS ENDED
----------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1998 1998 1998 1998 1999 1999 1999
<S> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA STATEMENT OF OPERATIONS DATA:
Revenues................................. $20,484 $ 24,363 $27,224 $28,429 $31,030 $34,051 $37,665
Cost of services......................... 12,220 13,620 15,070 16,732 17,807 19,289 21,281
------- -------- ------- ------- ------- ------- -------
Gross profit............................. 8,264 10,743 12,154 11,697 13,223 14,762 16,384
Operating costs and expenses:
Selling, general and administrative.... 5,819 7,114 7,883 8,844 8,538 9,472 12,056
Stock compensation..................... 1,759 29,050 -- -- -- -- 426
Depreciation and amortization.......... 893 1,000 1,116 1,173 1,423 1,484 1,634
------- -------- ------- ------- ------- ------- -------
Total operating costs and
expenses....................... 8,471 37,164 8,999 10,017 9,961 10,956 14,116
------- -------- ------- ------- ------- ------- -------
Operating income (loss).................. (207) (26,421) 3,155 1,680 3,262 3,806 2,268
Other expense............................ 1,765 2,038 2,409 3,183 3,069 3,210 3,320
------- -------- ------- ------- ------- ------- -------
Income (loss) from continuing operations
before income taxes.................... (1,972) (28,459) 746 (1,503) 193 596 (1,052)
Provision (benefit) for income taxes..... (526) 22 298 (562) 284 445 (214)
------- -------- ------- ------- ------- ------- -------
Income (loss) from continuing
operations............................. $(1,446) $(28,481) $ 448 $ (941) $ (91) $ 151 $ (838)
======= ======== ======= ======= ======= ======= =======
</TABLE>
31
<PAGE> 37
LIQUIDITY AND CAPITAL RESOURCES
Our capital requirements have principally related to the acquisitions of
businesses, working capital and capital expenditures. These requirements have
been met primarily through funds provided by Metamor and cash flows from
operations.
As of September 30, 1999, we had outstanding borrowings from Metamor of
$100.0 million at a weighted average interest rate of 11.5%. These borrowings
primarily relate to acquisition costs and, to a lesser extent, working capital
requirements. We intend to repay the amounts due to Metamor out of the proceeds
from this offering.
Metamor allocates its corporate overhead to its operating units based on
revenues of the units. This allocation includes costs associated with services
Metamor provides to the business units such as mergers and acquisitions, legal,
tax, risk and cash management. The overhead allocation from Metamor is included
in our selling, general and administrative expenses and totaled $1.4 million for
the year ended December 31, 1998 and $1.9 million for the nine months ended
September 30, 1999. Following the completion of this offering, Metamor will
continue to provide us with these services. However, it will cease making a
general allocation of its overhead to us and allocate only those expenses
related to actual services provided. Following the offering, we expect the
allocation of costs for services provided by Metamor will be minimal.
For the year ended December 31, 1998, cash paid for acquisitions and
related earnouts totaled $61.7 million. For the nine months ended September 30,
1999, cash paid for acquisitions and related earnouts totaled $48.1 million.
Total cash paid for acquisitions since inception was $125.8 million, all of
which was paid by Metamor. Of this amount, Xpedior issued notes to Metamor for
$86.8 million, which is included in the $100.0 million due to Parent, and
Metamor contributed the remainder to the capital of Xpedior.
We had working capital, excluding amounts due to Metamor, of $7.5 million
at September 30, 1999. Our operating cash flows and working capital requirements
are significantly affected by the timing of payroll and the receipt of payment
from our clients. Generally, we pay our professionals semi-monthly and receive
payments from our clients, currently averaging 90 days from the date services
were performed. Cash flows provided by (used in) operating activities were
$(15.5) million and $(1.7) million for the nine months ended September 30, 1999
and 1998. The use of cash in operations in 1999 reflected investments in working
capital (principally accounts receivable) related to our growth during this
period.
Over the next twelve months, we anticipate that we will spend:
- approximately $16.0 million in incremental branding and marketing
expenses;
- approximately $19.8 million in earnouts that have been fixed, which are
payable in March and April 2000; and
- approximately $12.0 million in capital expenditures to support the growth
of the business.
In addition, we have contingent liabilities of up to $16.3 million related
to earnouts that are based on the performance of two of the acquired companies,
of which $15.0 million relates to NDC Group, Inc. We expect that approximately
one-half of the NDC earnout, if earned and payable, will be paid in Metamor
common stock, for which Metamor has agreed to contribute that payment to our
capital and not require repayment by us. We also have assumed the cash portion
of any future settlement associated with a guarantee of the value of
approximately 308,000 shares of Metamor common stock issued in connection with
the acquisition of NDC. If
32
<PAGE> 38
the fair market value of these shares is less than $14.0 million based upon the
average market price for the 20 trading days preceding April 16, 2000, we will
be obligated to pay the difference to the former NDC shareholders. We expect
that the settlement of this guarantee, if triggered, will be paid one-half in
cash, which we have assumed, and one-half in Metamor common stock. Metamor has
agreed to contribute to our capital the stock it issues for the non-cash portion
of the settlement and not require repayment by us. Based on the last reported
sale price of Metamor common stock on November 19, 1999, our obligation under
the guarantee would have been $3.0 million.
We are currently in preliminary discussions with commercial banks for a
credit facility to fund our working capital requirements over the next twelve
months. We expect to have a credit facility in place following our initial
public offering. In the interim, Metamor has agreed to provide funding for our
working capital requirements and to reduce the interest rate on our outstanding
intercompany indebtedness to its incremental borrowing rate, which at September
30, 1999 was approximately 6.9%.
We believe that the cash proceeds from this offering, the availability of
borrowings from our proposed credit facility and cash flow from operating
activities will be sufficient to meet our working capital and capital
expenditure requirements for at least the next twelve months. However, we could
elect, or we could be required, to raise additional funds during that period and
we may need to raise additional capital in the future. Additional capital may
not be available at all, or may not be available on terms favorable to us. We
may also issue equity or equity-related securities for acquisitions from time to
time in the future. Any additional issuance of equity or equity-related
securities will be dilutive to our stockholders.
YEAR 2000 READINESS
Historically, many computer systems, software applications and products
have been programmed to only accept a two-digit code for the date. This will
become an issue as we enter the year 2000 and these type of systems do not have
the ability to differentiate between 1900 and 2000. As a result of this problem,
many systems that are not capable of four-digit year recognition have either
been modified or replaced.
The inability of computer systems to differentiate between centuries could
have a negative business impact on us, our clients and our vendors.
We have reviewed and, where appropriate, upgraded the principal internal
systems that we rely upon to operate our business and believe that these systems
are Year 2000 compliant. To date, the amounts we have spent preparing for the
effects of the Year 2000 issue have not been material and we do not expect to
incur material costs in the future.
We do not currently have any information concerning the general Year 2000
compliance status of our clients, nor do we intend to examine our clients' Year
2000 readiness. If our clients are not Year 2000 compliant, they may experience
material costs to remedy Year 2000 problems. In such case, Year 2000 issues
could reduce or eliminate the budgets that current or potential clients allocate
for purchasing our services. In addition, we anticipate that many of our clients
may limit spending on our services as they attend to Year 2000 issues. As a
result, our business, financial condition and operating results could be harmed.
We rely on the products and services of many external vendors. These
products and services include, but are not limited to, utilities,
telecommunications, software products, and computer hardware. We are in the
process of obtaining certifications from key vendors of software products
33
<PAGE> 39
and computer hardware. We most likely will not be able to obtain certificates of
compliance from all of these vendors. However, we are not dependent on any
single vendor and believe that we can obtain products and services from
alternative vendors in the event our current vendors experience Year 2000
problems. Additionally, we will not be able to and do not intend to receive
compliance certifications from the providers of utilities, telecommunications or
other services. We also rely on Metamor for various support services. To the
extent that Metamor experiences Year 2000 problems, we believe we can obtain
these services from third party service providers at prevailing market rates. If
we fail to provide Year 2000 compliant eBusiness solutions to our clients, our
reputation could be harmed and we could incur substantial legal liability which
in turn could seriously harm our business and operating results.
We believe that, although our risk of operational disruption from systems
failures due to Year 2000 issues is minimal, we could suffer adverse
consequences as a result of interruptions in electrical power,
telecommunications or other critical third party infrastructure services. In a
worst case scenario, our computer systems could be rendered inoperable, and we
could be unable to develop or support our eBusiness solutions. We have reviewed
this most reasonably likely worst case scenario and have developed contingency
plans to address our critical applications. These contingency plans include
manual workarounds and adjusting personnel deployment strategies.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which establishes accounting and reporting standards of
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. We have not entered into any
derivative financial instruments and do not believe that the adoption of
Financial Accounting Standards No. 133 will have an impact on our results of
operations, financial position of cash flows.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
We currently are exposed to market risks related to changes in interest
rates. The proceeds from this offering will be invested short term in financial
instruments. The value of these financial instruments will be affected by
fluctuations in interest rates and could fall in value if interest rates rise.
Additionally, our future borrowings will have a variable component that will
fluctuate as interest rates change. If market interest rates were to increase
immediately and uniformly by 10%, there would not be a material impact on the
results of operations or on our balance sheet.
34
<PAGE> 40
XPEDIOR
OUR HISTORY
We were formed by Metamor in December 1997 to be the holding company for
its eBusiness solutions unit. Metamor commenced operations of this unit with the
acquisition of Metamor Technologies, Ltd., our predecessor company, on March 27,
1997, and acquired six additional companies in 1998 that became a part of the
eBusiness solutions unit. These acquisitions include Sage I.T. Partners, Inc.
and Workgroup Productivity Corp. in January 1998, NDC Group, Inc. in April 1998,
Virtual Solutions, Inc. in June 1998, Advanced Information Solutions, Inc. in
July 1998 and New Technology Partners Consulting in November 1998. Effective
April 30, 1999, Metamor contributed to us all the outstanding capital stock of
the seven companies comprising its eBusiness solutions unit. All seven companies
were wholly owned subsidiaries of Metamor. As the entities were under common
control, the contribution has been accounted for at historical cost in a manner
similar to a pooling of interests. In September 1999, we acquired Kinderhook
Systems, Inc. These companies have brought complementary skills, customer
relationships and geographic coverage to our business.
In connection with the acquisitions of Sage I.T. Partners, Inc., Workgroup
Productivity Corp., NDC Group, Inc., Virtual Solutions, Inc., Advanced
Information Solutions, Inc. and New Technology Partners Consulting, Metamor
agreed to make contingent purchase price payments based on the performance of
the companies after the date of acquisition. While our efforts to integrate each
company into our operations began immediately upon its acquisition, our
continuing obligations relating to the contingent acquisition payments limited
our integration efforts, particularly the sales and marketing functions. In July
and August 1999, all of the remaining contingent payments, with the exception of
those relating to NDC Group and New Technology Partners Consulting, were fixed,
eliminating many of the obstacles to more completely integrating these
businesses.
SEPARATION FROM METAMOR
METAMOR'S PLAN TO DIVEST XPEDIOR. We are currently a subsidiary of Metamor
Worldwide. After the completion of this offering, Metamor will own approximately
83% of our outstanding common stock, or approximately 80% if the underwriters
exercise their over-allotment option in full. Metamor has announced that in 2000
it plans to distribute all of its shares of Xpedior common stock to its
stockholders. Metamor expects to accomplish this distribution through one of the
following:
- Split-Off. An exchange offer by Metamor in which holders of Metamor's
common stock would be invited to tender their shares in exchange for
shares of our common stock; or
- Spin-Off. A pro rata distribution by Metamor of its shares of our common
stock to holders of Metamor's common stock; or
- Combined Split-Off/Spin-Off. A combination of the above transactions.
We refer to this distribution, in whatever form it may take, as the
"Xpedior distribution."
Metamor has also advised us that, based on its current plans, if it decides
to accomplish the Xpedior distribution through a split-off exchange offer and
not enough of its common stockholders tender their shares to enable Metamor to
divest itself of all of its shares of Xpedior
35
<PAGE> 41
common stock, it would distribute its remaining shares of Xpedior common stock
to its stockholders in a spin-off.
Metamor has the sole discretion to determine the timing, structure and all
terms of its distribution of our common stock. Metamor has advised us that it
believes it would be desirable to have an intervening period of several months
between this offering and the Xpedior distribution, and that Metamor accordingly
does not currently expect that it would complete the Xpedior distribution prior
to mid-2000. We have agreed to cooperate with Metamor to complete the
divestiture because we believe that our complete separation from Metamor will
enhance our ability to pursue our business strategy. Metamor intends to seek a
private letter ruling from the IRS that the distribution of its shares of
Xpedior common stock to its stockholders would be tax-free to Metamor and its
stockholders for U.S. federal income tax purposes. We cannot assure you that the
IRS will provide Metamor with a favorable ruling. Metamor is not obligated to
complete the divestiture and we cannot assure you as to whether or when it will
occur.
Metamor has also advised us that it would not complete the Xpedior
distribution if its board of directors determines that the Xpedior distribution
is no longer in the best interests of Metamor and its stockholders. Metamor has
further advised us that it currently expects the principal factors it would
consider in making this determination, as well as the principal factors it would
consider in making the determination as to the timing, structure and terms of
the Xpedior distribution, to be:
- the market price of our common stock;
- the market price of Metamor's common stock;
- satisfaction that the Xpedior distribution will be tax-free to Metamor
and its stockholders and as to the other tax consequences of the
transactions;
- the absence of any court orders or regulations prohibiting or restricting
the completion of the Xpedior distribution; and
- other conditions affecting the businesses of Xpedior or Metamor that make
it no longer in the best interests of such businesses to be fully
separated.
BENEFITS OF THE SEPARATION. We believe that we will benefit from our
complete separation from Metamor. As an independent eBusiness company, we expect
to be better able to retain and attract motivated and talented management and
professional personnel. In addition, the separation will allow us to develop and
evaluate an eBusiness focused strategy independent of Metamor's broader approach
to the information technology services market. We believe that our management's
and professionals' focus will be strengthened by incentive programs tied to the
market performance of our common stock.
36
<PAGE> 42
BUSINESS
This prospectus contains forward-looking statements that involve risks and
uncertainties. Actual results may differ materially from these forward-looking
statements.
OVERVIEW
Xpedior provides innovative and comprehensive eBusiness solutions to Global
2000 companies and emerging Internet businesses. We use our Xpedior Process and
our reusable solutions, or Xpediators, to deliver a broad range of services
designed to help our clients succeed in the emerging networked economy. We
combine extensive technical expertise with strategy consulting and creative
design services to enable our clients to capitalize on the communications power
and transaction efficiency of the Internet. Since 1994, we have demonstrated our
ability to develop eBusiness solutions that allow our clients to generate new
revenue opportunities and operate more efficiently.
Our extensive experience providing eBusiness solutions has enabled us to
develop and evolve our Xpedior Process and suite of Xpediators. The Xpedior
Process is our five-stage methodology for delivering eBusiness solutions to our
clients. Our Xpediators are a collection of proven, reusable solutions,
including software architectures, components and applications, that we leverage
in delivering a broad range of services. Our professionals collaborate at our
solution centers in San Francisco, Chicago, Dallas, New York and Alexandria,
Virginia where they are able to share expertise and best practices to develop
and deliver Internet technology solutions. By combining our Xpedior Process and
Xpediators with our solution centers, we are able to reduce our clients'
time-to-market and maximize the quality of our solutions.
Our eBusiness solutions integrate one or more of the following services,
customized to fit a client's needs:
<TABLE>
<S> <C>
- - Digital Business Strategy
- - Electronic Commerce
- - Digital Branding and User
Experience Design
- - eBusiness Applications and Integration
- - eBusiness Technology Management
- - eBusiness Networks
- - eBusiness Intelligence
- - Enterprise Portals and Knowledge
Management
</TABLE>
We have over 1,100 employees at our 12 U.S. and three international
offices. We have developed extensive expertise in the financial services,
healthcare, media and publishing, retail and distribution and telecommunications
industries. We can leverage this expertise in delivering our solutions and
marketing our services to potential new clients.
INDUSTRY BACKGROUND
OUR CLIENTS' MARKETPLACE
International Data Corporation, or IDC, estimates that the number of
Internet users worldwide will grow from approximately 104 million in 1998 to
more than 510 million in 2003. This growth has fundamentally changed the way
that customers and businesses communicate, obtain information and purchase goods
and services. Forrester Research estimates that the market for
business-to-business eCommerce will grow from $43 billion in 1998 to $1.3
trillion in 2003 and that business-to-consumer eCommerce will grow from $8
billion to $108 billion over the same period.
37
<PAGE> 43
The emergence of eBusiness has created a new competitive environment for
businesses, one in which many traditional barriers to competition no longer
exist. The Internet has enabled organizations of all types and sizes to create
new sales opportunities, enhance customer service, improve efficiencies, reduce
costs and improve communication. Buyers are now able to choose products and
services by electronically researching data from a wide spectrum of vendors,
often without regard to geographic location. In light of these factors, we
believe that eBusiness strategies are critical to success in today's
marketplace.
A substantial amount of capital is being invested to make businesses more
efficient and competitive through the use of the Internet and electronic
communications. Competition in virtually all industries is increasing, often
from the emergence of companies with radical new business models that challenge
established industry players. These traditional businesses must redefine or
refocus their businesses to succeed in this new economy or risk being overtaken
by upstart competitors. To respond with sufficient speed to these new
competitive pressures, both established companies and industry upstarts
increasingly find it necessary to turn to outside services organizations such as
Xpedior to provide insight and scarce expertise or to complement their internal
capabilities.
THE EBUSINESS SERVICES MARKET OPPORTUNITY
IDC estimates that the worldwide market for Internet professional services
will grow from $7.8 billion in 1998 to $78.5 billion in 2003. Despite the size
of this market opportunity, we believe that there are relatively few companies
that effectively develop and implement comprehensive eBusiness solutions. For
example, boutique web design firms and online agencies typically focus on user
interface and front-end design and do not have the expertise required for rapid
development and deployment of high transaction volume eBusiness systems. In
addition, traditional information technology services firms are focused
primarily on enhancements to existing technology infrastructure and the
implementation of traditional business applications, and lack the necessary
focus and experience to execute eBusiness solutions efficiently and quickly.
The delivery of comprehensive eBusiness solutions requires expertise in
three fundamental service disciplines -- strategic, technical and creative.
Professionals from each of the three disciplines must work together to maximize
the speed at which a solution can be imagined, designed and delivered.
Initially, our eBusiness strategists work closely with the client's senior
executives to help them imagine and define strategic eBusiness plans. Unlike
traditional strategy consultants, however, eBusiness strategists must understand
technology and the capabilities of the Internet and electronic communications,
since these technologies allow the creation of business strategies that might be
inconceivable in the traditional economy. Following the development of an
eBusiness strategy, our eBusiness technology professionals build the systems and
technology infrastructure required to implement the strategy. These
professionals, including experts in software, networking, technology integration
and operations, must be able to build systems that leverage the clients'
existing technology infrastructure and serve as platforms for continued
development of the eBusiness. Concurrent with the development of the eBusiness
strategy and implementation of the necessary technology infrastructure, our
creative professionals work with the client and the strategy and technology
professionals to define the interactive marketing strategy and to create
compelling user interfaces for the client's eBusiness.
Historically, eBusiness service providers have not been able to offer their
clients expertise in each of these three disciplines, nor have these providers
been capable of performing their services in the demanding timeframes often
required for Internet initiatives. We believe organizations of
38
<PAGE> 44
all types will increasingly seek assistance from providers that offer the
comprehensive set of services needed for them to achieve their eBusiness
objectives in the necessary timeframes.
THE XPEDIOR SOLUTION
We have developed the Xpedior Solution to execute our engagements and meet
our clients' needs for rapid implementation of reliable, scaleable and
sustainable eBusinesses. The core of the Xpedior Solution is the five-stage
Xpedior Process, which we leverage through the use of our solution centers, our
Xpediators and our knowledge management systems.
THE XPEDIOR PROCESS
The Xpedior Process is our five-stage methodology for developing reliable,
innovative eBusiness solutions for our clients. The Xpedior Process is the
result of our extensive experience and helps to ensure quality delivery of our
services to our clients. We customize the Xpedior Process to meet each client's
particular needs and support each of our service lines, which span the
strategic, technical and creative disciplines. The process is highly iterative.
It is designed to be used initially as a basis for constructing a robust,
expandable eBusiness platform for a client. Thereafter, it can serve as a
framework for continued evolution of that platform. Unlike other processes,
which often rely almost exclusively on written specifications, the Xpedior
Process makes extensive use of interactive workshops and visualization
techniques such as storyboards and prototypes. We use the information learned
through our client engagements to update and improve our process.
The Xpedior Process is comprised of the following stages:
- Imagine. In the imagine stage, our professionals work extensively with
our client's senior business and technical personnel to explore the
possible opportunities and impacts of the emerging networked economy on
the client's business. During the imagine stage, we quickly develop
eBusiness strategies for our clients and identify potential solutions
that can be developed to implement those strategies.
- Define. In the define stage, we continue to work closely with our
client's business and technical personnel to further define one or more
of the solutions identified in the imagine stage. Alternatively, in some
instances our clients will come to us with a specific solution in mind.
In those circumstances, our process begins with the define stage. In
either case, during this stage we define the user experience of the
system using prototypes and storyboards and identify the functionality to
be implemented.
- Architect. In the architect stage, our professionals work closely with
our client's technical personnel to define the technical environment that
will support the client's eBusiness. This includes understanding the
client's existing technology infrastructure in an effort to maximize its
use and ensure that new eBusiness applications are compatible with the
client's existing infrastructure. In addition, our professionals evaluate
the suitability of our Xpediators, as well as third-party software, for
construction of the client's solution.
At the end of the define and architect stages, which may be
undertaken concurrently, the client is presented with a blueprint of the
solution. Typically, we then construct the solution at one of our
solution centers or at the client's facilities.
- Build. During the build stage, the client's eBusiness solution is
constructed and extensively tested. This process consists of a series of
planned iterations during which the solution blueprint is programmed and
refined. Upon completion of numerous iterations,
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the system goes through a final system test to ensure that the developed
solution meets the requirements of the client that were identified in the
define stage. The result of the build stage is a complete eBusiness
computing platform that meets the client's specifications and will serve
as a platform for continued evolution of the client's eBusiness.
- Deliver. During the deliver stage, we implement the solution and
transition the ongoing operation, maintenance and support of the solution
to the client. Delivering the solution typically entails installation of
hardware and software systems, managing business process changes,
educating system users and implementing a support structure for the
client. Alternatively, we can assume responsibility for these functions
through our eBusiness outsourcing practice.
Typically, upon completion of the deliver stage, Xpedior is retained to
evolve the delivered eBusiness solution to meet changing business needs and
capitalize on technological advances. To accomplish this, we repeat the Xpedior
Process, progressing through each stage as necessary.
EBUSINESS XPEDIATORS
Our Xpediators are reusable solutions that we leverage to reduce the time
required to deliver solutions to our clients, while simultaneously providing
increased quality due to their proven nature. We devote significant resources to
our Xpediators, including maintaining a full-time team dedicated to their
development and promoting and supporting their use throughout the company. Our
Xpediators are grouped into three categories:
- Xpediator Frameworks. Our Xpediator Frameworks are comprehensive
software architectures for developing large-scale eBusiness applications
that complement leading application server environments such as the
Sun-Netscape Alliance's Application Server, BEA's Web Logic Server,
SilverStream and the Forte Application Development Environment. Xpediator
Frameworks provide robust, scaleable and extendible software architecture
that serves as a base for evolution of a client's eBusiness systems.
- Xpediator Components. Our Xpediator Components are reusable software
components used to implement common eBusiness functions, such as shopping
cart and credit card processing. Our components provide functionality for
eBusiness areas such as payment processing and high volume eBusiness
transaction processing.
- Xpediator Solutions. Our Xpediator Solutions are comprehensive
applications for specific eBusiness functions such as interactive user
interface systems that provide access to information and knowledge across
entire enterprises and care management systems that control judicial
dockets using the Internet. Xpediator Solutions are typically solutions
that we developed in conjunction with specific clients and retained the
rights to use in connection with future client engagements.
SOLUTION CENTERS
We develop a significant portion of our solutions at our solution centers
in San Francisco, Chicago, Dallas, New York and Alexandria, Virginia. Our
solution centers provide a high-tech environment where our professionals and
teams of solution center specialists are able to share expertise and best
practices across client engagements, while maintaining continuous communication
with our clients. When development has been completed, the work returns to the
appropriate client or hosting facility for final implementation.
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The solution centers are focused on the development and delivery of
repeatable, scaleable solutions that can be customized as needed. This approach
ultimately reduces the time-to-market for our solutions. In addition, we believe
that the opportunity to work in our solution centers represents a compelling
alternative for professionals seeking to be in a collaborative environment and
maintain a more stable lifestyle with reduced travel requirements.
KNOWLEDGE MANAGEMENT
We employ knowledge management systems that we intend to consolidate and
expand throughout the organization, allowing us to continue our commitment to
sharing best practices throughout the company. We have found that while each
engagement has certain unique elements, most solutions employ information and
processes that can be used in other solutions. Our experience with particular
industries, business processes and technologies generates institutional
intellectual capital that can be reused to continuously improve the solutions we
provide to our clients and sharpen the effectiveness of our professionals. This
intellectual capital includes the products of each stage of the Xpedior Process,
including strategies, technical and functional designs and plans, and reusable
source code to which Xpedior has retained the intellectual property rights.
An important factor in leveraging the power of the knowledge management
system is the establishment of a culture that encourages and rewards
contribution to and use of the system. To this end, use of and contribution to
the knowledge management systems will be a key element of the professional
advancement criteria for all Xpedior professionals.
STRATEGY
Our objective is to be the provider of choice for comprehensive,
customized, integrated eBusiness solutions to Global 2000 companies and emerging
Internet businesses. Our strategy to achieve this objective includes the
following key elements:
EXTEND RELATIONSHIPS WITH EXISTING CLIENTS AND AGGRESSIVELY MARKET TO POTENTIAL
NEW CLIENTS
We intend to increase our sales to current clients by cross-selling
existing services to them and assisting them as their eBusiness strategies
evolve. We plan to broaden our client base by aggressively investing in brand
recognition and continuing to expand geographically. As part of our strategy to
extend our client relationships, we will consider pursuing strategic
acquisitions as opportunities may arise.
EXPLOIT INDUSTRY-SPECIFIC EXPERTISE
Through our experience designing, developing, implementing and managing
eBusiness solutions for a wide variety of companies, we have developed extensive
experience with industry-specific solutions. We believe that our expertise in
these areas enables our teams to provide more valuable strategic and technical
insights. It also significantly enhances our ability to help other companies in
the same industries successfully adopt their own eBusiness solutions. To date,
our expertise includes the financial services, healthcare, media and publishing,
retail and distribution, telecommunications and Internet-based business
industries. We intend to continue to focus our sales and marketing efforts on
these industries.
REFINE, LEVERAGE AND EXTEND THE XPEDIOR SOLUTION
Our professionals have developed a broad base of institutional knowledge
and best practices through extensive and varied service engagements. Our
strategy is to capture and deploy this intellectual capital through our
knowledge management systems and by continuing to refine the
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Xpedior Process. During the course of our client engagements, we also seek to
identify distinct solutions that can be developed into and distributed as new
Xpediators. These proven, reusable solutions provide us with speed and quality
advantages over our competitors that have not developed similar assets. Our
solution centers have also played a role, and are expected in the future to play
a more critical role, in the dissemination process. By sharing resources,
including scarce technology expertise, and using state-of-the-art computing
facilities, we are able to develop solutions with greater efficiency than if we
were to develop the equivalent solution at a client site. As we expand
geographically and increase the number of professionals employed on client
engagements, our ability to share resources among our professionals will be
critical to the successful growth of our business.
EXPAND AND LEVERAGE STRATEGIC INDUSTRY ALLIANCES
We have established strategic alliances with leading technology companies,
including Microsoft, IBM, Sun Microsystems, Hewlett-Packard and BroadVision.
Through these non-exclusive alliances, we join with the marketing and sales
organizations of these alliance partners to pursue sales opportunities and
better fulfill client needs. These alliances typically result in referrals to
new clients and provide access to technology and expertise. We intend to
continue to strengthen these relationships and pursue additional strategic
industry alliances.
ATTRACT AND RETAIN QUALIFIED EMPLOYEES
We believe that our ability to retain and attract top industry
professionals will continue to be essential to our success in delivering
innovative eBusiness solutions. We intend to continue to recruit aggressively
and to focus on the retention of our employees through a collaborative corporate
culture, the cohesive nature and lifestyle benefits of our solution center
approach, our established training and development and competitive compensation
programs.
BUILD THE IDENTITY AND AWARENESS OF THE XPEDIOR BRAND
We are adopting a single corporate vision, name, identity and brand across
our organization. Our management and employees will receive incentive
compensation that is based on overall corporate performance. We believe it is
critical to establish strong, internal management systems and processes to
maintain a high, uniform level of client service and efficient utilization of
our resources.
SERVICES
Our eBusiness solutions include one or more of the following services,
customized to fit our clients' needs.
DIGITAL BUSINESS STRATEGY
We help our clients create competitive advantage through the development of
clear, innovative and executable eBusiness strategies. We do this by helping
them to imagine how the emerging networked economy provides opportunities for,
or potentially threatens, their existing businesses. We then deliver digital
business plans, retool business processes for the digital economy and develop
executable action plans for our clients' businesses. Our capabilities are based
upon our industry knowledge, our broad experience in the digital economy and our
commitment to our clients' success.
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ELECTRONIC COMMERCE
We work with our clients to implement electronic commerce applications and
systems that enable them to create new revenue streams, reduce costs and compete
more effectively. The applications we build include business-to-business
applications which enable our customers to work more effectively with their
partners, suppliers and customers, as well as business-to-consumer applications
enabling retailers to sell directly to consumers. We specialize on applications
for personalized selling and marketing as well as high volume and high
availability transaction processing systems.
DIGITAL BRANDING AND USER EXPERIENCE DESIGN
We design online brands for our clients through our experienced team of
creative visual designers and interactive marketing experts, and by managing the
branding and design process in partnership with third party designers. In
addition, our team of experts works to extend our customers' existing brand
identities into the online and interactive mediums like the Internet. Our user
experience design group also works closely with each of our practice areas to
apply their skills in interactive design, information architecture and creative
design to enhance the user experience.
EBUSINESS APPLICATIONS AND INTEGRATION
We integrate the eBusiness systems we build with the client's existing back
office and front office infrastructure, and develop systems that enable our
customers to capitalize on digital business strategies. We do this by:
- extending our clients' enterprise resource management systems to trading
partners over the Internet;
- integrating their front office systems, such as customer care, with
web-based eBusiness facilities; and
- extending to the Internet business-to-business or business-to-consumer
transactions that execute in their traditional systems.
EBUSINESS TECHNOLOGY MANAGEMENT
We provide a wide range of eBusiness technology management services
including managing private networks, operating data warehousing facilities and
managing complex eBusiness applications, as well as the outsourcing of a
client's entire technology environment. We perform these services by providing
teams that manage and execute our clients' technical eBusiness functions.
EBUSINESS NETWORKS
We provide a broad complement of networking services including local and
wide area network design, server and application infrastructure support and
network rollout and support. We leverage our experience in managing nationwide
private networks, and our alliances with leading Internet service providers,
hosting companies and equipment providers, to deliver sophisticated networking
services.
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EBUSINESS INTELLIGENCE
We provide eBusiness intelligence services focused on the design and
development of solutions for the collection, retention and use of valuable
customer and market data. These services include building data warehouses,
decision support systems, one-to-one marketing facilities and permission-based
marketing systems. As more and more of our clients' interaction with their
customers takes place in the digital domain, the ability to manage and
capitalize on the vast amounts of data generated by eBusiness is increasingly a
key element of our eBusiness solutions.
ENTERPRISE PORTALS AND KNOWLEDGE MANAGEMENT
We provide services that allow our clients to capture, consolidate and
redeploy institutional knowledge stored throughout their digital enterprise and
use that knowledge to their competitive advantage. We do this through the
design, construction and installation of a broad range of knowledge management
services. We develop systems that allow our clients to collaborate more
efficiently with their employees, customers and partners to reduce
time-to-market for their products and improve quality.
CLIENT CASE STUDIES
The following client case studies illustrate the value of our services and
our unique capabilities to deliver innovative, reliable solutions in rapid
timeframes.
ONLINEOFFICESUPPLIES.COM
In 1998, the founder of OnlineOfficeSupplies.com determined that only a
small percentage of office supply purchases were being made online. While the
major retailers had web sites, they were geared to drive foot traffic to their
stores or to allow customers to register for paper-based catalogs. Fears
regarding cannibalization, site maintenance, the number of potential accounts
and varying price structures presented large obstacles for traditional office
supply superstores trying to develop an Internet strategy. Traditional
catalog-based retailers were not meeting the needs of manufacturers, as it could
take up to 18 months for a new product to be featured in a catalog.
Given the size of the potential market and industry analysts' forecasts of
growth, OnlineOfficeSupplies.com engaged us to design, build and deploy an
innovative online office supply superstore. We worked in tandem with
OnlineOfficeSupplies.com's partner, United Stationers, to develop and implement
an integrated order fulfillment process. Since this partner lacked the internal
expertise to develop new Internet technology, we used an electronic data
interchange model to transfer orders to the fulfillment center and obtain
customer order information.
The initial site was deployed in only 14 weeks and OnlineOfficeSupplies.com
helped transform the office supply procurement process for small businesses,
home offices and corporate customers.
Our solution for OnlineOfficeSupplies.com was recognized recently as "Best
Electronic Commerce Solution of the Year" at Microsoft's worldwide business
symposium for Microsoft Certified Solutions Providers. The entry was chosen from
more than 450 solutions submitted by a worldwide community of 19,500 Microsoft
Certified Solutions Providers.
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HEWLETT-PACKARD
Hewlett-Packard's competitors were beginning to provide direct sales to
consumers via the Internet. H-P realized the potential of eBusiness and the need
to move quickly. H-P's objective was to sell its full range of computers,
supplies and peripherals directly to its customers online, in addition to its
sales through traditional distribution channels.
In response to H-P's need to implement a creative solution that would
provide a competitive advantage in marketing its products, we developed a
solution that linked H-P's SAP Enterprise order management and inventory systems
with FedEx to assure fulfillment and product availability. To expedite H-P's
time-to-market, this Xpedior Solution was built using reliable software
technology from BroadVision, customized and integrated by our project team.
One-to-One Marketing(R) features of the system enable H-P to present shoppers
with personalized promotions and coupons, customized to their ordering history
and specific needs.
Construction of H-P's Shopping Village, www.shopping.hp.com, was completed
in just 14 weeks and allows customers to order products, review order status and
receive account information online. As a result of its successful experience
with Xpedior, H-P has engaged us to help it develop and implement another
eBusiness solution for its small business sales channel, the H-P Business Store.
BELL CANADA
Bell Canada was quickly shifting its business from a product focus to a
market focus. To achieve its goal of creating a comprehensive electronic channel
with the ability to handle transactions and allow direct communications with
corporate, small business and residential customers, Bell needed a solution that
would allow French and English speaking customers a way to learn about their
products and services quickly and easily. Bell Canada indicated that of over 50
million customer sales and service transactions during 1998, roughly 20% were
coming through the web and voice-response channels. Its research showed that the
percentage of high-value customers of those who chose to interact with the Bell
Canada via the Internet was three times higher than non-interactive channel
customers.
Our task was to develop a comprehensive site that would enable Bell Canada
to better communicate with its customers, learn about preferences and interests
and lead them through a secure electronic transaction. We created the Bell
Virtual Store, a catalog-based transaction system that allows for management
promotion and online sale of Bell Canada products and services. Our design of a
site with easy to use and convenient features like the shopping basket, the
order summary and the secure and rapid credit card payment option made shopping
online easy for even the most novice computer user. Transactions can be charged
directly to credit cards or, for some services, can be added to the next
customer bill. Products are maintained remotely and product pricing and
description can be modified in real time. The online catalog provides different
product descriptions for each of Bell Canada's four markets -- residential,
small office, home office and large business.
We also developed a customer profiling system. By capturing user data and
preferences, the site targets one-to-one marketing promotions to get the right
offer to the right customer at the appropriate time.
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AMERICAN MEDICAL ASSOCIATION
As the healthcare industry moved to implement eBusiness strategies, the
American Medical Association needed to adapt in order to fulfill its mission.
Since 1994, we have been the AMA's key provider in the establishment and
expansion of its comprehensive eBusiness strategy. Through our solution, the AMA
provides information to its membership, the ability to search relevant
publications, and continuing medical education subscription and sign up, as well
as links to additional applications such as PhysicianSelect. Members can also
purchase AMA products and services on the site. We have been the prime provider
of strategy, design and technology for the AMA in the development of its
end-to-end Internet solutions.
We developed and continue to adapt the AMA's web site, which has been
recognized by PC Magazine 100, Yahoo, USA Today Hot Site, and others as a top
site in its field. In particular, PhysicianSelect, an application we built for
the AMA, has been featured on Good Morning America and other national morning
talk shows, which addressed the AMA's leading position in the healthcare
information advocacy space.
SALES AND MARKETING
Through our sales force and marketing organization, we market and sell our
services to Global 2000 companies and emerging Internet businesses. As of
October 31, 1999, our sales force totaled 40 people. Each of our offices has its
own sales representatives who sell our services to the clients and prospective
clients located in their geographic region. These local representatives report
to a regional vice president. Our commission-based sales representatives work
closely with our senior professionals to tailor our sales efforts and manage
client relationships. In addition, our sales representatives work closely with
our alliance partners to extend our sales and marketing efforts.
Our marketing efforts are intended to promote Xpedior as a leading provider
of innovative and reliable eBusiness solutions to an audience of senior business
and technology executives at Global 2000 companies and emerging Internet
businesses. As of October 31, 1999, our marketing organization consisted of nine
personnel at the national level and ten regional field marketing personnel.
Going forward, we intend to focus on two primary strategies to expand our
customer base and increase sales to existing customers:
BUILD THE BRAND
We believe that we will benefit from increased brand awareness by executing
a national branding campaign with a consistent message across our markets. We
plan to build brand awareness through:
- advertising in leading business and technology publications;
- industry tradeshow marketing;
- summits and seminars with existing and potential clients;
- public relations activities aimed at positioning the company in industry
related publications; and
- various direct marketing activities.
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EXPAND SALES ORGANIZATION
We currently have business development professionals located in 12 domestic
and three international offices. In addition to expanding our local,
geographic-based sales organization, we have established and intend to expand
our national sales organization. Our national sales organization is primarily
focused on the development of strategic services targeting specific industries,
including financial services, healthcare, high technology, media and publishing,
retail and distribution, telecommunications and eCommerce/Internet. This
organization works closely with our strategic service professionals to market
and develop additional business.
CLIENTS
For the year ended December 31, 1998, our ten largest clients represented
approximately 33% of our pro forma revenues and our 50 largest clients
represented approximately 70% of our pro forma revenues. No single client
represented 9.2% or more of our revenues during 1998.
Set forth below is a partial list of our clients selected at random and for
whom we performed significant services in 1998 or 1999, categorized by vertical
industry.
<TABLE>
<CAPTION>
TELECOMMUNICATIONS RETAIL AND DISTRIBUTION ECOMMERCE/INTERNET
<S> <C> <C>
AT&T FedEx AsiaMail.com
Bell Atlantic HEB Stores CareerBuilder.com
Bell Canada Longs Drug Stores CharitableWay.com
GTE Marketing Specialists CreditLand.com
Level 3 Communications Memec DigitalWork.com
MCI WorldCom NutraLite Ineto.com
Nextel PepsiCo Internet Engineering Task Force
Telus Safeway Medical-Records.com
USWest Sears MODE (Music on Demand Europe)
Williams Conferencing Wyle OnlineOfficeSupplies.com
Winstar PRIO
HIGH TECHNOLOGY VCN (Virtual Creative Network)
FINANCIAL SERVICES
BEA Systems MEDIA AND PUBLISHING
Allianz Cadence Design Systems
Aon Insurance Hewlett-Packard Dearborn Financial Publishing
Bank of America IBM Stanley Kaplan & Associates
Charles Schwab Lucent Tribune Company
Citibank Macromedia GOVERNMENTAL AND HIGHER EDUCATION
Discover Card Netscape Alameda County, California
Fireman's Fund Rogerson Aircraft Commonwealth of Massachusetts
First American Real Estate Sun Microsystems City of Chicago
ING Barings Cook County (Illinois) Assessors
Moneygram HEALTHCARE Office
SNS RAAEL St. John's University
State Farm American Medical Association University of Minnesota
Strong Capital Management Amgen
Zurich American Dialysis Clinics Incorporated
</TABLE>
STRATEGIC ALLIANCES
We pursue strategic alliances with leaders in the technology industry to
generate incremental sales opportunities and leverage current product knowledge.
We choose our alliance partners based on their leadership in a particular
product or service category and our ability to obtain
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preferential access to new technologies created by these companies. We have
entered into alliances with the following companies:
SOFTWARE PARTNERS
Allaire
BEA Systems
BroadVision
Forte Software
Microsoft
NetscapeSun Alliance
SilverStream Software
HARDWARE PARTNERS
Hewlett-Packard
IBM
Sun Microsystems
WEB HOSTING PARTNERS
Exodus Communications
Frontier Global Center
GTE Internetworking
Telus Advanced
Communications
UUNet
We have developed many of these alliances into beneficial, long-term
relationships. For example, as a result of our alliances we have gained early
access to advanced technologies from Microsoft, BroadVision and SilverStream. In
addition, we have received awards and recognition from our alliance partners. We
have been a Microsoft Certified Solution Provider at the Partner Level since
1995 and we were the Microsoft Solution Provider Partner of the Year, Worldwide
for 1997. In 1999, Microsoft recognized us as having provided the "Best
Electronic Commerce Solution of the Year" for our work on
OnlineOfficeSupplies.com. We are also one of only seven IBM Alliance Partners in
the U.S. (one of 20 worldwide) and a BroadVision Integration Partner. As a
result of our elevated position with these companies, we also benefit from joint
sales, marketing, training and sales support programs.
OUR PEOPLE AND CULTURE
As of October 31, 1999, we had 1,192 full-time employees, comprised of 937
professionals and 255 administrative and support employees. We believe we pay
competitive salaries and provide other awards for performance and achievement.
None of the our employees are represented by unions and, except for senior
management and certain other employees, our employees are retained on an at-will
basis. We believe our relations with our employees are good. Recognizing that
our employees are key to our success, we believe the following strategies will
enable us to continue to attract and retain the necessary personnel:
RECRUITING
We believe our ongoing success depends upon our continued ability to
recruit and retain professionals with outstanding skills and abilities. To
attract qualified candidates, we maintain a recruiting organization consisting
of 16 professionals as of October 31, 1999. Employee referrals are the single
largest source for employee candidates. We reward our employees for referring
candidates through our employee referral programs. In addition to being a
cost-effective means of recruiting, we believe this is a positive indication of
the employee's attitude toward us. Additional sources for employee candidates
include advertising, college recruiting and employment placement firms.
CULTURE
We believe that we have established a culture that fosters innovation and
professional development, and rewards both individual accomplishment and
collaborative contributions. We provide career advancement opportunities for
individuals based primarily on merit, rather than
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tenure, which we believe provides an attractive environment for individuals who
are committed to succeeding.
EDUCATION AND PROFESSIONAL DEVELOPMENT
Our educational and professional development programs are designed to
advance the skills of our professionals. Our employees routinely receive
feedback on their professional advancement so that decisions on project
assignments and educational opportunities can be made. Our education programs
begin with company orientation as well as a variety of technical, industry and
professional training.
COMPENSATION
We believe that our salaries are competitive. We also provide other awards
for performance and achievement. In addition to cash compensation, we have
recently instituted a stock option program that we anticipate will have a
positive impact on our ability to attract and retain professionals. All of our
employees receive stock options and are eligible to receive additional stock
options based on performance.
COMPETITION
Competition in the eBusiness services market and its component markets is
intense. Our current competitors include:
- emerging web consulting firms, including Proxicom, Razorfish, Scient,
USWeb and Viant, which are focused on Internet-based, electronic business
and digital business solutions;
- systems integrators, including Andersen Consulting, Ernst & Young,
PricewaterhouseCoopers and Sapient;
- strategy and management consulting firms, including Bain, Boston
Consulting Group and Diamond Technology Partners;
- regional specialized information technology firms;
- vendor-based services organizations of companies, including IBM and
Oracle; and
- internal management and information technology departments of current and
future client organizations.
There are relatively low barriers to entry in the eBusiness services
market. In addition, we do not own any patented technology that stops
competitors from entering the eBusiness services market or providing services
similar to ours. Therefore, we expect that competition will continue to
intensify and increase in the future. In fact, some large information technology
consulting firms have announced that they will focus more resources on eBusiness
opportunities. Because we contract with our clients on an
engagement-by-engagement basis, there is no guarantee that we will be retained
by our existing or future clients on later stages of work.
FACILITIES
Our headquarters are located in Chicago, Illinois. Our solution centers are
located in Chicago, Illinois; San Francisco, California; Dallas, Texas; New
York, New York; and Alexandria, Virginia. In addition to our solution centers
and headquarters which are leased, we lease offices in the following locations:
Houston, Texas; Landover, Maryland; El Segundo, California; Bedford, New
Hampshire; Jacksonville, Florida; Downers Grove, Illinois; San Ramon,
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California; Englewood, Colorado; Troy, Michigan; London, England; Perth,
Australia and Toronto, Ontario. We anticipate that we will continue to expand
our offices and open offices in new locations as business conditions require. We
expect that we will need additional space as we expand our business and believe
that we will be able to obtain suitable space as needed.
LEGAL PROCEEDINGS
NDC Group, Inc., one of our subsidiaries, along with Metamor, filed suit in
May 1999 against some former officers and shareholders of NDC and other parties
in the Circuit Court of the City of Alexandria, Virginia for several causes of
action, including breaches of fiduciary duties and numerous covenants and
agreements. In this suit, NDC and Metamor are seeking monetary and injunctive
relief against the defendants. Some of the defendants have filed Cross-Bills
alleging breach of employment and other agreements and duties of good faith and
fair dealings and other tort claims against NDC, Metamor and Xpedior.
Additionally, some of these same defendants have filed similar claims in the
United States District Court for the Eastern District of Virginia. The
defendants that filed the Cross-Bills and the complaint in district court are
seeking indeterminable monetary damages.
The Eastern District of Virginia action has been stayed in deference to the
Circuit Court proceeding. A trial in the Circuit Court is currently anticipated
to begin in April 2000. We believe that Xpedior, NDC and Metamor have strong
cases in these matters and strong defenses against each of the complaints.
However, Xpedior, NDC and Metamor may not prevail in this litigation.
We are not aware of any pending legal proceedings against us, including the
Virginia litigation, that, individually or in the aggregate, would have a
material adverse effect on our results of operations or financial condition. We
may in the future be party to litigation arising in the course of our business.
These claims, even if not meritorious, could result in the expenditure of
significant financial and managerial resources.
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MANAGEMENT
OFFICERS AND DIRECTORS
The executive officers and directors of Xpedior and their ages and
positions as of the initial public offering are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
David N. Campbell......................... 58 President, Chief Executive Officer and
Director
J. Brian Farrar........................... 36 Executive Vice President, Chief Operating
Officer and Director
Eugene Rooney............................. 34 Executive Vice President and Director
Steven M. Isaacson........................ 45 Senior Vice President and Chief Financial
Officer
James W. Crownover........................ 56 Chairman of the Board of Directors
Peter T. Dameris.......................... 39 Director
Robert K. Hatcher......................... 36 Director
Marc J. Shapiro........................... 52 Director
John M. Whiteside......................... 43 Director
</TABLE>
EXECUTIVE OFFICERS AND DIRECTORS
David N. Campbell has served as our President and Chief Executive Officer
since joining us in September 1999 and will be a director upon consummation of
this offering. From January 1999 to September 1999, Mr. Campbell was President
of GTE Technology Organization, the centralized technology unit of GTE. From
1995 to January 1999, he served as President of BBN Technologies, the Internet
technology development and services organization of BBN Corporation, which was
acquired by GTE in 1997. Prior to that time, he served as Chairman and Chief
Executive Officer of Computer Task Group, Inc., an international integrated
information technology services company. Mr. Campbell is also a director of
Tektronix, Inc. and Gibraltar Steel, Inc., and was appointed by President
Clinton to the Advisory Board of the President's Commission on Critical
Infrastructure Protection. He holds a Bachelor of Science degree from Niagara
University and a Master of Science degree from State University of New York at
Buffalo.
J. Brian Farrar has served as our Executive Vice President and Chief
Operating Officer since July 1999 and will be a director upon consummation of
this offering. Since March 1998, Mr. Farrar has served as President of Metamor
Technologies, Ltd., a subsidiary of Xpedior which was acquired by it in March
1997. From October 1994 until March 1998, Mr. Farrar was a Vice President and
Principal of Metamor Technologies, eBusiness services. Mr. Farrar has published
numerous books on Internet and technology-related topics translated into a
variety of languages around the world. He holds a Master of Business
Administration degree from Indiana University and a Bachelor of Arts degree from
Wabash College.
Eugene Rooney has served as our Executive Vice President since October 1999
and will become a director upon consummation of this offering. Since 1994, Mr.
Rooney has been the President of Sage I.T. Partners, Inc., a subsidiary of
Xpedior which was acquired by it in January 1998. Prior to that time, he served
as Vice President of Product Development for Metropolis Software, a leading
vendor of field sales automation software. Mr. Rooney is also a director of
Medical-Records.com. He received a Bachelor of Science degree in Management in
1987 at Rensselaer Polytechnic Institute in Troy, New York.
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Steven M. Isaacson has served as our Chief Financial Officer since April
1998 and as a Senior Vice President since October 1999. Mr. Isaacson has served
as Chief Operating Officer and Chief Financial Officer of Metamor Technologies,
Ltd. since June 1996. Prior to that time, he served as Executive Vice President
and Chief Financial Officer of American Classic Voyages Co., a cruise line with
operations in North America. Mr. Isaacson is a Certified Public Accountant. He
holds a Bachelor of Science degree in Accounting from the University of Illinois
and Master of Science degree in Taxation from DePaul University in Chicago,
Illinois.
James W. Crownover has served as our Chairman of the Board since joining us
in September 1999. Mr. Crownover joined McKinsey & Company, Inc. in 1968. He
served as the managing director of the Southwest practice of McKinsey from 1984
to 1994 and as a member of McKinsey's Shareholders' Committee, its elected board
of directors, from 1990 to 1998. Mr. Crownover is also a director of Unocal
Corporation and Altra Energy Technologies. He is an honors graduate of Rice
University and received his Master of Business Administration degree from the
Stanford Graduate School of Business.
Peter T. Dameris has served as one of our directors since December 1997.
Mr. Dameris has been President, Chief Executive Officer and Secretary and has
served as a director of Metamor Worldwide, Inc. since October 1999. From January
1999 to September 1999, he served as Executive Vice President -- Corporate
Development and Secretary of Metamor. Mr. Dameris joined Metamor in January 1995
as Vice President, General Counsel and Secretary and was promoted to Senior Vice
President in September 1996. Prior to that time, he was a partner with the law
firm of Cochran, Rooke and Craft, LLP. Mr. Dameris is also a director of U.S.
Concrete, Inc., a provider of ready-mixed concrete and related products and
services. He received his Bachelor of Arts degree from Southern Methodist
University and his law degree from the University of Texas.
Robert K. Hatcher will become a director upon consummation of this
offering. Mr. Hatcher is a partner with the law firm of Vinson & Elkins L.L.P.
and has been with the firm since 1990. Effective January 2000, Mr. Hatcher will
manage Metamor's corporate strategy and development activities. He holds a
Bachelor of Arts degree from Southern Methodist University and a law degree and
a Masters of Business Administration degree from Tulane University.
Marc J. Shapiro will become a director upon consummation of this offering.
Mr. Shapiro is the Vice Chairman for Finance, Risk Management and Administration
of The Chase Manhattan Corporation. From January 1972 to September 1997, he held
various positions with Texas Commerce Bank (subsequently renamed Chase Bank of
Texas), and served as President and Chief Executive Officer for the eight years
ended September 1997. Mr. Shapiro is also a director of Burlington Northern
Santa Fe Corporation and Weingarten Realty Investors. He received his Bachelor
of Arts degree from Harvard University and a Masters of Business Administration
degree from Stanford University.
John M. Whiteside will become a director upon consummation of this
offering. In May 1999, Mr. Whiteside launched netASPx, an application service
provider. Prior to launching netASPx, Mr. Whiteside was President and Chief
Executive Officer of Service Net since March 1997. Prior to 1997, he served as
General Manager of IBM Global Network and as Senior Vice President of Global
Alliance Management at MCI Communications Corporation. He holds a Bachelor of
Science degree in Geophysics from Yale College and a Master of Business
Administration degree from Harvard Graduate School.
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BOARD OF DIRECTORS
Xpedior currently has two directors. Upon the completion of this offering,
the terms of the office of the board of directors will be divided into three
classes: Class I, whose term will expire at the annual meeting of the
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. Upon completion
of this offering, the Class I directors will be Messrs. Crownover, Dameris and
Hatcher; the Class II directors will be Messrs. Campbell and Rooney; and the
Class III directors will be Messrs. Whiteside, Farrar and Shapiro. At each
annual meeting of stockholders after the initial classification, each elected
director will serve from the time of his election and qualification until the
third annual meeting following his election. This classification of the board of
directors may have the effect of delaying or preventing changes in control of
Xpedior or its management. All of our officers serve at the discretion of the
board of directors. There are no family relationships among the directors and
officers of Xpedior.
Board Committees. Our board of directors will have an audit committee and
a compensation committee. The audit committee will consist exclusively of
outside directors. The audit committee makes recommendations to the board of
directors regarding the selection of independent accountants, reviews the
results and scope of audit and other services provided by our independent
accountants and reviews and evaluates our audit and control functions. The
compensation committee will consist exclusively of outside directors. The
compensation committee administers our stock plans and makes decisions
concerning salaries and incentive compensation for our employees.
DIRECTOR COMPENSATION
The Chairman of the Board receives $100,000 in annual cash compensation and
received options to purchase 200,000 shares of common stock which will vest over
three years in equal installments. The remaining outside directors will receive
an initial grant of options to purchase 30,000 shares of common stock which will
vest over three years in equal installments and subsequent annual grants of
options to purchase 5,000 shares which will vest immediately upon issuance.
Directors who are also executive officers will not receive any compensation for
their services as directors other than reimbursement of all reasonable
out-of-pocket expenses for attendance at board meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of our compensation committee is currently or has been at any
time since the formation of Xpedior, an officer or employee of Xpedior. No
member of our compensation committee serves as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers serving as a member of our board of directors or compensation
committee.
INDEMNIFICATION
Xpedior has entered into indemnification agreements with each of its
directors and executive officers. The form of indemnity agreement provides that
we will indemnify our directors or executive officers for expenses incurred
because of their status as a director or executive officer, to the fullest
extent permitted by Delaware law.
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Xpedior's certificate of incorporation and bylaws contain provisions
relating to the limitation of liability and indemnification of our directors and
officers. The certificate of incorporation provides that directors shall not be
personally liable to Xpedior or its stockholders for monetary damages for any
breach of fiduciary duty as a director, except for liability for:
- any breach of a director's duty of loyalty to Xpedior or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General
Corporation Law; or
- any transaction from which the director derives any improper personal
benefit.
Our certificate of incorporation also provides that if the Delaware General
Corporation Law is amended to authorize corporate action further eliminating or
limiting the personal liability of directors after our stockholders approve the
certificate of incorporation, then the liability of our directors shall be
eliminated or limited to the fullest extent permitted by the amended Delaware
General Corporation Law. The foregoing provisions of our certificate of
incorporation are not intended to limit the liability of directors or officers
for any violation of applicable federal securities laws. In addition, as
permitted by Section 145 of the Delaware General Corporation Law, our bylaws
provide that:
- we are required to indemnify our directors and executive officers to the
fullest extent permitted by the Delaware General Corporation Law;
- we may, in our discretion, indemnify other officers, employees and agents
to the fullest extent permitted by the Delaware General Corporation Law;
- we are generally required to advance all expenses incurred by our
directors and executive officers in connection with a legal proceeding to
the fullest extent permitted by the Delaware General Corporation Law;
- the rights conferred in the bylaws are not exclusive;
- we may, in our discretion, enter into indemnification agreements with our
directors, officers, employees and agents; and
- we may not retroactively amend the bylaw provisions relating to indemnity
in a way that would adversely affect the rights of our directors or
executive officers.
Our bylaws further provide that we shall indemnify our directors to the
fullest extent permitted by Delaware law, including in circumstances in which
indemnification is otherwise discretionary under Delaware law.
EXECUTIVE COMPENSATION
The following summary compensation table sets forth summary information
concerning the compensation earned during 1998 by the Chief Executive Officer
and the other most highly compensated officers. The chief executive officer of
Xpedior served in this capacity as part of his position as an officer of Metamor
and, as such, his compensation was paid by Metamor, not by Xpedior. Mr. Campbell
was elected as our President and Chief Executive Officer in September 1999. We
use the term "named executive officers" to refer to these people in this
prospectus. The table excludes perquisites and other personal benefits received
by a named executive officer that do not exceed the lesser of $50,000 or 10% of
any such officer's salary and bonus disclosed in the table.
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<PAGE> 60
<TABLE>
<CAPTION>
1998
ANNUAL
COMPENSATION
-------------------
NAME AND PRINCIPAL POSITION SALARY BONUS
<S> <C> <C>
Kenneth R. Johnsen.......................................... $ -- $ --
President and Chief Operating Officer of Metamor and
Chief Executive Officer of Xpedior
David M. Pickrell........................................... 250,000 187,500
President of Xpedior
J. Brian Farrar............................................. 156,250 193,723
President of Metamor Technologies, Ltd.
Steven M. Isaacson.......................................... 156,250 159,687
Chief Financial Officer and Chief Operating Officer of
Metamor Technologies, Ltd.
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
In the fiscal year ended December 31, 1998, none of the named executive
officers received options to purchase common stock, nor were they able to
exercise any stock options. None of the named executive officers held stock
options at December 31, 1998.
EMPLOYMENT AGREEMENTS
In September 1999, Mr. Campbell entered into an employment agreement with
us and we elected him our President and Chief Executive Officer. The agreement
provides that Mr. Campbell will receive a minimum annual base salary of
$375,000. Under the agreement, Mr. Campbell also may receive bonuses up to 150%
of his base salary based upon his meeting or exceeding performance objectives.
At the same time, we granted him an option to purchase 1,000,000 shares of our
common stock. In addition, we issued Mr. Campbell 50,000 shares of common stock
that may be forfeited upon termination of his employment. These forfeiture
restrictions lapse for:
- 25,000 of such shares after 24 full months of employment;
- an additional 12,500 of such shares after 36 full months of employment;
and
- the remaining 12,500 shares after 48 full months of employment.
Mr. Campbell also purchased 129,702 shares of common stock at $7.71 per
share. Mr. Campbell is restricted from selling any of his common stock until the
earlier of the second anniversary of our initial public offering or the
distribution to the stockholders of Metamor of its remaining interest in
Xpedior. Mr. Campbell's employment agreement provides that if he terminates his
employment with us on or before September 9, 2001, we can require him to sell
back to us the 129,702 shares of common stock for an amount equal to the actual
cost plus $400,000.
In addition, as part of Mr. Campbell's employment with us, we have agreed
to provide Mr. Campbell the benefits that he is entitled to receive under: (1) a
non-competition agreement between Mr. Campbell and Computer Task Group dated as
of March 1, 1984 and (2) the Computer Task Group Executive Benefit Plan, as
restated and effective January 31, 1997. We agreed to provide the benefits in
the event Computer Task Group ceases to make the payments described in these
instruments. The agreements provide that, through November 4, 2002, Mr. Campbell
will receive:
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- monthly payments aggregating approximately $255,000 per year;
- reimbursement for medical premiums;
- premiums for a life insurance policy; and
- continued benefits under the Computer Task Group Executive Benefit Plan.
Mr. Campbell will also receive monthly payments aggregating approximately
$165,000 per year and continued benefits under the Computer Task Group Executive
Benefit Plan after November 4, 2002 until his death. In addition, we have agreed
to indemnify Mr. Campbell in the event his employment with us violates any legal
obligations owed to Computer Task Group. Computer Task Group has indicated that
while it will not seek any injunctive relief relating to Mr. Campbell's
employment with Xpedior, it is terminating all of the benefits owed to Mr.
Campbell, including those which we have agreed to undertake. We believe that the
agreement has not been breached by Mr. Campbell and that the former employer is
obligated to make the required payments. Although we plan to pursue this matter
vigorously and believe that we have strong legal defenses, there can be no
assurance as to the outcome of this matter.
Either we or Mr. Campbell can terminate the employment agreement at any
time. If the employment agreement is not terminated on or before September 9,
2001, the term of the agreement will be extended for one additional year. If we
terminate the agreement prior to the expiration of the initial term without
cause, then we will pay him an amount equal to two years salary plus certain
health benefits. If Mr. Campbell's employment terminates because: (1) of his
death or disability or (2) we fail to renew the term for an additional year
beyond the initial term, then we will pay him (or his estate) an amount equal to
one year's salary (plus his most recent incentive bonus in the case of death).
We have also agreed to pay other benefits offered to Mr. Campbell by his former
employer in the event Mr. Campbell's employment with us terminates.
Mr. Farrar entered into an employment agreement with us effective October
13, 1999. The agreement provides that Mr. Farrar will receive a minimum annual
base salary of $250,000. Under the agreement, Mr. Farrar also: (1) may receive
bonuses up to 150% of his base salary based upon his meeting or exceeding
performance objectives and (2) will be allowed to participate in all benefit
plans offered by us to similarly situated employees.
Either we or Mr. Farrar can terminate the employment agreement at any time.
If the employment agreement is not terminated on or before October 13, 2001, the
term of the agreement will be extended for one additional year. If we terminate
the agreement prior to the expiration of the initial term without cause, then we
will pay him an amount equal to two years salary plus health benefits. If Mr.
Farrar's employment terminates because: (1) of death or disability or (2) we
fail to renew the term for an additional year beyond the initial term, then we
will pay him (or his estate) an amount equal to one year's salary (plus an
amount equal to his most recent incentive bonus in the case of death).
EMPLOYEE STOCK PLANS
XPEDIOR STOCK INCENTIVE PLAN
On August 5, 1999, in connection with this offering and the expected
divestiture, our board of directors approved and adopted the Xpedior Stock
Incentive Plan. The purpose of the plan is to provide our directors, employees,
advisors and professionals additional incentive and reward opportunities to
enhance our profitable growth. The plan provides for the granting of:
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- incentive stock options intended to qualify under Section 422 of the
Internal Revenue Code;
- options that do not constitute incentive stock options;
- restricted stock awards; and
- stock appreciation rights.
The plan is administered by a committee of the board of directors. The
committee will consist of two or more outside directors within the meaning of
section 162(m) of the Code. In general, the committee is authorized to select
the recipients of awards and to establish the terms and conditions of those
awards.
The number of shares of common stock that may be issued under the plan may
not exceed 15,000,000 shares, adjusted to reflect stock dividends, stock splits,
recapitalizations, and similar changes in our capital structure. Shares of
common stock which are attributable to awards that have expired, terminated, or
been canceled or forfeited are available for issuance or use in connection with
future awards. The maximum number of shares of common stock that may be granted
under the plan to any one individual during any calendar year may not exceed
2,000,000, adjusted to reflect stock dividends, stock splits, recapitalizations
and similar changes in our capital structure.
The price at which a share of common stock may be purchased upon exercise
of an option granted under the plan will be determined by the committee. In the
case of an incentive stock option, the purchase price will not be less than the
fair market value of a share of common stock on the date such option is granted.
In the case of an option that does not constitute an incentive stock option, the
purchase price will not be less than 85% of the fair market value of a share of
common stock on the date the option is granted. Additionally, a stock
appreciation right may be granted in connection with the grant of an option. A
stock appreciation right allows the holder to surrender the right to purchase
shares under the related option in return for a payment in: (1) cash; (2) shares
of common stock; or (3) a combination of cash and common stock. The amount of
the payment will equal the difference between the fair market value of the
shares of common stock on the date the right is exercised and the purchase price
for the shares under the related option.
Stock options granted under the plan are not freely transferable by the
optionee, and each option is exercisable during the lifetime of the optionee
only by the optionee. Options granted under the plan must generally be exercised
within three months of the optionee's separation of service with us or within
twelve months after the optionee's termination by death or disability. In no
event may options be exercised earlier than: (1) the date of a complete spin-off
of all Xpedior common stock held by Metamor; or (2) two years after a public
offering of our common stock.
Shares of common stock that are the subject of a restricted stock award
under the Plan will be governed by restrictions on disposition by the holder of
such award and an obligation of the holder to forfeit and surrender the shares
to us under certain circumstances. The forfeiture
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restrictions will be determined by the committee in its sole discretion. The
committee may provide that the forfeiture restrictions will lapse upon:
- the attainment of one or more performance goals or targets established by
the committee which are based on:
- the price of a share of common stock;
- our earnings per share;
- our market share;
- the market share of one of our business units designated by the
committee;
- our sales;
- the sales of one of our business units designated by the committee;
- our net income (before or after taxes) or the net income of any one
of our business units designated by the committee;
- our cash flow return on investment or the cash flow return on
investment of any one of our business units designated by the
committee;
- our earnings before or after interest, taxes, depreciation and/or
amortization of Xpedior or of any one of our business units
designated by the committee;
- the economic value added; or
- the return on stockholders' equity;
- the award holder's continued employment with us or continued service as a
consultant or director for a specified period of time;
- the occurrence of any event or the satisfaction of any other condition
specified by the committee in its sole discretion; or
- a combination of any of the foregoing.
No awards under the plan may be granted after ten years from the date the
plan was adopted by the board of directors. The plan will remain in effect until
all options granted under the plan have been satisfied or expired, and all
shares of restricted stock granted under the plan have vested or been forfeited.
The board of directors in its discretion may terminate the plan at any time as
to any shares of common stock for which awards have not been granted. The plan
may be amended, other than to increase the maximum aggregate number of shares
that may be issued under the plan or to change the class of individuals eligible
to receive awards under the plan, by the board of directors without the consent
of our stockholders. No change in any award previously granted under the plan
may be made that would impair the rights of the holder of that award without the
approval of the holder.
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TRANSACTIONS WITH OUR MANAGEMENT AND METAMOR
We have entered into significant transactions with Metamor and have
significant relationships with Metamor. For purposes of governing these
transactions and relationships, we will enter into, or continue in effect, on a
transitional basis, various agreements and relationships, including those
described below. Some of the agreements summarized below will be included as
exhibits to the registration statement related to this prospectus. The following
summaries of these agreements discuss the material provisions of the agreements
and are qualified completely by reference to these exhibits, which we
incorporate in this prospectus by reference.
Metamor currently provides various support services to us such as legal,
tax, risk and cash management. Metamor has also historically provided valuation,
negotiation and due diligence services relating to our merger and acquisition
activity. Costs are allocated to us based upon usage, or where no direct method
can be efficiently applied due to administrative burden, upon factors like
annualized payroll or employee headcount. Metamor has agreed to continue to
provide legal, tax, risk and cash management services and personnel at
prevailing market rates as required by us for a period of twelve months after
the offering. These services may be modified by us on 60 days' advance notice to
Metamor. Thereafter, we will either continue our relationship with Metamor for
these services as mutually agreed, bring such services and personnel in house or
procure these services from a third party.
We owe $100.0 million in outstanding principal under notes issued to
Metamor, together with accrued interest payable at September 30, 1999. We expect
to repay this debt with a portion of the net proceeds of this offering. These
notes are payable on demand at the prime rate plus 3%, which at September 30,
1999 was 11.5%. All the interest expense of Xpedior was charged by Metamor and
included in the advances for working capital. Interest expense allocated by
Metamor totaled $1.2 million in 1997, $5.6 million in 1998 and $9.1 million for
the nine months ended September 30, 1999.
We also assigned approximately $9.2 million in accounts receivable to
Metamor effective September 30, 1999 for the repayment of advances for working
capital by Metamor during the period.
We have entered into an Assignment and Indemnification Agreement with
Metamor. Under this agreement, Metamor will assign all of its rights and
obligations under the agreements relating to Metamor's acquisition of the
companies comprising Xpedior as appropriate for the operations of Xpedior. As
part of this agreement, we have agreed to indemnify Metamor for any liabilities
resulting from or arising out of the operations of the acquired companies and
assigned earnout payments.
For a description of transactions with directors and officers, see
"Management -- Employment Agreements."
Following completion of this offering, Metamor will own approximately 83%
of our outstanding common stock, or 80% if the underwriters' over-allotment
option is exercised in full.
Currently, one of our directors, Mr. Dameris, is also the Chairman of the
Board, President and Chief Executive Officer of Metamor, a situation that may
create conflicts of interest. Mr. Dameris has agreed to work closely with the
audit committee of our board of directors to identify and resolve any conflicts
of interest that may arise.
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PRINCIPAL STOCKHOLDERS
The following table provides, as of October 31, 1999, information relating
to shares beneficially owned by our stockholders:
<TABLE>
<CAPTION>
PERCENT BENEFICIALLY
OWNED(B)
SHARES ---------------------
BENEFICIALLY BEFORE AFTER
STOCKHOLDERS OWNED(A) OFFERING OFFERING
<S> <C> <C> <C>
Metamor Worldwide, Inc.(b) ................................. 41,285,298 99.6% 82.6%
4400 Post Oak Parkway, Suite 1100
Houston, Texas 77027
David N. Campbell........................................... 179,702 * *
One North Franklin, Suite 1500
Chicago, Illinois 60606
</TABLE>
- ------------------------------
* Less than one percent
(a) Assumes no exercise of the underwriters' over-allotment option to purchase
up to 1,280,250 shares of common stock from Metamor. If the underwriters'
over-allotment option is exercised in full, upon completion of this offering
Metamor would beneficially own 40,005,048 shares of common stock
representing approximately 80% of the outstanding common stock.
(b) The calculations in this table of the percentage of outstanding shares are
based on 41,465,000 shares of our common stock outstanding as of October 31,
1999, and 50,000,000 shares outstanding immediately following the completion
of this offering and assumes no exercise of the underwriters' over-allotment
option.
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DESCRIPTION OF CAPITAL STOCK
Our amended and restated certificate of incorporation, which will be filed
immediately prior to the closing of this offering, authorizes the issuance of up
to 100,000,000 shares of common stock, par value $.01 per share, and 5,000,000
shares of preferred stock, par value $.01 per share. The rights and preferences
of the preferred stock may be established from time to time by our board of
directors. Prior to this offering, 41,465,000 shares of common stock were issued
and outstanding. No shares of preferred stock have been issued.
The following summarizes the material provisions of our capital stock and
anti-takeover provisions of our certificate of incorporation and bylaws. This
summary is qualified by our certificate of incorporation and bylaws, which have
been filed as exhibits to the registration statement related to this prospectus,
and by Delaware law.
COMMON STOCK
Immediately following this offering, 50,000,000 shares of common stock will
be issued and outstanding. Holders of common stock are entitled to one vote per
share on all matters to be voted upon by the stockholders. Because holders of
common stock do not have cumulative voting rights, the holders of a majority of
the shares of common stock can elect all of the members of the board of
directors standing for election. Subject to preferences of any preferred stock
that may be issued in the future, the holders of common stock are entitled to
receive any dividends that may be declared by the board of directors. The common
stock is entitled to receive pro rata all of our assets available for
distribution to its stockholders. There are no redemption or sinking fund
provisions applicable to the common stock. All outstanding shares of common
stock are fully paid and non-assessable.
PREFERRED STOCK
The board of directors has the authority to issue up to 5,000,000 shares of
preferred stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, dividend rates,
conversion rates, voting rights, terms of redemption, redemption prices,
liquidation preferences and the number of shares constituting any series or the
designation of that series, which may be superior to those of the common stock,
without further vote or action by the stockholders. There will be no shares of
preferred stock outstanding upon the closing of the offering and we have no
present plans to issue any preferred stock.
One of the effects of undesignated preferred stock may be to enable the
board of directors to render more difficult or to discourage an attempt to
obtain control of us by means of a tender offer, proxy contest, merger or
otherwise, and as a result to protect the continuity of our management. The
issuance of shares of the preferred stock by the board of directors as described
above may adversely affect the rights of the holders of common stock. For
example, preferred stock issued by us may rank prior to the common stock as to
dividend rights, liquidation preference or both, may have full or limited voting
rights and may be convertible into shares of common stock. Accordingly, the
issuance of shares of preferred stock may discourage bids for the common stock
or may otherwise adversely affect the market price of the common stock.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND
BYLAWS
CLASSIFIED BOARD OF DIRECTORS AND LIMITATIONS ON REMOVAL OF DIRECTORS
Our board of directors is divided into three classes. The directors of each
class are elected for three-year terms, with the terms of the three classes
staggered so that directors from a single
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class are elected at each annual meeting of the stockholders. Until the time,
called the "Trigger Date," as Metamor together with its subsidiaries does not
own a majority of the outstanding voting stock of Xpedior, the holders of a
majority of our outstanding voting stock may remove a director with or without
cause, appoint persons to fill vacancies on the board of directors and nominate
persons to stand for election to the board of directors. On and after the
Trigger Date, stockholders may remove a director only for cause and to do so, at
least 66 2/3% of the voting power of the outstanding voting stock must vote for
removal. The board of directors, not the stockholders, will have the right to
appoint persons to fill vacancies on the board of directors after the Trigger
Date.
WRITTEN CONSENT OF STOCKHOLDERS
Our certificate of incorporation provides that prior to the Trigger Date
any action required or permitted to be taken by our stockholders may be taken at
a duly called meeting of stockholders or by written consent of stockholders
owning the minimum number of shares required to approve such action. On and
after the Trigger Date, any action by our stockholders must be taken at an
annual or special meeting of stockholders. Special meetings of the stockholders
may be called only by the board of directors. This provision, which requires a
vote of at least 66 2/3% of the voting power of the outstanding shares of common
stock to be amended, could have the effect of deterring hostile takeovers or
delaying changes in control.
ADVANCE NOTICE PROCEDURE FOR STOCKHOLDER PROPOSALS
Our bylaws establish an advance notice procedure for the nomination of
candidates for election as directors as well as for stockholder proposals to be
considered at annual meetings of stockholders. In general, notice of intent to
nominate a director must be delivered to or mailed and received at our principal
executive offices as follows:
- for an election to be held at the annual meeting of stockholders, 120
days prior to the anniversary date of the proxy statement for the
immediately preceding annual meeting of stockholders; and
- for an election to be held at a special meeting of stockholders to elect
directors, not later than the close of business of the 10th day following
the day on which the notice of the date of the meeting was mailed or
public disclosure of the date of the meeting was made, whichever first
occurs, and must contain specified information concerning the person to
be nominated.
Notice of stockholders' intent to raise business at an annual meeting must
be delivered to or mailed and received at our principal executive offices not
less than 120 days prior to the anniversary date of the proxy statement for the
preceding annual meeting of stockholders. These procedures may operate to limit
the ability of stockholders to bring business before a stockholders meeting,
including the nomination of directors or considering any transaction that could
result in a change in control. These advance notice procedures are not
applicable prior to the Trigger Date.
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<PAGE> 68
LIMITATION OF LIABILITY OF OFFICERS AND DIRECTORS
Our certificate of incorporation provides that no director shall be
personally liable to us or our stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability as follows:
- 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 knowing violation of laws;
- for unlawful payment of a dividend or unlawful stock purchase or stock
redemption; and
- for any transaction from which the director derived an improper personal
benefit.
The effect of these provisions is to eliminate our rights and those of our
stockholders, through stockholders' derivative suits on our behalf, to recover
monetary damages against a director for breach of fiduciary duty as a director,
including breaches resulting from grossly negligent behavior, except in the
situations described above. These provisions will not change after the Trigger
Date.
DELAWARE TAKEOVER STATUTE
Under the terms of our certificate of incorporation and as permitted under
Delaware law we have elected not to be governed by Delaware's anti-takeover law.
This law provides that specified persons who, together with affiliates and
associates, own, or within three years did own, 15% or more of the outstanding
voting stock of a corporation may not engage in certain business combinations
with the corporation for a period of three years after the date on which the
person became an interested stockholder. The law does not include interested
stockholders prior to the time our common stock is authorized for quotation on
the Nasdaq National Market. This includes Metamor. The law defines the term
"business combination" to encompass a wide variety of transactions with or
caused by an interested stockholder, including mergers, asset sales and other
transactions in which the interested stockholder receives or could receive a
benefit on other than a pro rata basis with other stockholders. With approval of
our stockholders, we could amend our certificate of incorporation in the future
to become governed by the anti-takeover law. This provision would then have an
anti-takeover effect for transactions not approved in advance by our Board of
Directors, including discouraging takeover attempts that might result in a
premium over the market price for the shares of our common stock.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock is The Bank of New
York, and its telephone number is (212) 815-4038.
REGISTRATION RIGHTS AGREEMENT
We have entered into an agreement with Metamor that allows Metamor to
require us to register shares of our common stock owned by Metamor following
this offering. Beginning six months after this offering, Metamor has the right
to demand a total of three such registrations. In addition, Metamor has the
right, which it may exercise at any time, to include its shares in any
registration of common stock made by us in the future. Metamor also has the
right to request that we file a registration statement registering shares of our
common stock held by Metamor for resale in a public offering. In this case, the
number of shares requested to be
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<PAGE> 69
registered shall have an aggregate offering price of at least $5 million. We
have agreed to cooperate fully in connection with any registration for Metamor's
benefit and with any offering made under the registration rights agreement and
to pay all costs and expenses, other than underwriting discounts and
commissions, related to shares sold by Metamor in connection with any
registration covered by the agreement. The rights of Metamor under the
registration rights agreement are transferable by Metamor. The agreement is for
an indefinite term. See "Shares Eligible for Future Sale."
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<PAGE> 70
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 50,000,000 shares of common
stock outstanding. Of the 50,000,000 shares outstanding:
- all of the shares offered by this prospectus will be available for
immediate sale in the public market as of the date of this prospectus;
and
- up to 41,465,000 shares will be governed by a lock-up period ending 180
days after the date of this prospectus (the "180-day lock-up period"),
after which they will be available for sale in the public market, in
compliance with volume and other limitations of Rule 144.
See "Underwriting." The foregoing is summarized in the following table:
<TABLE>
<CAPTION>
DAYS AFTER DATE OF APPROXIMATE SHARES
THIS PROSPECTUS ELIGIBLE FOR FUTURE SALE COMMENT
<S> <C> <C>
On effectiveness................... 8,535,000 Freely tradeable shares sold in
this offering
180 days after offering............ 41,465,000 180-day lock-up expires; shares
saleable under Rule 144 or 701
</TABLE>
In general, under Rule 144, beginning 90 days after the date of this
prospectus, a person, or persons whose shares are aggregated, who has
beneficially owned shares for at least one year is entitled to sell within any
three-month period commencing 90 days after the date of this prospectus 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 500,000 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 sale.
Sales under Rule 144 must also comply with manner of sale requirements, and
depending on the amount sold, the filing of a Form 144.
Under Rule 144(k), a person, or persons whose shares are aggregated, is
entitled to sell his or her shares without regard to the limitations described
above if:
- the person has not been an affiliate of ours, such as an officer,
director of 10%-or-greater stockholder, at any time during the 90 days
immediately preceding the sale; and
- the person has beneficially owned his or her shares for at least two
years.
Persons deemed to be affiliates must always sell in accordance with Rule 144,
even after the applicable holding periods have been satisfied.
We are unable to estimate the number of shares that will be sold under Rule
144, since this will depend on the market price for our common stock, the
personal circumstances of the sellers and other factors. Prior to this offering,
there has been no public market for the common stock, and there can be no
assurance that a significant public market for the common stock will develop or
be sustained after the offering. Any future sale of substantial amounts of the
common stock in the open market may adversely affect the market price of the
common stock offered by this prospectus.
65
<PAGE> 71
We, our directors and executive officers and Metamor have agreed not to
sell any common stock without the prior consent of Donaldson, Lufkin & Jenrette
Securities Corporation for the 180-day lock-up period. We may, however, without
such consent, grant options, sell shares under our stock plans and issue shares
to acquire other companies.
Any of our employees or professionals who purchased his or her shares under
a written compensatory plan or contract is entitled to rely on the resale
provisions of Rule 701, which permits nonaffiliates to sell their Rule 701
shares without having to comply with the public information, holding period,
volume limitation or notice provisions of Rule 144 and permits affiliates to
sell their Rule 701 shares without having to comply with the Rule 144 holding
period restrictions, in each case commencing 90 days after the date of this
prospectus. Through October 31, 1999, the holders of options exercisable into
9,034,150 shares of common stock will be eligible to sell their shares after the
vesting of their options and the expiration of the 180-day lock-up period.
We intend to file one or more registration statements on Form S-8 under the
Securities Act to register all shares of common stock governed by outstanding
stock options and common stock issued or issuable under our stock plans. We
expect to file the registration statement covering shares offered by the Xpedior
Stock Incentive Plan within 180 days after the date of this prospectus, thus
permitting the resale of these shares by non-affiliates in the public market
without restriction under the Securities Act.
In addition, after this offering, Metamor will be entitled to have its
shares registered under the Securities Act. Registration of such shares under
the Securities Act would result in these shares, except for shares purchased by
our affiliates, becoming freely tradable without restriction under the
Securities Act immediately on the effectiveness of such registration.
66
<PAGE> 72
UNDERWRITING
Under the terms and conditions contained in an underwriting agreement,
dated , 1999, the underwriters named below, who are represented by
Donaldson, Lufkin & Jenrette Securities Corporation, First Union Securities,
Inc., J.P. Morgan Securities Inc., The Robinson-Humphrey Company, LLC and
DLJdirect Inc., have severally agreed to purchase from us the number of shares
of common stock set forth opposite their names below:
<TABLE>
<CAPTION>
UNDERWRITERS: NUMBER OF SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........
First Union Securities, Inc...............................
J.P. Morgan Securities Inc................................
The Robinson-Humphrey Company, LLC........................
DLJdirect Inc. ...........................................
---------
Total............................................. 8,535,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares of common stock in
this offering are conditioned upon approval by their counsel of legal matters
concerning this offering and satisfaction of conditions precedent by us. The
underwriters are obligated to purchase and accept delivery of all the shares of
common stock in this offering, other than those shares covered by the
over-allotment option described below, if any are purchased.
The underwriters initially propose to offer some of the shares of common
stock directly to the public at the initial public offering price set forth on
the cover page of this prospectus and some of the shares to dealers at the
initial public offering price less a concession not in excess of $ per
share. The underwriters may allow, and those dealers may re-allow, a concession
not in excess of $ per share on sales to other dealers. After the
initial offering of the common stock to the public, the representatives may
change the public offering price and concessions. The underwriters do not intend
to confirm sales to any accounts over which they exercise discretionary
authority.
The following table shows the underwriting fees to be paid by us in
connection with this offering. This information is presented assuming both no
exercise and full exercise of the underwriters' option to purchase additional
shares of our common stock.
<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
<S> <C> <C>
Per share................................................... $ $
Total....................................................... $ $
</TABLE>
We will pay the offering expenses, estimated to be approximately $2.2
million. We will pay to the underwriters underwriting discounts and commissions
in an amount equal to the public offering price per share of common stock less
the amount the underwriters pay to us for each share of common stock.
67
<PAGE> 73
Metamor has granted to the underwriters an option, exercisable for 30 days
after the date of this prospectus, to purchase up to 1,280,250 additional shares
of common stock at the initial public offering price less the underwriting
discounts and commissions. The underwriters may exercise this option solely to
cover over-allotments, if any, made in connection with this offering. To the
extent the underwriters exercise this option, each underwriter will be
obligated, upon satisfaction of certain conditions, to purchase a number of
additional shares approximately proportionate to that underwriter's initial
purchase commitments.
We, together with Metamor, have granted the underwriters an option, have
agreed to indemnify the underwriters against liabilities, including liabilities
under the Securities Act, or to contribute to payments that the underwriters may
be required to make for these liabilities.
For a period ending 180 days from the date of this prospectus, we and our
executive officers, directors and Metamor have agreed not to, without the prior
written consent of Donaldson, Lufkin & Jenrette Securities Corporation:
- offer, pledge, sell, contract to sell or sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or
- enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any common
stock, whether any such transaction described above is to be settled by
delivery of common stock or other securities, in cash, or otherwise.
In addition, during such lock-up period, we have also agreed not to file
any registration statement relating to, and each of our executive officers,
directors and stockholders have agreed not to make any demand for, or exercise
any right relating to, the registration of any shares of common stock or any
securities convertible into or exercisable or exchangeable for common stock
without the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation.
Prior to this offering, no public market has existed for our common stock.
We will negotiate the initial public offering price for our common stock with
the representatives, but the price may not reflect the market price for our
common stock after this offering. The factors considered in determining the
initial public offering price include:
- the history of and prospects for our industry in which we compete;
- our past and present operations;
- our historical results of operations;
- our prospects for future operational results;
- the recent market prices of securities of generally comparable companies;
and
- the general conditions of the securities market at the time of this
offering.
We are applying to have our common stock approved for quotation on the
Nasdaq National Market under the symbol "XPDR."
Other than in the United States, no action has been taken by us, the
selling stockholders or the underwriters that would permit a public offering of
the shares of common stock included in this offering in any jurisdiction where
action for that purpose is required. The shares included in this offering may
not be offered or sold, directly or indirectly, nor may this prospectus or any
other offering material or advertisements in connection with the offer and sale
of any shares of
68
<PAGE> 74
common stock be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of such jurisdiction. Persons who receive this prospectus are
advised to inform themselves about and to observe any restrictions relating to
this offering and the distribution of this prospectus. This prospectus is not an
offer to sell or a solicitation of an offer to buy any shares of common stock in
any jurisdiction where that would not be permitted or legal.
In connection with this offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
common stock. Specifically, the underwriters may over-allot this offering,
creating a syndicate short position. The underwriters may bid for and purchase
our shares of common stock in the open market to cover such syndicate short
positions or to stabilize the price of our common stock. In addition, the
underwriting syndicate may reclaim selling concessions from syndicate members
and selected dealers if they repurchase previously distributed common stock in
syndicate covering transactions, in stabilizing transactions or otherwise, or if
Donaldson, Lufkin & Jenrette Securities Corporation receives a report which
indicates that the clients of such syndicate members have "flipped" our common
stock. These activities may stabilize or maintain the market price of the common
stock above independent market levels. The underwriters are not required to
engage in these activities and may end any of these activities at any time.
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 5% of the shares of common stock offered by this
prospectus for sale to our officers, directors, employees and their family
members and to business associates of Xpedior, including clients, consultants
and other friends. These persons must commit to purchase after the registration
statement has become effective but before the open of business on the following
business day. The number of shares available for sale to the general public will
be reduced to the extent these persons purchase the reserved shares.
Under the Conduct Rules of the National Association of Securities Dealers,
Inc., or NASD, when 10% or more of the net proceeds of a public offering of
equity securities are to be paid to a member of the NASD participating in such
public offering or an affiliate of such member, the price at which the equity
securities are distributed to the public must be no lower than that recommended
by a "qualified independent underwriter" as defined in Rule 2720 of the Conduct
Rules of the NASD. First Union Securities, Inc. is a member of the NASD and is
an affiliate of First Union National Bank, a lender under Metamor's credit
facility. First Union Securities, Inc. will receive more than 10% of the net
proceeds from this offering as a result of the use of proceeds to repay all of
the borrowings outstanding under Metamor's credit facility. See "Use of
Proceeds."
As a result, this offering is being made in compliance with Rule 2710(c)(8)
of the Conduct Rules of the NASD. Donaldson, Lufkin & Jenrette Securities
Corporation will act as a qualified independent underwriter in connection with
this offering and assume the customary responsibilities of acting as a qualified
independent underwriter in pricing and conducting due diligence for this
offering. Accordingly, the price of the common stock sold to the public will be
no lower than that recommended by Donaldson, Lufkin & Jenrette Securities
Corporation acting as qualified independent underwriter for this offering.
LEGAL MATTERS
The validity of the issuance of the common stock offered by this prospectus
will be passed upon for us by Vinson & Elkins L.L.P., Houston, Texas. Mr.
Hatcher, a partner of Vinson &
69
<PAGE> 75
Elkins L.L.P., has agreed to serve as a director of Xpedior upon consummation of
this offering, and has been granted options to purchase 30,000 shares of common
stock. Legal matters in connection with this offering will be passed upon for
the underwriters by Akin, Gump, Strauss, Hauer & Feld, L.L.P.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements of Xpedior Incorporated at September 30, 1999, December 31,
1998 and 1997 and for the nine-month period ended September 30, 1999, the year
ended December 31, 1998 and the period from inception (March 27, 1997) to
December 31, 1997 as set forth in their report. Ernst & Young LLP has also
audited the financial statements of Metamor Technologies, Ltd. (predecessor
company) at March 26, 1997 and for the period from January 1, 1997 to March 26,
1997, the financial statements of NDC Group, Inc. at April 15, 1998 and for the
period from July 1, 1997 to April 15, 1998, the financial statements of Sage
I.T. Partners, Inc. at January 6, 1998 and for the period from January 7, 1997
to January 6, 1998, the financial statements of Workgroup Productivity
Corporation at January 1, 1998 and for the period from January 2, 1997 to
January 1, 1998, and the financial statements of Virtual Solutions, Inc. at
December 29, 1996 and for the year ended December 29, 1996 as set forth in their
reports. We have included our financial statements and the other financial
statements referenced above in the prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP reports, given on their authority as
experts in accounting and auditing.
The financial statements of Virtual Solutions, Inc. as of December 28, 1997
and for the year then ended included in this prospectus and registration
statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon their authority as experts in accounting and auditing.
Morrison & Morrison, Ltd., independent auditors, have audited the financial
statements of Metamor Technologies, Ltd. at December 31, 1996 and for the year
then ended, as set forth in their report. We have included these financial
statements in the prospectus and elsewhere in the registration statement in
reliance on Morrison & Morrison, Ltd.'s report given on their authority as
experts in accounting and auditing.
The financial statements of Kinderhook Systems, Inc. as of December 31,
1998 and 1997 and for each of the two years in the period ended December 31,
1998 included in this prospectus have been included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on their authority as
experts in accounting and auditing.
70
<PAGE> 76
XPEDIOR INCORPORATED AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
XPEDIOR INCORPORATED AND SUBSIDIARIES
Pro Forma Financial Statements (Unaudited):
Pro Forma Condensed Consolidated Statements of
Operations............................................ F-2
Notes to Unaudited Pro Forma Financial Statements...... F-5
Consolidated Financial Statements:
Report of Independent Auditors......................... F-8
Consolidated Balance Sheets............................ F-9
Consolidated Statements of Operations.................. F-10
Consolidated Statements of Stockholder's Equity........ F-11
Consolidated Statements of Cash Flows.................. F-12
Notes to Consolidated Financial Statements............. F-13
METAMOR TECHNOLOGIES, LTD.
Report of Independent Auditors............................ F-27
Report of Independent Certified Public Accountants........ F-28
Balance Sheets............................................ F-29
Statements of Operations.................................. F-30
Statements of Stockholders' Equity........................ F-31
Statements of Cash Flows.................................. F-32
Notes to Financial Statements............................. F-33
WORKGROUP PRODUCTIVITY CORPORATION
Report of Independent Auditors............................ F-38
Balance Sheet............................................. F-39
Statement of Operations................................... F-40
Statement of Stockholders' Equity......................... F-41
Statement of Cash Flows................................... F-42
Notes to Financial Statements............................. F-43
SAGE I.T. PARTNERS, INC.
Report of Independent Auditors............................ F-47
Balance Sheet............................................. F-48
Statement of Operations................................... F-49
Statement of Stockholders' Equity......................... F-50
Statement of Cash Flows................................... F-51
Notes to Financial Statements............................. F-52
NDC GROUP, INC.
Report of Independent Auditors............................ F-57
Balance Sheet............................................. F-58
Statement of Operations................................... F-59
Statement of Stockholders' Equity......................... F-60
Statement of Cash Flows................................... F-61
Notes to Financial Statements............................. F-62
VIRTUAL SOLUTIONS, INC.
Report of Independent Public Accountants.................. F-67
Report of Independent Auditors............................ F-68
Balance Sheets............................................ F-69
Statements of Operations and Retained Earnings............ F-70
Statements of Cash Flows.................................. F-71
Notes to Financial Statements............................. F-72
KINDERHOOK SYSTEMS, INC.
Report of Independent Accountants......................... F-78
Balance Sheets............................................ F-79
Statements of Operations and Retained Earnings............ F-80
Statements of Cash Flows.................................. F-81
Notes to Financial Statements............................. F-82
</TABLE>
F-1
<PAGE> 77
XPEDIOR INCORPORATED AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------
XPEDIOR KINDERHOOK ADJUSTMENTS
INCORPORATED SYSTEMS, INC. (NOTE 4) PRO FORMA
<S> <C> <C> <C> <C>
Revenues..................................... $93,359 $9,387 $ -- $102,746
Cost of Services............................. 53,576 4,801 -- 58,377
------- ------ ------- --------
Gross Profit................................. 39,783 4,586 -- 44,369
Operating Costs and Expenses:
Selling, general and administrative........ 26,638 3,854 -- 30,492
Depreciation and amortization.............. 4,101 54 386(a) 4,541
------- ------ ------- --------
30,739 3,908 386 35,033
------- ------ ------- --------
Operating Income............................. 9,044 678 (386) 9,336
Other Income (Expense):
Interest expense........................... (9,147) 10 (464)(b) (9,601)
Other, net................................. (84) 86 -- 2
------- ------ ------- --------
(9,231) 96 (464) (9,599)
Income (loss) from Continuing Operations
before Income Taxes........................ (187) 774 (850) (263)
Provision for Income Taxes................... 550 59 (94)(c) 515
------- ------ ------- --------
Income (loss) from Continuing Operations..... $ (737) $ 715 $ (756) $ (778)
======= ====== ======= ========
Loss from Continuing Operations per Share
(Basic and Diluted)........................ $ (0.02) $ (0.02)
======= ========
Number of Shares Used to Compute Earnings per
Share...................................... 41,341 41,341
======= ========
</TABLE>
See notes to unaudited pro forma statements.
F-2
<PAGE> 78
XPEDIOR INCORPORATED AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------------------------------------------------------
WORKGROUP ADVANCED
XPEDIOR PRODUCTIVITY SAGE I.T. NDC VIRTUAL INFORMATION
INCORPORATED CORP. PARTNERS, INC. GROUP, INC. SOLUTIONS, INC. SOLUTIONS, INC.
<S> <C> <C> <C> <C> <C> <C>
Revenues....................... $72,267 $ -- $ 126 $ 3,480 $6,407 $3,258
Cost of Services............... 41,930 12 113 1,877 4,299 1,638
------- ---- ------- -------- ------ ------
Gross Profit................... 30,337 (12) 13 1,603 2,108 1,620
Operating Costs and Expenses:
Selling, general and
administrative............. 20,558 8 41 1,072 1,957 651
Stock compensation........... -- -- 1,759 28,213 837 --
Depreciation and
amortization............... 2,823 -- 3 101 68 33
------- ---- ------- -------- ------ ------
23,381 8 1,803 29,386 2,862 684
------- ---- ------- -------- ------ ------
Operating Income (Loss)........ 6,956 (20) (1,790) (27,783) (754) 936
Other Income (Expense):
Interest expense............. (5,562) -- -- -- -- --
Other, net................... 25 -- -- 12 9 2
------- ---- ------- -------- ------ ------
(5,537) -- -- 12 9 2
Income (Loss) from Continuing
Operations before Income
Taxes........................ 1,419 (20) (1,790) (27,771) (745) 938
Provision (Benefit) for Income
Taxes........................ 889 -- (698) (464) (277) --
------- ---- ------- -------- ------ ------
Income (Loss) from Continuing
Operations................... $ 530 $(20) $(1,092) $(27,307) $ (468) $ 938
======= ==== ======= ======== ====== ======
Earnings (Loss) from Continuing
Operations per Share (Basic
and Diluted)................. $ 0.01
=======
Number of Shares Used to
Compute Earnings (Loss) per
Share........................ 41,285
=======
<CAPTION>
HISTORICAL
------------------------------
NEW TECHNOLOGY
PARTNERS KINDERHOOK ADJUSTMENTS
CONSULTING SYSTEMS, INC. (NOTE 4) PRO FORMA
<S> <C> <C> <C> <C>
Revenues....................... $4,754 $10,208 $ -- $100,500
Cost of Services............... 2,749 5,024 -- 57,642
------ ------- ------- --------
Gross Profit................... 2,005 5,184 -- 42,858
Operating Costs and Expenses:
Selling, general and
administrative............. 1,160 4,213 29,660
Stock compensation........... -- -- -- 30,809
Depreciation and
amortization............... 98 63 993(a) 4,182
------ ------- ------- --------
1,258 4,276 993 64,651
------ ------- ------- --------
Operating Income (Loss)........ 747 908 (993) (21,793)
Other Income (Expense):
Interest expense............. (28) (9) (3,907)(b) (9,506)
Other, net................... 19 44 -- 111
------ ------- ------- --------
(9) 35 (3,907) (9,395)
Income (Loss) from Continuing
Operations before Income
Taxes........................ 738 943 (4,900) (31,188)
Provision (Benefit) for Income
Taxes........................ -- 89 (307)(c) (768)
------ ------- ------- --------
Income (Loss) from Continuing
Operations................... $ 738 $ 854 $(4,593) $(30,420)
====== ======= ======= ========
Earnings (Loss) from Continuing
Operations per Share (Basic
and Diluted)................. $ (0.74)
========
Number of Shares Used to
Compute Earnings (Loss) per
Share........................ 41,285
========
</TABLE>
See notes to unaudited pro forma statements.
F-3
<PAGE> 79
XPEDIOR INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------------------------------------------------------
WORKGROUP ADVANCED
XPEDIOR PRODUCTIVITY SAGE I.T. NDC VIRTUAL INFORMATION
INCORPORATED CORP. PARTNERS, INC. GROUP, INC. SOLUTIONS, INC. SOLUTIONS, INC.
<S> <C> <C> <C> <C> <C> <C>
Revenues....................... $47,405 $ -- $ 126 $ 3,480 $6,407 $3,258
Cost of Services............... 27,201 12 113 1,877 4,299 1,638
------- ---- ------- -------- ------ ------
Gross Profit................... 20,204 (12) 13 1,603 2,108 1,620
Operating Costs and Expenses:
Selling, general and
administrative............. 13,528 8 41 1,072 1,957 651
Stock compensation........... -- -- 1,759 28,213 837 --
Depreciation and
amortization............... 1,802 -- 3 101 68 33
------- ---- ------- -------- ------ ------
15,330 8 1,803 29,386 2,862 684
------- ---- ------- -------- ------ ------
Operating Income (Loss)........ 4,874 (20) (1,790) (27,783) (754) 936
Other Income (Expense):
Interest expense............. (3,631) -- -- -- --
Other, net................... 18 -- -- 12 9 2
------- ---- ------- -------- ------ ------
(3,613) -- -- 12 9 2
Income (Loss) From Continuing
Operations before Income
Taxes........................ 1,261 (20) (1,790) (27,771) (745) 938
Provision (Benefit) From
Continuing Operations for
Income Taxes................. 790 -- (698) (464) (277) --
------- ---- ------- -------- ------ ------
Income (Loss) From Continuing
Operations................... $ 471 $(20) $(1,092) $(27,307) $ (468) $ 938
======= ==== ======= ======== ====== ======
Earnings (Loss) From Continuing
Operations per Share (Basic
and Diluted)................. $ 0.01
=======
Number of Shares Used to
Compute Earnings (Loss) per
Share........................ 41,285
=======
<CAPTION>
HISTORICAL
------------------------------
NEW TECHNOLOGY
PARTNERS KINDERHOOK ADJUSTMENTS
CONSULTING SYSTEMS, INC. (NOTE 4) PRO FORMA
<S> <C> <C> <C> <C>
Revenues....................... $3,915 $7,480 $ -- $ 72,071
Cost of Services............... 2,246 3,524 -- 40,910
------ ------ ------- --------
Gross Profit................... 1,669 3,956 -- 31,161
Operating Costs and Expenses:
Selling, general and
administrative............. 832 2,727 20,816
Stock compensation........... -- -- -- 30,809
Depreciation and
amortization............... 84 67 851(a) 3,009
------ ------ ------- --------
916 2,794 851 54,634
------ ------ ------- --------
Operating Income (Loss)........ 753 1,162 (851) (23,473)
Other Income (Expense):
Interest expense............. (28) (7) (2,643)(b) (6,309)
Other, net................... 19 37 -- 97
------ ------ ------- --------
(9) 30 (2,643) (6,212)
Income (Loss) From Continuing
Operations before Income
Taxes........................ 744 1,192 (3,494) (29,685)
Provision (Benefit) From
Continuing Operations for
Income Taxes................. -- -- 443(c) (206)
------ ------ ------- --------
Income (Loss) From Continuing
Operations................... $ 744 $1,192 $(3,937) $(29,479)
====== ====== ======= ========
Earnings (Loss) From Continuing
Operations per Share (Basic
and Diluted)................. $ (0.71)
========
Number of Shares Used to
Compute Earnings (Loss) per
Share........................ 41,285
========
</TABLE>
See notes to unaudited pro forma statements.
F-4
<PAGE> 80
XPEDIOR INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. GENERAL
Xpedior Incorporated ("Xpedior" or the "Company") was formed by Metamor
Worldwide, Inc. ("Metamor" or the "Parent") to be the holding company for its
eBusiness solutions unit. Metamor commenced operations of this unit with the
acquisition of Metamor Technologies, Ltd. on March 27, 1997 and acquired six
additional companies in 1998 (see note 3). Effective April 30, 1999, Metamor
contributed to Xpedior all the outstanding capital stock of the seven companies
comprising its eBusiness solutions unit (the "Acquired Companies"), all of which
were wholly owned subsidiaries of Metamor. As the entities were under common
control, the contribution has been accounted for at historical cost in a manner
similar to a pooling of interests. The historical consolidated financial
statements of Xpedior reflect the "push down" of Metamor's purchase accounting
adjustments to the Acquired Companies.
2. BASIS OF PRESENTATION
The accompanying unaudited pro forma condensed consolidated financial
statements are based on adjustments to the historical consolidated financial
statements of Xpedior Incorporated to give effect to the acquisitions described
in Note 3 (the "Acquired Companies"). The pro forma condensed consolidated
statements of operations assume the acquisitions were consummated as of the
beginning of the periods presented. The pro forma condensed consolidated
statements of operations are not necessarily indicative of results that would
have occurred had the acquisitions been consummated as of the beginning of the
periods presented or that might be attained in the future.
Certain information normally included in financial statements prepared in
accordance with generally accepted accounting principles has been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission. The Pro Forma Financial Statements should be read in conjunction
with the historical consolidated financial statements of Xpedior, the historical
financial statements of the Acquired Companies and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
herein.
The Company has included in the pro forma condensed consolidated statements
of operations the results of operations for each of the acquired companies for
the period from the beginning of the period presented in the pro forma condensed
consolidated statement of operations through the date of acquisition. The
following pre-acquisition results of operations for the acquired companies were
included to derive the pro forma condensed consolidated statements of
operations:
<TABLE>
<CAPTION>
COMPANY PERIOD
- ------- ------
<S> <C>
Workgroup Productivity Corp. (Unaudited)(a,b)......... January 1, 1998
Sage I.T. Partners, Inc. (Unaudited)(a,b)............. January 1 - January 6, 1998
NDC Group, Inc. (Unaudited)(a,b)...................... January 1 - April 15, 1998
Virtual Solutions, Inc. (Unaudited)(a,b).............. January 1 - June 16, 1998
Advanced Information Solutions, Inc.
(Unaudited)(a,b).................................... January 1 - July 14, 1998
New Technology Partners Consulting (Unaudited)(a)..... January 1 - September 30, 1998
New Technology Partners Consulting (Unaudited)(b)..... January 1 - November 11, 1998
Kinderhook Systems, Inc. (Unaudited)(a)............... January 1 - September 30, 1998
Kinderhook Systems, Inc. (Audited)(b)................. January 1 - December 31, 1998
</TABLE>
F-5
<PAGE> 81
XPEDIOR INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
COMPANY PERIOD
- ------- ------
<S> <C>
Kinderhook Systems, Inc. (Unaudited)(c)............... January 1 - September 30, 1998
</TABLE>
- ---------------
(a) Included in pro forma statement of operations for the nine months ended
September 30, 1998.
(b) Included in pro forma statement of operations for the year ended December
31, 1998.
(c) Included in pro forma statement of operations for the nine months ended
September 30, 1999.
3. ACQUISITIONS
All the companies comprising Xpedior were acquired in acquisitions that
were accounted for as purchases. Accordingly the operating results are reflected
in the consolidated results of Xpedior from the date of acquisition. Summary
information on the acquisitions follows:
On March 27, 1997, the Parent acquired Metamor Technologies, Ltd., an
Illinois-based eBusiness solutions company. Purchase consideration totaled $37.0
million in cash, which included purchase consideration paid after closing based
on the increase in earnings before interest and taxes ("EBIT"), as defined
("Earnouts"). The sellers are not entitled to any future Earnouts.
On January 2, 1998, Metamor acquired Workgroup Productivity Corp., an
Illinois-based eBusiness solutions company. Purchase consideration totaled $10.0
million in cash, which included Earnouts for 1998. In August 1999, the sellers
entered into an agreement with Metamor whereby all future Earnouts were fixed at
$4.8 million. This obligation, which is payable in March 2000, and resulting
goodwill were recorded as of the effective date of the agreement.
On January 7, 1998, Metamor acquired Sage I.T. Partners, Inc., a
California-based eBusiness solutions company. Purchase consideration totaled
$16.6 million in cash, which included Earnouts for 1998. In July 1999, the
sellers entered into an agreement with Metamor whereby all future Earnouts were
fixed at $8.8 million. This obligation, which is payable in March 2000, and
resulting goodwill were recorded as of the effective date of the agreement.
On April 16, 1998, Metamor acquired NDC Group, Inc., a Virginia-based
eBusiness solutions company, for $18.3 million in cash and 0.4 million shares of
Metamor's common stock valued at $15.5 million, 0.3 million shares which are
subject to a price guarantee (the "Issued Stock"). The guarantee on the Issued
Stock provides that the fair market value, as defined, will not be less than
$14.0 million as of April 16, 2000. In the event that the fair market value of
the Issued Stock is less than $14.0 million, the Company will pay the sellers in
cash for the difference. The guarantee will be adjusted for any Issued Stock
sold prior to the measurement date. The purchase consideration included Earnouts
for 1998. The sellers are entitled to future Earnouts of up to $15.0 million in
cash based on the increase in EBIT as defined.
On June 17, 1998, Metamor acquired Virtual Solutions, Inc., a Texas-based
eBusiness solutions company. Purchase consideration totaled $15.0 million in
cash, which included Earnouts for 1998. In August 1999, the sellers entered into
an agreement with Metamor whereby all future Earnouts were fixed at $6.3
million. This obligation, which is payable in April 2000, and resulting goodwill
were recorded as of the effective date of the agreement.
On July 15, 1998, Metamor acquired Advanced Information Solutions, Inc., an
Illinois-based eBusiness solutions company. Purchase consideration totaled $7.5
million in cash.
F-6
<PAGE> 82
XPEDIOR INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
On November 12, 1998, Metamor acquired New Technology Partners Consulting,
a Massachusetts-based eBusiness solutions company. Purchase consideration
totaled $7.8 million in cash and the sellers are entitled to Earnouts of up to
$1.3 million.
On September 24, 1999, the Company acquired Kinderhook Systems, Inc., a New
York-based eBusiness solutions business for $14.9 million in cash and $9.1
million of 7% subordinated convertible notes of the Company. These notes are
convertible at the option of the holders into common stock of the Company at the
initial public offering price during a 30-day period after the earlier of the
distribution of Xpedior stock by Metamor or the second anniversary of an initial
public offering. The notes are guaranteed by Metamor until the completion of the
initial public offering.
Earnouts are accrued in the period they become probable and can be
reasonably estimated. The accrual of Earnouts increases the amount of goodwill
and related amortization subsequent to the settlement of the contingent
liability.
4. ADJUSTMENTS TO HISTORICAL FINANCIAL STATEMENTS
The following pro forma adjustments have been made to the historical
condensed consolidated statements of operations as if the acquisitions described
in Note 3 were consummated as of the beginning of the periods presented:
(a) To reflect incremental amortization (on a straight-line basis over
40 years) of goodwill related to the purchase of the Acquired Companies.
(b) To reflect incremental interest expense on amounts due to Parent
related to its funding of the cash portion of the purchase price of the
Acquired Companies.
(c) To reflect (i) the change in income taxes related to pro forma
adjustments, and (ii) income taxes on the Acquired Companies that were S
corporations as if they were C corporations for federal income tax
purposes.
F-7
<PAGE> 83
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Xpedior Incorporated
We have audited the accompanying consolidated balance sheets of Xpedior
Incorporated and subsidiaries (the "Company") as of December 31, 1997 and 1998
and September 30, 1999, and the related consolidated statements of operations,
stockholders' equity and cash flows for the period from inception (March 27,
1997) to December 31, 1997, the year ended December 31, 1998 and the nine months
ended September 30, 1999. 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 consolidated financial position of Xpedior
Incorporated and subsidiaries at December 31, 1997 and 1998 and September 30,
1999 and the consolidated results of their operations and their cash flows for
the period from inception (March 27, 1997) to December 31, 1997, the year ended
December 31, 1998, and the nine months ended September 30, 1999, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Houston, Texas
November 22, 1999
F-8
<PAGE> 84
XPEDIOR INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPTEMBER 30,
1997 1998 1999
<S> <C> <C> <C>
Current Assets:
Cash $ 2 $ 191 $ 194
Accounts receivable, net of allowance of $47, $560 and
$735................................................... 5,529 23,570 33,178
Prepaid expenses and other................................ 576 921 2,788
------- -------- --------
Total current assets.............................. 6,107 24,682 36,160
Net Assets of Discontinued Operations....................... 1,568 731 2,252
Fixed Assets, net........................................... 1,997 7,747 11,282
Intangible Assets, net of accumulated amortization of $247,
$1,793 and $3,882......................................... 24,705 106,204 150,054
Other....................................................... 31 512 1,463
------- -------- --------
Total Assets...................................... $34,408 $139,876 $201,211
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Amounts due to Parent..................................... $16,253 $ 77,929 $100,000
Accounts payable.......................................... 599 1,447 1,130
Payroll and related taxes................................. 772 6,915 6,955
Amounts due sellers of acquired companies................. 12,086 29,651 19,835
Deferred revenues......................................... 1,729 3,698 557
Other..................................................... -- 271 162
------- -------- --------
Total current liabilities......................... 31,439 119,911 128,639
Deferred Income Taxes and Other............................. -- 937 4,361
Convertible Subordinated Notes.............................. -- -- 9,068
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, par value $.01; 5,000,000 shares
authorized, none outstanding........................... -- -- --
Common stock, par value $.01; 100,000,000 shares
authorized, 41,285,298, 41,285,298 and 41,465,000
shares issued and outstanding.......................... 413 413 415
Additional paid-in capital................................ 2,254 15,253 55,925
Retained earnings......................................... 302 3,362 4,230
------- -------- --------
2,969 19,028 60,570
------- -------- --------
Less -- receivable from stockholder....................... -- -- (1,000)
Less -- deferred compensation............................. -- -- (427)
------- -------- --------
Total stockholders' equity........................ 2,969 19,028 59,143
------- -------- --------
Total Liabilities and Stockholders' Equity........ $34,408 $139,876 $201,211
======= ======== ========
</TABLE>
See notes to consolidated financial statements.
F-9
<PAGE> 85
XPEDIOR INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(MARCH 27, NINE MONTHS ENDED
1997) TO YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, ----------------------
1997 1998 1998
(UNAUDITED) 1999
<S> <C> <C> <C> <C>
Revenues.................................... $12,588 $72,267 $47,405 $93,359
Cost of Services............................ 8,174 41,930 27,201 53,576
------- ------- ------- -------
Gross Profit................................ 4,414 30,337 20,204 39,783
Operating Costs and Expenses:
Selling, general and administrative....... 4,904 20,558 13,528 26,212
Stock compensation........................ -- -- -- 426
Depreciation and amortization............. 510 2,823 1,802 4,101
------- ------- ------- -------
5,414 23,381 15,330 30,739
------- ------- ------- -------
Operating Income (Loss)..................... (1,000) 6,956 4,874 9,044
Other Income (Expense):
Interest expense.......................... (1,231) (5,562) (3,631) (9,147)
Other, net................................ 3 25 18 (84)
------- ------- ------- -------
(1,228) (5,537) (3,613) (9,231)
------- ------- ------- -------
Income (Loss) from Continuing Operations
before Income Taxes....................... (2,228) 1,419 1,261 (187)
Provision (Benefit) for Income Taxes........ (871) 889 790 550
------- ------- ------- -------
Income (Loss) from Continuing Operations.... (1,357) 530 471 (737)
Income from Discontinued Operations, net of
income taxes of $1,095, $1,669, $1,230
(unaudited), and $1,059, respectively..... 1,659 2,530 1,865 1,605
------- ------- ------- -------
Net Income.................................. $ 302 $ 3,060 $ 2,336 $ 868
======= ======= ======= =======
Earnings (Loss) per Share (Basic and
Diluted):
Income (Loss) from continuing
operations............................. $ (0.03) $ 0.01 $ 0.01 $ (0.02)
Income from discontinued operations....... 0.04 0.06 0.05 0.04
------- ------- ------- -------
Net income................................ $ 0.01 $ 0.07 $ 0.06 $ 0.02
======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-10
<PAGE> 86
XPEDIOR INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL RECEIVABLE TOTAL
COMMON PAID-IN RETAINED FROM DEFERRED STOCKHOLDERS'
STOCK CAPITAL EARNINGS STOCKHOLDERS COMPENSATION EQUITY
<S> <C> <C> <C> <C> <C> <C>
INITIAL CAPITALIZATION OF
XPEDIOR --
Issuance of 41,285,298 shares
of common stock to Parent
and contribution from
Parent..................... $413 $ 2,254 $ -- $ -- $ -- $ 2,667
Net income...................... -- -- 302 -- -- 302
---- ------- ------ ------ ------- -------
BALANCE AT DECEMBER 31, 1997.... 413 2,254 302 -- -- 2,969
Contribution from Parent........ -- 12,999 -- -- -- 12,999
Net income...................... -- -- 3,060 -- -- 3,060
---- ------- ------ ------ ------- -------
BALANCE AT DECEMBER 31, 1998.... 413 15,253 3,362 -- -- 19,028
Contribution from Parent........ -- 38,887 -- -- -- 38,887
Issuance of 50,000 shares of
restricted stock, net......... 1 435 -- -- (427) 9
Sale of 129,702 shares of common
stock......................... 1 999 -- (1,000) -- --
Stock compensation charge for:
Sale of common stock.......... -- 334 -- -- -- 334
Issuance of stock options..... -- 17 -- -- -- 17
Net income...................... -- -- 868 -- -- 868
---- ------- ------ ------ ------- -------
BALANCE AT SEPTEMBER 30, 1999... $415 $55,925 $4,230 (1,000) (427) $59,143
==== ======= ====== ====== ======= =======
</TABLE>
See notes to consolidated financial statements.
F-11
<PAGE> 87
XPEDIOR INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(MARCH 27, NINE MONTHS ENDED
1997) TO YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, ----------------------
1997 1998 1998
(UNAUDITED) 1999
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................. $ 302 $ 3,060 $ 2,336 $ 868
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization............ 779 3,224 2,149 4,101
Deferred income tax provision
(benefit).............................. (106) 829 700 798
Stock compensation....................... -- -- -- 426
Provision for doubtful accounts.......... 27 513 276 175
Changes in assets and liabilities net of
effects of acquisitions:
Accounts receivable.................... (3,520) (9,268) (9,850) (17,183)
Prepaid expenses and other............. (164) 1,392 (261) (2,293)
Accounts payable....................... (951) (843) (674) (897)
Accrued liabilities.................... 2,482 7,813 3,668 (1,539)
------- -------- ------- --------
Net cash provided by (used in)
operating activities.............. (1,151) 6,720 (1,656) (15,544)
------- -------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................ (1,774) (5,261) (3,371) (5,280)
Other....................................... 7 (358) 51 (882)
------- -------- ------- --------
Net cash used in investing
activities........................ (1,767) (5,619) (3,320) (6,162)
------- -------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Working capital advances from (payments to)
Parent, net.............................. 2,920 (912) 5,400 21,709
------- -------- ------- --------
Net cash provided by (used in)
financing activities.............. 2,920 (912) 5,400 21,709
------- -------- ------- --------
Net increase in cash.......................... 2 189 424 3
Cash, beginning of period..................... -- 2 2 191
------- -------- ------- --------
Cash, end of period........................... $ 2 $ 191 $ 426 $ 194
======= ======== ======= ========
</TABLE>
See notes to consolidated financial statements.
F-12
<PAGE> 88
XPEDIOR INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. FORMATION AND OPERATIONS
Xpedior Incorporated ("Xpedior" or the "Company") was formed by Metamor
Worldwide, Inc. ("Metamor" or the "Parent") to be the holding company for its
eBusiness solutions unit. Metamor commenced operations of this unit with the
acquisition of Metamor Technologies, Ltd. on March 27, 1997 and acquired six
additional companies in 1998 (see note 3). Effective April 30, 1999, Metamor
contributed to Xpedior all the outstanding capital stock of the seven companies
comprising its eBusiness solutions unit (the "Acquired Companies"), all of which
were wholly owned subsidiaries of Metamor. As the entities were under common
control, the contribution has been accounted for at historical cost in a manner
similar to a pooling of interest. On September 24, 1999, Xpedior acquired an
eBusiness solutions company. The cash portion of the purchase price was paid by
Metamor and contributed to Xpedior's capital.
Xpedior provides eBusiness solutions to clients in the following service
areas: (i) digital business strategy; (ii) electronic commerce; (iii) digital
branding and user experience design; (iv) eBusiness systems and integration; (v)
eBusiness technology management; (vi) network design and security; (vii)
eBusiness intelligence; and (viii) enterprise portals, collaboration and
knowledge management.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements present on a consolidated basis the
accounts of Xpedior and its subsidiaries. All significant intercompany
transactions have been eliminated.
The Acquired Companies were all acquired by Metamor in transactions that
were accounted for using the purchase method. The accompanying financial
statements reflect the "push down" of Metamor's purchase accounting adjustments
to the Acquired Companies and include the results of operations of the Acquired
Companies from the date of acquisition.
Effective October 1, 1999, the Company distributed to Metamor a segment
that provided non-eBusiness outsourcing services. This segment was a services
unit of Metamor Technologies, Ltd., which was acquired in March 1997. This
segment is reflected as discontinued operations in the accompanying financial
statements. Revenues from discontinued operations were $13.2 million for the
period from inception (March 27, 1997) to December 31, 1997, $22.7 million for
the year ended December 31, 1998 and $17.0 million and $15.6 million for the
nine months ended September 30, 1998 and 1999, respectively. Net assets from
discontinued operations consist primarily of accounts receivables, fixed assets,
intangibles and liabilities to be distributed to Metamor.
The consolidated financial statements for the nine months ended September
30, 1998 included herein have been prepared without audit pursuant to the rules
and regulations of the Securities and Exchange Commission. Accordingly, certain
information and disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been omitted.
The Company believes that the presentations and disclosures herein are adequate
to make the information not misleading. The consolidated financial statements
reflect all adjustments (consisting of normal recurring adjustments) necessary
for a fair presentation of that interim period.
F-13
<PAGE> 89
XPEDIOR INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Fixed Assets
Fixed assets, which consist primarily of computer equipment and furniture
and fixtures, are recorded at cost. Depreciation is computed on a straight-line
basis over the estimated useful lives of the assets, which range from 3 to 7
years. Amortization of leasehold improvements is computed on a straight-line
basis over the useful life of the asset or lease term, whichever is shorter.
Accumulated depreciation and amortization was $0.5 million and $2.2 million at
December 31, 1997 and 1998 respectively, and $4.1 million at September 30, 1999.
The Company believes all fixed assets are fully realizable.
Intangible Assets
Intangible assets primarily consist of goodwill associated with the
acquired businesses. Goodwill is amortized on a straight-line basis over 40
years. In the event that facts and circumstances indicate intangible or other
long-lived assets may be impaired, the Company evaluates the recoverability of
such assets. The estimated future undiscounted cash flows associated with the
asset are compared to the asset's carrying amount to determine if a write-down
to fair value or discounted cash flow value is necessary. The Company believes
all intangible assets are fully realizable.
Revenue Recognition
Revenues are recorded at the time services are performed, except for
fixed-price contracts, which are accounted for using the
percentage-of-completion method. Estimated losses on fixed-price contracts are
recorded in the period the losses are determinable. Amounts received prior to
performance of the related services are recorded as deferred revenue and
recognized at the time services are performed.
Income Taxes
The Company and its subsidiaries are included in the consolidated federal
income tax return of Metamor. Income taxes for Xpedior have been calculated as
if it had filed a separate consolidated return with its subsidiaries.
The Company follows the liability method of accounting for income taxes.
Under this method, deferred income tax assets and liabilities are determined
based on differences between the financial statement and income tax bases of
assets and liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse. Benefits from operating losses have
been utilized by the Parent in its consolidated return and have been recorded as
a reduction in the amounts due to Parent. The Company's interim provisions for
income taxes were computed using its estimated effective tax rate for the year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-14
<PAGE> 90
XPEDIOR INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock Split
Effective August 26, 1999, the Company's common stock was split
41,285,298-for-1. The Company's common share amounts have been restated to give
effect to the split.
New Accounting Pronouncements
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities ("FAS 133"). The Company is required to adopt
FAS 133 effective January 1, 2001. The Statement will require the Company to
recognize all derivatives on the balance sheet at fair value. The Company does
not anticipate that the adoption of this Statement will have a significant
effect on its results of operations or financial position.
3. ACQUISITIONS
Xpedior is comprised of eight eBusiness solutions companies that were
acquired in transactions accounted for using the purchase method. The effects of
the seven acquisitions made by Metamor have been pushed down to Xpedior (See
notes 1 and 2). The results of operations of the acquired companies are included
in the Company's consolidated results of operations from the date of
acquisition. Summary information of the acquired companies follows:
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(MARCH 27, NINE MONTHS
1997) TO YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1997 1998 1999
<S> <C> <C> <C>
Acquisitions completed:........................ 1 6 1
===== ===== =====
Purchase consideration (in millions):
Cash paid, net of amounts previously
accrued................................... $16.1 $50.9 $18.4
Fair value of Metamor common stock issued.... -- 13.9 1.6
Fair value of Xpedior convertible notes
issued.................................... -- -- 9.1
Amounts due sellers of acquired companies.... 12.1 29.7 19.8
Liabilities assumed.......................... 3.9 5.4 1.0
----- ----- -----
Fair value of assets acquired (including
intangible assets)........................ $32.1 $99.9 $49.9
===== ===== =====
Purchase allocations (in millions):
Tangible assets acquired..................... $ 7.1 $16.9 $ 3.9
Intangible assets (all Goodwill)............. 25.0 83.0 46.0
----- ----- -----
Fair value at assets acquired................ $32.1 $99.9 $49.9
===== ===== =====
</TABLE>
On March 27, 1997, Metamor acquired Metamor Technologies, Ltd., an
Illinois-based eBusiness solutions company. Purchase consideration totaled $37.0
million in cash, which included purchase consideration paid after closing based
on the increase in earnings before interest and taxes ("EBIT"), as defined
("Earnouts"). The sellers are not entitled to any additional purchase
consideration.
F-15
<PAGE> 91
XPEDIOR INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On January 2, 1998, Metamor acquired Workgroup Productivity Corp., an
Illinois-based eBusiness solutions company. Purchase consideration totaled $10.0
million in cash, which included Earnouts for 1998. In August 1999, the sellers
entered into an agreement with Metamor whereby all future Earnouts were fixed at
$4.8 million. This obligation, which is payable in March 2000, and resulting
goodwill were recorded as of the effective date of the agreement.
On January 7, 1998, Metamor acquired Sage I.T. Partners, Inc., a
California-based eBusiness solutions company. Purchase consideration totaled
$16.6 million in cash, which included Earnouts for 1998. In July 1999, the
sellers entered into an agreement with Metamor whereby all future Earnouts were
fixed at $8.8 million. This obligation, which is payable in March 2000, and the
resulting goodwill were recorded as of the effective date of the agreement.
On April 16, 1998, Metamor acquired NDC Group, Inc. ("NDC"), a
Virginia-based eBusiness solutions company, for $18.3 million in cash and 0.4
million shares of Metamor's common stock valued at $15.5 million, 0.3 million
shares which are subject to a price guarantee (the "Issued Stock"). The purchase
consideration included Earnouts for 1998.
The guarantee on the Issued Stock provides that the fair market value, as
defined, will not be less than $14.0 million as of April 16, 2000. In the event
that the fair market value of the Issued Stock is less than $14.0 million, the
Company may be obligated to pay the sellers for the difference. The guarantee
will be adjusted for any Issued Stock sold prior to the measurement date. The
sellers are also entitled to future Earnouts of up to $15.0 million based on the
increase in EBIT as defined. Up to one-half of any payments to settle the
guarantee and the remaining Earnouts are expected to be paid in Metamor common
stock. Metamor has agreed to contribute to the capital of Xpedior the fair value
of any common stock it issues to satisfy these contingent obligations.
On June 17, 1998, Metamor acquired Virtual Solutions, Inc., a Texas-based
eBusiness solutions company. Purchase consideration totaled $15.0 million in
cash, which included Earnouts for 1998. In August 1999, the sellers entered into
an agreement with Metamor whereby all future Earnouts were fixed at $6.3
million. This obligation, which is payable in April 2000, and resulting goodwill
were recorded as of the effective date of the agreement.
On July 15, 1998, Metamor acquired Advanced Information Solutions, Inc., an
Illinois-based eBusiness solutions company. Purchase consideration totaled $7.5
million in cash.
On November 12, 1998, Metamor acquired New Technology Partners Consulting,
a Massachusetts-based eBusiness solutions company. Purchase consideration
totaled $7.8 million in cash and the sellers are entitled to Earnouts of up to
$1.3 million.
On September 24, 1999, the Company acquired Kinderhook Systems, Inc., a New
York-based eBusiness solutions business for $14.9 million in cash and $9.1
million of 7% subordinated convertible notes of the Company. The cash portion of
the purchase price was paid by Metamor, which contributed an equal amount to the
capital of Xpedior. These notes are convertible at the option of the holders
into common stock of the Company at the initial public offering price during a
30-day period after the earlier of the distribution of Xpedior stock by Metamor
or the second anniversary of an initial public offering. The notes are
guaranteed by Metamor until the completion of the initial public offering.
F-16
<PAGE> 92
XPEDIOR INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Earnouts are accrued in the period they become probable and can be
reasonably estimated. The accrual of Earnouts increases the amount of goodwill
related to an acquisition.
The following unaudited results of operations have been prepared assuming
all acquisitions consummated on or before September 30, 1999 had occurred as of
the beginning of the periods presented. These results are not necessarily
indicative of results of future operations nor of results that would have
occurred had the acquisitions been consummated as of the beginning of the
periods presented.
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS
DECEMBER 31, ENDED
------------------- SEPTEMBER 30,
1997 1998 1999
(IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Revenues............................................ $ 61,088 $100,500 $102,746
Net loss............................................ $(10,903) $(30,187) $ (778)
Loss per share (Basic and Diluted).................. $ (0.26) $ (0.73) $ (0.02)
</TABLE>
4. AMOUNTS DUE TO PARENT AND TRANSACTIONS WITH PARENT
Amounts due to Parent consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1997 1998 1999
<S> <C> <C> <C>
Notes payable, interest at bank's base rate plus 3%
(11.5% at September 30, 1999), payable on demand --
Acquisition notes..................................... $13,333 $75,921 $ 86,811
Advances for working capital.......................... 2,920 2,008 13,189
------- ------- --------
Total....................................... $16,253 $77,929 $100,000
======= ======= ========
</TABLE>
The acquisition notes were issued to Metamor by Xpedior in connection with
(i) the initial capitalization of each of the Acquired Companies, and (ii) the
subsequent payment of Earnouts by Metamor. Effective July 31, 1999, Metamor
contributed $17.0 million of this indebtedness to the capital of Xpedior.
Advances for working capital relate to net cash transfers between Xpedior
and Metamor, expense allocations from Metamor (including income taxes) and
interest on intercompany indebtedness with Metamor. All the interest expense of
Xpedior was charged by Metamor and included in the advances for working capital.
Interest expense allocated by Metamor totaled $1.2 million in 1997, $5.6 million
in 1998 and $9.1 million for the nine months ended September 30, 1999. Effective
September 30, 1999, the Company assigned approximately $9.2 million in accounts
receivable to Metamor in repayment of a portion of the advances for working
capital. Xpedior expects to repay the amounts due to Parent out of the proceeds
of its initial public offering.
Included in the net cash transfers between Xpedior and Metamor are
receivables collected by Metamor on Xpedior's behalf totaling $0.9 million for
the period from inception to December 31, 1997, $0.2 million for the year ended
December 31, 1998 and $1.3 million for the nine months ended September 30, 1999.
F-17
<PAGE> 93
XPEDIOR INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Xpedior expects to obtain a separate credit facility following the
completion of its initial public offering. Until this facility is obtained,
Metamor has agreed to fund Xpedior's cash requirements. Following the offering,
Metamor will reduce the interest rate on outstanding intercompany indebtedness
with Xpedior, if any, to its incremental borrowing rate under its senior credit
agreement, which at September 30, 1999 was LIBOR plus 1.5 percent.
The Company participates in the centralized cash management program of
Metamor. Under this program, the Company's cash balances are transferred daily
to Metamor accounts and its daily cash requirements are funded by Metamor. The
advances for working capital are adjusted for the net cash transfers between the
two companies. Metamor allocates to Xpedior a portion of the expenses that are
charged by the commercial banks for operating the program.
Metamor allocates its corporate overhead to its operating units in a
reasonable manner based on revenues of the units. This allocation includes costs
associated with services Metamor provides to the business units such as mergers
and acquisitions, legal, tax, risk and cash management. The overhead allocation
from Metamor is included in selling, general and administrative expenses of
Xpedior and totaled $1.0 million for the period from inception to December 31,
1997, $1.4 million for the year ended December 31, 1998 and $1.9 million for the
nine months ended September 30, 1999. Following completion of Xpedior's initial
public offering, Metamor will cease making a general allocation of its overhead
to Xpedior and allocate only those expenses related to actual services provided.
Xpedior participates in Metamor's long-term incentive plan and its employee
stock purchase plan. Xpedior's share of costs of those programs is included in
the expense allocations from Metamor. Upon a distribution of Xpedior stock to
Metamor Stockholders, employees of Xpedior would cease participation in
Metamor's long-term incentive plan. Stock options in Metamor held by Xpedior
employees may be converted into Xpedior stock options. Xpedior's employees would
also cease participation in Metamor's employee stock purchase plan.
F-18
<PAGE> 94
XPEDIOR INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES
The provision (benefit) for income taxes from continuing operations
consisted of the following (in thousands):
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(MARCH 27,
1997) TO YEAR ENDED NINE MONTHS
DECEMBER 31, DECEMBER 31, ENDED SEPTEMBER 30,
1997 1998 1999
<S> <C> <C> <C>
Current:
Federal............................... $(673) $ 433 $(233)
State................................. (92) (373) (15)
----- ----- -----
(765) 60 (248)
----- ----- -----
Deferred:
Federal............................... (94) 332 722
State................................. (12) 497 76
----- ----- -----
(106) 829 798
----- ----- -----
$(871) $ 889 $ 550
===== ===== =====
</TABLE>
The differences between income taxes computed at the federal statutory
income tax rate and the provision for income taxes follows (in thousands):
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(MARCH 27,
1997) TO YEAR ENDED NINE MONTHS
DECEMBER 31, DECEMBER 31, ENDED SEPTEMBER 30,
1997 1998 1999
<S> <C> <C> <C>
Income tax expense (benefit) computed at
federal statutory income tax rate......... $(780) $496 $(65)
State income tax expense(benefit), net of
federal benefit (expense)............... (104) 124 (13)
Non-deductible portion of business meals,
entertainment and other................. 13 69 160
Non-deductible portion of stock
compensation............................ -- -- 104
Amortization of nondeductible goodwill.... -- 200 364
----- ---- ----
Provision (benefit) for income taxes...... $(871) $889 $550
===== ==== ====
</TABLE>
The net current and noncurrent components of deferred income taxes
reflected in the consolidated balance sheets follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- SEPTEMBER 30,
1997 1998 1999
<S> <C> <C> <C>
Net current asset (liability).......................... $ 82 $ (204) $ 7
Net noncurrent asset (liability)....................... 24 (903) (2,044)
---- ------- -------
Net asset (liability).................................. $106 $(1,107) $(2,037)
==== ======= =======
</TABLE>
F-19
<PAGE> 95
XPEDIOR INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred tax assets and liabilities were comprised of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- SEPTEMBER 30,
1997 1998 1999
<S> <C> <C> <C>
Deferred tax assets:
Accrued vacation.................................... $143 $ 486 $ 269
Deferred compensation............................... 201 263 --
Bad debt............................................ 18 190 126
Other............................................... 104 394 393
---- ------- -------
Total deferred tax assets................... 466 1,333 788
---- ------- -------
Deferred tax liabilities:
Goodwill............................................ 273 874 1,421
Excess financial over tax basis of acquisitions..... -- 958 623
Other............................................... 87 608 781
---- ------- -------
Total deferred tax liabilities.............. 360 2,440 2,825
---- ------- -------
Net deferred tax asset (liability).......... $106 $(1,107) $(2,037)
==== ======= =======
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
The Company leases various office space and equipment under noncancelable
operating leases expiring through 2006. Rent expense was $194,991 for the period
from inception (March 27, 1997) through December 31, 1997, $1,370,404 for the
year ended December 31, 1998 and $2,462,150 for the nine months ended September
30, 1999. The related future minimum lease payments as of September 30, 1999 are
as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING:
<S> <C>
1999................................................... $ 1,216,657
2000................................................... 4,952,037
2001................................................... 4,803,098
2002................................................... 4,683,273
2003................................................... 4,292,238
Thereafter............................................. 7,111,378
-----------
$27,058,681
===========
</TABLE>
Certain of the Company's executives are covered by employment agreements
covering, among other things, base compensation, incentive-bonus determinations
and payments in the event of termination or a change in control of the Company.
Under terms of certain acquisitions, the Parent is required to make
additional payments to sellers generally to the extent future earnings, as
defined, exceed certain stipulated levels. These obligations have been
transferred by the Parent to Xpedior in connection with the contribution of
those acquired companies to Xpedior. The provisions of these contingent payments
(Earnouts) are described in Note 3.
Certain of the Company's executives are covered by employment agreements
covering, among other things, base compensation, incentive-bonus determinations
and payments in the event of termination or a change in control of the Company.
F-20
<PAGE> 96
XPEDIOR INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Xpedior has agreed to provide its president and CEO the benefits under a
non-competition agreement between him and a former employer, in the event the
former employer ceases to make the payments. Under this agreement, the CEO is
entitled to monthly payments aggregating $255,000 per year through November
2002, thereafter reduced to $165,000 per year until his death. The CEO is also
entitled to receive benefits under the former employer's benefit plan and
through November 2002, reimbursement for medical premiums and payment of
premiums for a life insurance policy.
In September 1999, the former employer terminated all of the benefits owed
to the executive, including those which Xpedior has agreed to undertake. Xpedior
believes that the agreement has not been breached by its president and CEO and
that the former employer is obligated to make the required payments. Although
Xpedior plans to pursue this matter vigorously and believes that it has strong
legal defenses, there can be no assurance as to the outcome of this matter.
Metamor and NDC filed suit in May 1999 against some former officers and
shareholders of NDC and other parties for several causes of action, including
breaches of fiduciary duties and numerous covenants and agreements. Metamor and
NDC are seeking monetary and injunctive relief against the defendants. Some of
the defendants have filed Cross-Bills alleging breach of employment and other
agreements and duties of good faith and fair dealings and other tort claims
against NDC, Metamor and Xpedior. Additionally, some of these same defendants
have filed similar claims in the United States District Court for the Eastern
District of Virginia. The defendants that filed the Cross-Bills and the
complaint in District Court are seeking indeterminable damages.
A trial of these actions is currently anticipated to begin in April 2000.
Management believes that Xpedior, NDC and Metamor have strong cases in these
matters and strong defenses against each of the complaints. However, NDC and
Metamor may not prevail in this litigation because litigation is subject to
inherent uncertainties.
Both Metamor and the Company are defendants in various other lawsuits and
claims arising in the normal course of business. Management believes it has
valid defenses in these cases and is defending them vigorously. While the
results of litigation cannot be predicted with certainty, management believes
the final outcome of such litigation will not have a material effect on the
financial position or results of operations of the Company.
Metamor's senior credit agreement is secured by a pledge of the common
stock of its material subsidiaries, including Xpedior, which is considered a
material subsidiary. Shares of Xpedior not held by Metamor, including those to
be sold to the public or issued under Xpedior's incentive programs, are not
subject to the pledge. Metamor's senior credit agreement contains covenants,
which among other things, limit total indebtedness of Metamor to 4.5 times
earnings before interest, taxes, depreciation and amortization, limit the
payment of dividends and require the maintenance of certain financial ratios. As
of September 30, 1999, Metamor was in compliance with the terms of this
agreement.
F-21
<PAGE> 97
XPEDIOR INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. SUPPLEMENTAL CASH FLOW INFORMATION
The Acquired Companies comprising Xpedior were all acquired by Metamor in
all cash transactions, except for NDC in which Metamor issued a combination of
cash and its common stock (see note 3). In pushing down the effects of these
acquisitions to Xpedior, Metamor made a capital contribution to Xpedior for a
portion of the purchase consideration and Xpedior issued notes to Metamor for
the remainder (see note 4). Metamor also paid the cash portion of the purchase
consideration for Kinderhook (see note 3) and contributed an equal amount to the
capital of Xpedior. These non-cash transactions of Xpedior are summarized below
(in thousands):
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(MARCH 27, NINE MONTHS
1997) TO YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1997 1998 1999
<S> <C> <C> <C>
Consideration (including Earnouts) paid by
Metamor for the acquired companies --
Cash......................................... $16,000 $61,691 $48,138
Fair value of stock issued................... -- 13,896 1,639
------- ------- -------
Total................................ $16,000 $75,587 $49,777
======= ======= =======
Capitalization of Xpedior with respect to
purchase of
acquired companies:
Capital contributions by Metamor............. $ 2,667 $12,999 $21,874
Notes issued to Metamor(1)................... 13,333 62,588 27,903
------- ------- -------
Total................................ $16,000 $75,587 $49,777
======= ======= =======
</TABLE>
- ---------------
(1) Effective July 31, 1999, Metamor contributed to the capital of Xpedior $17.0
million of the amounts due Metamor by Xpedior. This contribution is not
reflected in these amounts.
Xpedior is included in the consolidated income tax return of Metamor and it
participates in Metamor's cash management program (see notes 2 and 4). Metamor
allocates to Xpedior its share of consolidated income taxes and adjusts
intercompany indebtedness for the current portion. All of Xpedior's interest
expense relates to indebtedness with Metamor. Accrued interest on this
indebtedness is included in advances for working capital from Metamor.
F-22
<PAGE> 98
XPEDIOR INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. EARNINGS PER SHARE
The following table sets forth the computation of basis and diluted
earnings per share from continuing operations:
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(MARCH 27, NINE MONTHS
1997 TO YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1997 1998 1999
------------ ------------ -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Numerator:
Income (loss) from continuing operations -- numerator
for basic earnings per share...................... $(1,357) $ 530 $ (737)
Effect of dilutive securities:
Convertible subordinated notes.................... -- -- 14
------- ------- -------
Numerator for diluted earnings per share -- income
(loss) available to common stockholders after
assumed conversions............................... $(1,357) $ 530 $ (723)
======= ======= =======
Denominator:
Denominator for basic earnings (loss) per
share -- weighted-average shares.................. 41,285 41,285 41,299
Effect of dilutive securities:
Stock options..................................... -- -- 28
Convertible subordinated notes.................... -- -- 14
------- ------- -------
Dilutive potential common shares..................... -- -- 42
Denominator for diluted earnings (loss) per
share -- adjusted weighted-average shares and
assumed conversions............................... 41,285 41,285 41,341
======= ======= =======
Basic and diluted earnings (loss) per share............ $ (0.03) $ 0.01 $ (0.02)
</TABLE>
During the periods presented, the Company had no nominal issuances.
9. STOCK PLANS
Stock Incentive Plan. The Company's Stock Incentive Plan (the "Plan")
provides for the issuance of stock options, stock appreciation rights and
restricted stock. All full time employees and directors of the Company or its
affiliates are eligible to participate. An aggregate of 15.0 million shares of
common stock has been reserved for issuance under the Plan. Generally, options
granted have ten-year terms and vest over three years. Stock options issued
under the Plan can be either incentive stock options or non-qualified stock
options. The exercise price of an incentive stock option will not be less than
the fair market value of the common stock on the date the option is granted.
The Company applies APB 25 in accounting for the Plan. No compensation
expense has been recognized for options granted under its stock option plan,
except for those that were granted at prices below the fair value of the
Company's common stock at the date of issuance. Of the 8.8 million options
granted under the plan through September 30, 1999, 1.0 million were granted at
prices below the estimated fair value at the date of grant. This difference
results in a compensation charge of $1.0 million, which is being recognized over
the vesting period.
F-23
<PAGE> 99
XPEDIOR INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pro forma information regarding net income and earnings per common shares
is set forth in the table below as if the Company had accounted for its employee
stock options under the fair value method. The fair value of these options was
estimated at the date of grant using a Black-Scholes option pricing
("Black-Scholes") model with the following weighted average assumptions for the
nine months ended September 30, 1999: (i) risk-free interest rate of 6.0%, (ii)
a dividend yield of 0.0%, (iii) volatility factors of the expected market price
of the Company's common stock of 1.28 and (iv) an expected life of three years.
The Black-Scholes model was developed for use in estimating the fair value
of traded options that have no vesting restrictions and are fully transferable.
In addition, option valuation models require the input of highly subjective
assumptions, including expected volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options.
For purposes of pro forma disclosure, the estimated fair value of the
options is amortized to expense over the vesting period of the stock options.
Had compensation for the Company's stock-based compensation plan been determined
based on the fair value, as described above, at the grant dates for awards under
the Plan, the Company's net income and earnings per common share would have been
adjusted to the pro forma amounts indicated below.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1999
----------------------
AS PRO
REPORTED FORMA
--------- --------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Loss from continuing operations............................. $ (737) $(3,254)
Net income (loss)........................................... $ 868 $(1,649)
Earnings per share:
Basic and diluted
Loss from continuing operations........................ $ (0.02) $ (0.08)
Net income (loss)...................................... $ 0.04 (0.04)
</TABLE>
F-24
<PAGE> 100
XPEDIOR INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Through September 30, 1999, the Company issued non-qualified stock options
under the Plan, which had exercise prices equal to the fair value of the common
stock at the date of grant. A summary of the Company's stock option activity and
related information follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1999
------------------------------------
WEIGHTED
AVERAGE
EXERCISE
OPTIONS PRICE EXERCISE PRICES
------- -------- ---------------
<S> <C> <C> <C>
Outstanding -- beginning of period................ -- $ --
Granted......................................... 9,186 7.25 $6.91 - $10.71
Exercised....................................... -- --
Forfeited....................................... (381) -- $6.91 - $10.71
-------
Outstanding -- end of period...................... 8,805 $7.25
=======
Options exercisable at end of period.............. --
Weighted average fair value of options granted
during the period............................... $ 5.58
</TABLE>
The weighted average remaining contractual life of options outstanding at
September 30, 1999 is 9.9 years.
In September 1999, the Company issued 50,000 shares of restricted stock to
its president and CEO, which are subject to forfeiture upon termination. The
Company has recorded as deferred compensation $0.4 million which is being
amortized over the 48-month vesting period.
The Company also sold 129,702 shares of restricted stock to the executive
for $7.71 per share. Under terms of an employment agreement, the Company can
repurchase the stock in the event the Company does not complete its initial
public offering or the executive terminates his employment prior to September 9,
2001. The repurchase price equals the price paid for the stock by the executive
plus $400,000. This arrangement is accounted for as a variable compensation
plan, and compensation expense is recognized for the difference between the fair
value and the carrying amount. During the nine months ended September 30, 1999,
compensation expense of $0.4 million was recognized on this arrangement.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has determined, based on available market information and
appropriate valuation methodologies, that the fair value of its financial
instruments approximates carrying value. The carrying value of accounts
receivable and accounts payable approximate fair value due to the short-term
maturity of the instruments. The carrying value of the amounts due to Parent
approximates fair value because the interest rates under the agreement are
variable, based on current market.
11. SEGMENT REPORTING
The Company operates in one reportable segment and its foreign-based
revenues and assets represented less than 10 percent of the Company's
consolidated revenues and assets.
F-25
<PAGE> 101
XPEDIOR INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. CREDIT RISK
The Company believes its portfolio of accounts receivable is well
diversified and, as a result, its credit risks are minimal. The Company
continually evaluates the creditworthiness of its customers and monitors
accounts on a periodic basis, but typically does not require collateral.
13. SUBSEQUENT EVENTS
On October 18, 1999, the Company filed a registration statement with the
Securities and Exchange Commission on Form S-1 covering the sale of up to 8.5
million shares to the public (9.8 million shares assuming the underwriters'
over-allotment option is exercised). Proceeds from the sale will be used to
repay amounts due to Parent and for general working capital needs of the
Company.
F-26
<PAGE> 102
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Xpedior Incorporated
We have audited the accompanying balance sheet of Metamor Technologies,
Ltd. (the "Company"), as of March 26, 1997, and the related statements of
operations, stockholders' equity, and cash flows for the period from January 1,
1997 to March 26, 1997. These statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Metamor Technologies, Ltd.,
at March 26, 1997, and the results of its operations and its cash flows for the
period from January 1, 1997 to March 26, 1997, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Houston, Texas
July 3, 1999
except for Note 1
as to which the date is August 31, 1999
F-27
<PAGE> 103
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Metamor Technologies, Ltd.
We have audited the accompanying balance sheet of Metamor Technologies,
Ltd. (the "Company"), as of December 31, 1996, and the related statements of
operations, stockholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Metamor Technologies, Ltd.
as of December 31, 1996 and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
MORRISON & MORRISON, LTD.
Chicago, Illinois
February 4, 1997
except for Notes 1 and 12
as to which the date is September 16, 1999
F-28
<PAGE> 104
METAMOR TECHNOLOGIES, LTD.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 26,
1996 1997
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................. $ 244,520 $ 2,660
Accounts receivable, net of allowance of $20,000.......... 2,156,094 3,909,561
Prepaid expenses and other receivables.................... 224,556 283,215
---------- -----------
Total current assets.............................. 2,625,170 4,195,436
Net assets of discontinued operations....................... 401,018 228,337
Equipment and leasehold improvements, net................... 724,596 1,165,004
Deposits and other assets................................... 20,367 13,662
---------- -----------
Total assets...................................... $3,771,151 $ 5,602,439
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Note payable.............................................. $ 500,000 $ 750,000
Accounts payable and accrued expenses..................... 597,912 1,697,912
Deferred revenue.......................................... 189,752 77,342
---------- -----------
Total current liabilities......................... 1,287,664 2,525,254
Deferred compensation and other............................. 84,720 11,696
Commitments and contingencies
Stockholders' equity:
Common stock, no par value, 10,000,000 shares authorized,
2,500,000 shares issued and outstanding................ 1,000 1,000
Additional paid-in capital................................ -- 8,467,913
Retained earnings (accumulated deficit)................... 2,397,767 (5,403,424)
---------- -----------
Total stockholders' equity........................ 2,398,767 3,065,489
---------- -----------
Total liabilities and stockholders' equity........ $3,771,151 $ 5,602,439
========== ===========
</TABLE>
See accompanying notes.
F-29
<PAGE> 105
METAMOR TECHNOLOGIES, LTD.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
YEAR ENDED 1997 TO
DECEMBER 31, MARCH 26,
1996 1997
<S> <C> <C>
Revenues.................................................... $6,604,648 $ 2,578,176
Cost of services............................................ 4,256,277 1,852,803
---------- -----------
Gross profit................................................ 2,348,371 725,373
Operating expenses:
Selling, general, and administrative...................... 1,825,227 404,150
Depreciation and amortization............................. 132,607 104,695
Stock compensation........................................ -- 6,328,504
---------- -----------
1,957,834 6,837,349
---------- -----------
Income (loss) from operations............................... 390,537 (6,111,976)
Other expense (income):
Deferred compensation..................................... 31,185 --
Other expense............................................. 1,980 1,591
Interest expense.......................................... 3,940 6,179
Interest income........................................... (3,123) (1,003)
---------- -----------
Total other expense............................... 33,982 6,767
---------- -----------
Income (loss) from continuing operations before taxes....... 356,555 (6,118,743)
Provision for state replacement tax......................... 7,900 7,501
---------- -----------
Income (loss) from continuing operations.................... 348,655 (6,126,244)
Income (loss) from discontinued operations.................. 1,782,686 (1,587,447)
---------- -----------
Net income (loss)........................................... $2,131,341 $(7,713,691)
========== ===========
</TABLE>
See accompanying notes.
F-30
<PAGE> 106
METAMOR TECHNOLOGIES, LTD.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS
COMMON PAID-IN (ACCUMULATED
STOCK CAPITAL DEFICIT) TOTAL
<S> <C> <C> <C> <C>
Balance at January 1, 1996.................... $1,000 $ -- $ 1,004,483 $ 1,005,483
Net income.................................. -- -- 2,131,341 2,131,341
Distributions............................... -- -- (738,057) (738,057)
------ ---------- ----------- -----------
Balance at December 31, 1996.................. 1,000 -- 2,397,767 2,398,767
Conversion of phantom stock and buy-out of
stock options............................ -- 8,467,913 -- 8,467,913
Net loss.................................... -- -- (7,713,691) (7,713,691)
Distributions............................... -- -- (87,500) (87,500)
------ ---------- ----------- -----------
Balance at March 26, 1997..................... $1,000 $8,467,913 $(5,403,424) $ 3,065,489
====== ========== =========== ===========
</TABLE>
See accompanying notes.
F-31
<PAGE> 107
METAMOR TECHNOLOGIES, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
YEAR ENDED 1997 TO
DECEMBER 31, MARCH 26,
1996 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $2,131,341 $(7,713,691)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization.......................... 404,906 104,695
Stock compensation..................................... 94,736 8,467,913
Changes in assets and liabilities:
Accounts receivable.................................. (1,614,219) (1,897,786)
Unbilled receivables................................. (345,493) (183,668)
Prepaid expenses and other receivables............... (40,831) (58,659)
Other assets......................................... 7,292 6,705
Accounts payable and accrued expenses................ 680,155 1,577,185
Deferred revenue..................................... 51,483 (13,484)
Deferred compensation and other...................... -- (192,169)
Billings in excess of costs and estimated earnings on
uncompleted contracts............................... (517,820) --
---------- -----------
Net cash provided by operating activities................... 851,550 97,041
CASH FLOWS FROM INVESTING ACTIVITIES:
Equipment and leasehold additions......................... (592,438) (501,401)
---------- -----------
Net cash used in investing activities....................... (592,438) (501,401)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from line of credit.......................... 500,000 250,000
Distributions to shareholder.............................. (738,057) (87,500)
---------- -----------
Net cash (used in) provided by financing activities......... (238,057) 162,500
---------- -----------
Net increase (decrease) in cash and cash equivalents........ 21,055 (241,860)
Cash and cash equivalents at beginning of period............ 223,465 244,520
---------- -----------
Cash and cash equivalents at end of period.................. $ 244,520 $ 2,660
========== ===========
Supplemental disclosures of cash flow information:
Interest paid............................................. $ 11,970 $ 6,179
========== ===========
Income taxes paid......................................... $ 17,175 $ --
========== ===========
</TABLE>
See accompanying notes.
F-32
<PAGE> 108
METAMOR TECHNOLOGIES, LTD.
NOTES TO FINANCIAL STATEMENTS
MARCH 26, 1997
1. BASIS OF PRESENTATION
Metamor Technologies, Ltd. (the "Company") is the predecessor company of
Xpedior Incorporated ("Xpedior"). Effective August 31, 1999, the Company
distributed to Metamor Worldwide, Inc. ("Metamor"), the Parent of Xpedior, Inc.,
a non-eBusiness outsourcing services segment. Accordingly, the accompanying
financial statements reflect this segment as discontinued operations. Revenues
from discontinued operations were approximately $13.5 million for the year ended
December 31, 1996 and $3.6 million for the period from January 1, 1997 to March
26, 1997. Net assets of the discontinued operations consist primarily of
accounts receivable, fixed assets and liabilities.
2. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Business
The Company, is an Illinois-based provider of eBusiness consulting
services. The Company was acquired by Metamor (the "Acquisition") on March 27,
1997 (see Note 12).
Use of Estimates
The process of preparing financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Revenue Recognition
The Company's revenues are predominantly generated from contracts for
consulting services. The Company recognizes revenue on time and materials
contracts as the services are performed for clients. Revenues on major
fixed-price contracts are recognized using the percentage-of-completion method.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
Income Taxes
The Company's shareholders have elected to be taxed as a small business
corporation under the provisions of Subchapter S of the Internal Revenue Code.
Accordingly, federal income tax is the responsibility of the individual
shareholder, and no provision for federal income tax is shown in the
accompanying financial statements.
State replacement tax is the responsibility of the Company, and provision
for those taxes is shown in the financial statements. The Company has elected to
report its income for tax purposes on a cash basis. As a result, certain income
and expense items are accounted for in different periods for income tax
reporting purposes than for financial reporting purposes.
F-33
<PAGE> 109
METAMOR TECHNOLOGIES, LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Distributions
Distributions represent cash distributions to shareholders primarily for
income taxes.
Stock Options
The Company follows Accounting Principles Board Opinion No. 25 Accounting
for Stock Issued to Employees ("APB 25"), and related interpretations in
accounting for its employee stock options plan.
3. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property and equipment are recorded at cost. Depreciation is provided
utilizing accelerated methods over the estimated useful lives of five and seven
years. Leasehold improvements are amortized on a straight-line basis over the
terms of the lease, and computer software is amortized on a straight-line basis
over a three-year period.
Equipment and leasehold improvements consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 26,
1996 1997
<S> <C> <C>
Computer equipment.................................. $ 904,277 $1,077,921
Office and other equipment.......................... 244,973 490,983
Computer software................................... 97,624 221,250
Leasehold improvements.............................. 33,487 69,641
---------- ----------
1,280,361 1,859,795
Less accumulated depreciation and amortization...... 555,765 694,791
---------- ----------
$ 724,596 $1,165,004
========== ==========
</TABLE>
4. OPERATING LEASES
The Company conducts operations in leased office facilities in Chicago,
Illinois. The leases expire at various dates through 2005. Rental expense from
continuing operations, inclusive of real estate taxes and operating expenses
under these leases for the year ended December 31, 1996 and the period from
January 1, 1997 to March 26, 1997, net of reimbursement from subleased space,
was approximately $287,000 and $7,000, respectively. The sublease expired on
March 30, 1997.
The leases for office space in Chicago, Illinois, include rent abatements
and scheduled base rent increases over the term of the leases. The total amount
of the base rent payments is being charged to expense on the straight-line
method over the term of the leases. The Company has recorded as accrued rent the
excess of rent expense over cash payments since inception of the leases. Accrued
rent at December 31, 1996 and March 26, 1997 was $97,944 and $105,987,
respectively.
F-34
<PAGE> 110
METAMOR TECHNOLOGIES, LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
As of March 26, 1997, approximate future minimum cash lease payments for
each succeeding fiscal year under the leases are as follows:
<TABLE>
<S> <C>
1997.................................................... $ 311,499
1998.................................................... 415,332
1999.................................................... 415,332
2000.................................................... 415,332
2001.................................................... 415,332
Thereafter.............................................. 1,557,495
----------
Total future minimum lease payments........... $3,530,322
==========
</TABLE>
The Company leases certain property and equipment under agreements which
are classified as operating leases. Rent expense from continuing operations
incurred under these leases was approximately $45,000 and $39,000 for the year
ended December 31, 1996 and the period from January 1, 1997 to March 26, 1997,
respectively. As of March 26, 1997, approximate future minimum lease payments
under operating leases are as follows:
<TABLE>
<S> <C>
1997..................................................... $ 90,226
1998..................................................... 111,410
1999..................................................... 34,296
2000..................................................... 31,362
2001..................................................... 7,596
--------
Total future minimum lease payments............ $274,890
========
</TABLE>
5. NOTES PAYABLE
The Company has a line of credit with a bank, whereby it may borrow up to
$800,000. Borrowings under this agreement bear interest at the bank's prime rate
and expired on April 30, 1997. There were borrowings under this agreement at
December 31, 1996 and March 26, 1997 in the amount of $500,000 and $750,000 with
an interest rate of 8.25% at March 26, 1997.
6. EMPLOYEE BENEFIT PLAN
The Company has a profit-sharing plan and trust pursuant to the Internal
Revenue Code of 1986 which covers all eligible employees. The plan includes an
employee savings plan with employer participation in accordance with the
provisions of Section 401(k) of the Internal Revenue Code. The plan allows
participants to make pretax contributions with the Company matching a certain
percentage of employee contributions. In addition, the Company, at its
discretion, may make additional contributions. The contribution for the year
ended December 31, 1996 and the period from January 1, 1997 to March 26, 1997,
which included only matching contributions, amounts to approximately $10,300 and
$4,800, respectively.
7. PHANTOM STOCK PURCHASE PLAN
The Company has a Phantom Stock Purchase Plan to provide deferred
compensation for the benefit of certain employees. The plan is designed to
provide the participants the limited right to participate in future capital
appreciation, profits, and dividends. Under this plan, units corresponding to
shares of stock are credited to a participant's account. The value of these
shares
F-35
<PAGE> 111
METAMOR TECHNOLOGIES, LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
is to be measured by the increase in book value of the shares of the Company's
stock between the respective assignment dates and the date of such retirement,
death, or disability. Plan contributions will only be made if the Plan is
terminated in connection with a merger, consolidation, reorganization of the
Company into or with another company or affiliate, sale of substantially all of
the Company's assets, or a public stock offering of the Company's stock. At
December 31, 1996, the Company has reflected a liability for deferred
compensation of $73,024.
As part of the Acquisition, all of the phantom stock was converted to
common stock. The primary shareholder of the Company provided common shares for
the total 525,000 phantom shares to convert into 525,000 common shares on March
26, 1997 and, therefore, shares outstanding did not change. The Company recorded
a compensation charge of $6,800,663, of which $1,373,865 was included in
discontinued operations due to the conversion based on the Acquisition price per
share.
8. COMMITMENTS AND CONTINGENCIES
At March 26, 1997, the Company had an outstanding standby letter of credit
for $490,000 to guarantee payment of certain leases.
9. MAJOR CUSTOMER INFORMATION
Sales to two major customers for the period from January 1, 1997 to March
26, 1997 accounted for approximately 80% of total sales from continuing
operations. The accounts receivable balance for the above major customers was
approximately $2,350,000 at March 26, 1997.
Sales to two major customers in 1996 accounted for 41% of total sales from
continuing operations in 1996. The accounts receivable balance for the above
major customers was approximately $900,000 at December 31, 1996.
10. COMMON STOCK
On July 1, 1996, the Board of Directors authorized a 247.5-to-1 stock
split, thereby increasing the number of issued and outstanding shares to
2,500,000. In conjunction with the split, the Company issued 2,489,899 shares
and increased the number of authorized shares from 15,000 to 10,000,000.
Additionally, 51 shares were issued by the Company.
11. COMMON STOCK OPTIONS
The Company adopted incentive and non-qualified stock option plans for
employees effective as of July 1, 1996. The incentive stock option plan is
intended to qualify under Section 422 of the Internal Revenue Code. Under the
terms of the plan, options to purchase common stock are granted at not less than
the estimated fair value at the date of the grant and are exercisable during
specific future periods. These options may not be exercised in whole or in part
until the Company has registered its common stock for sale to the public,
therefore, the incentive stock plan is a variable plan.
As part of the Acquisition the Company bought out the stock options for
$14.08 per stock option which represented a substantial change to the plan and
triggered a compensation charge.
F-36
<PAGE> 112
METAMOR TECHNOLOGIES, LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company recorded a one-time compensation charge of $1,667,250, of which
$765,544 was included in discontinued operations as a result of this
transaction.
The following is a summary of stock option activity:
<TABLE>
<CAPTION>
WEIGHTED
SHARES AVERAGE
UNDER OPTION PRICE
OPTION PER SHARE
<S> <C> <C>
Outstanding at January 1, 1996......................... -- $ --
Options granted...................................... 88,000 10.80
------- ------------
Outstanding at December 31, 1996....................... 88,000 10.80
Options granted...................................... 23,489 12.00
Options canceled..................................... 6,115 10.80
Options bought out by the Company as part of
Acquisition....................................... 105,374 10.86
------- ------------
Outstanding at March 26, 1997.......................... -- $ --
======= ============
</TABLE>
At March 26, 1997, no options were outstanding and all stock-based
compensation related to options that were cashed out has been recorded in the
amounts reported. Assuming the Company had used the alternative fair value
method of accounting for stock-based compensation under Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation, net
income would not have been affected.
12. SUBSEQUENT EVENT
Effective March 27, 1997, the Company was acquired by Metamor in exchange
for approximately $16.0 million in cash. In connection with the merger, all
phantom stock was converted into common shares and the Company bought out and
canceled all stock options. As of June 1999, the previous stockholders of the
Company have received an additional $21.0 million of contingent consideration
based on earnings before interest and taxes, as defined in the merger agreement.
There is no additional contingent consideration due to the sellers.
F-37
<PAGE> 113
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Xpedior Incorporated
We have audited the accompanying balance sheet of Workgroup Productivity
Corporation (the "Company") as of January 1, 1998, and the related statements of
operations, stockholders' equity, and cash flows for the period from January 2,
1997 to January 1, 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Workgroup Productivity
Corporation at January 1, 1998, and the results of its operations and its cash
flows for the period from January 2, 1997 to January 1, 1998, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Houston, Texas
August 19, 1999
F-38
<PAGE> 114
WORKGROUP PRODUCTIVITY CORPORATION
BALANCE SHEET
JANUARY 1, 1998
<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 256,207
Accounts receivable, net of allowance for doubtful
accounts of $48,759.................................... 925,816
Other current assets...................................... 32,471
----------
Total current assets.............................. 1,214,494
Fixed assets, net of accumulated depreciation and
amortization.............................................. 419,980
----------
Total assets...................................... $1,634,474
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 354,481
Accrued expenses.......................................... 120,299
Accrued payroll........................................... 186,722
Accrued severance......................................... 103,343
Note payable to officer................................... 323,895
Other current liabilities................................. 68,823
----------
Total current liabilities......................... 1,157,563
Commitments and contingencies
Stockholders' equity:
Common stock, no par value, 1,500,000 shares authorized;
1,052,631 shares issued and outstanding................ 487,400
Additional paid-in capital................................ 221,853
Accumulated deficit....................................... (232,342)
----------
Total stockholders' equity........................ 476,911
----------
Total liabilities and stockholders' equity........ $1,634,474
==========
</TABLE>
See accompanying notes.
F-39
<PAGE> 115
WORKGROUP PRODUCTIVITY CORPORATION
STATEMENT OF OPERATIONS
PERIOD FROM JANUARY 2, 1997 TO JANUARY 1, 1998
<TABLE>
<S> <C>
Revenues.................................................... $4,504,017
Cost of services............................................ 1,740,709
----------
Gross profit................................................ 2,763,308
Operating costs and expenses:
Selling, general, and administrative...................... 2,106,969
Stock compensation charge................................. 509,753
Depreciation and amortization............................. 61,684
----------
Total operating costs and expenses................ 2,678,406
----------
Operating income............................................ 84,902
Other expense, net.......................................... 8,941
----------
Net income.................................................. $ 75,961
==========
</TABLE>
See accompanying notes.
F-40
<PAGE> 116
WORKGROUP PRODUCTIVITY CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL EARNINGS TOTAL
-------------------- PAID-IN (ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT) EQUITY
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 2, 1997............ 1,000,000 $199,500 $ -- $ 321,144 $ 520,644
Stock compensation charge for:
Issuance of common stock....... 52,631 287,900 -- -- 287,900
Issuance of stock options...... -- -- 221,853 -- 221,853
Distributions.................. -- -- -- (629,447) (629,447)
Net income..................... -- -- -- 75,961 75,961
--------- -------- -------- --------- ---------
BALANCE, JANUARY 1, 1998............ 1,052,631 $487,400 $221,853 $(232,342) $ 476,911
========= ======== ======== ========= =========
</TABLE>
See accompanying notes.
F-41
<PAGE> 117
WORKGROUP PRODUCTIVITY CORPORATION
STATEMENT OF CASH FLOWS
PERIOD FROM JANUARY 2, 1997 TO JANUARY 1, 1998
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 75,961
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 61,684
Provision for doubtful accounts........................ 24,830
Stock compensation charge.............................. 509,753
Changes in operating assets and liabilities:
Accounts receivable.................................. (689,027)
Other current assets................................. (21,879)
Accounts payable..................................... 243,052
Accrued expenses..................................... 317,226
Other liabilities.................................... 262,550
---------
Net cash provided by operating activities................... 784,150
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (344,274)
---------
Net cash used in investing activities....................... (344,274)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of note payable to officer......... 485,662
Payments on note payable to officer....................... (161,767)
Distributions............................................. (629,447)
---------
Net cash used in financing activities....................... (305,552)
---------
Net increase in cash and cash equivalents................... 134,324
Cash and cash equivalents at beginning of period............ 121,883
---------
Cash and cash equivalents at end of period.................. $ 256,207
=========
Cash paid during the period for interest.................. $ 18,029
=========
</TABLE>
See accompanying notes.
F-42
<PAGE> 118
WORKGROUP PRODUCTIVITY CORPORATION
NOTES TO FINANCIAL STATEMENTS
JANUARY 1, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Workgroup Productivity Corporation (the "Company") is an Illinois-based
provider of eBusiness consulting services. The Company was acquired by Metamor
Worldwide, Inc. ("Metamor") on January 2, 1998 (see Note 8).
Cash and Cash Equivalents
All short term investments with an original maturity of 90 days or less are
considered to be cash equivalents.
Revenue Recognition
Revenues are recorded at the time services are performed.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Income Taxes
The Company's shareholders have elected to be taxed as a small business
corporation under the provisions of Subchapter S of the Internal Revenue Code.
Accordingly, federal income tax is the responsibility of the individual
shareholders and no provision for federal income tax is shown in the
accompanying financial statements.
Distributions
Distributions represent cash distributions to shareholders primarily for
income taxes.
Fair Value of Financial Instruments
The carrying amounts of cash, accounts receivable, and accounts payable
approximate their fair values due to the short-term maturities of these
instruments. The carrying value of borrowings under the notes payable
approximates fair value because the interest rates under the agreement
approximate current market.
Stock Split
On September 18, 1997, the Company's Board of Directors authorized a
1,000-for-1 split of its common stock. All share amounts in the accompanying
financial statements have been restated to give effect to the stock split. In
conjunction with the stock split, the Company's Board of Directors authorized an
increase in the number of authorized shares of common stock from 1,000 to
1,500,000 in order to give effect to the stock split.
F-43
<PAGE> 119
WORKGROUP PRODUCTIVITY CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Stock Options
The Company follows Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees ("APB 25"), and related interpretations in
accounting for its employee stock options plan. The pro forma disclosures
required by Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("FAS 123"), which established a fair-value based
method of accounting for stock-based compensation plans, are set forth in Note
7.
2. FIXED ASSETS
Fixed assets are recorded at cost. Depreciation is provided utilizing the
straight-line method over the estimated useful lives of five and seven years.
Amortization of leasehold improvements is computed on a straight-line basis over
the lease term.
Fixed assets at January 1, 1998 consisted of the following:
<TABLE>
<S> <C>
Furniture and fixtures................................... $ 251,288
Office equipment......................................... 223,045
Leasehold improvements................................... 89,167
---------
563,500
Less accumulated depreciation and amortization........... (143,520)
---------
$ 419,980
=========
</TABLE>
3. COMMITMENTS AND CONTINGENCIES
The Company leases its office facilities in Chicago, Denver and Los
Angeles, and certain computer equipment under operating leases expiring at
various times during the next five years. Certain lease agreements provide for
periodic increases in lease payments. Rental expense under the leases was
$88,178 for the period ended January 1, 1998. As of January 1, 1998, the related
future minimum lease payments under these operating leases were as follows:
<TABLE>
<S> <C>
1999..................................................... $ 314,936
2000..................................................... 349,712
2001..................................................... 313,366
2002..................................................... 298,682
2003..................................................... 290,852
Thereafter............................................... 246,114
----------
$1,813,662
==========
</TABLE>
Certain of the Company's executives are covered by employment agreements
covering, among other things, base compensation, incentive-bonus determinations
and payments in the event of termination or change in control of the Company.
4. EMPLOYEE BENEFIT PLAN
The Company sponsors a profit sharing plan with a tax deferred savings
401(k) feature. Under provisions of the Plan, employees are permitted to make
tax-deferred contributions to the plan up to the limits established by the
Internal Revenue Service. The Company may also make
F-44
<PAGE> 120
WORKGROUP PRODUCTIVITY CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
deductible contributions to the plan at management's discretion. The Company
made no contributions to the plan during the period ended January 1, 1998.
5. RELATED PARTY TRANSACTIONS
At January 1, 1998, the Company had a note payable to the majority
stockholder in the amount of $323,895, bearing interest at 5.6%. The Company
paid interest of approximately $18,029 related to this note during 1997.
Payments are equal to or greater than $1,000 over the course of five years at
the discretion of the majority stockholder.
6. CREDIT RISK
A majority of the Company's revenues are from a few customers. There are no
geographic or industry concentrations in the Company's customers. Sales to two
major customers for the period ended January 1, 1998 each accounted for 19% of
the Company's revenues. Accounts receivable balance from these customers totaled
$248,864 at January 1, 1998.
7. STOCK PLANS
During the year ended January 1, 1998, the Company adopted the Workgroup
Productivity Corporation 1997 Stock Option Plan (the "Plan") under which
incentive or nonqualified stock options may be granted to key employees for the
purchase of an aggregate of 100,000 shares of common stock of the Company (the
"Common Stock"). The Plan is administered by the Board of Directors. Under terms
of the Plan, stock options vest over a four-year period from the date of grant
and expire after ten years.
In September 1997, the Company granted 76,884 nonqualified stock options to
purchase Common Stock with an exercise price of $1.95 per common share. In
December 1997, the Company also granted 9,569 nonqualified stock options to
purchase Common Stock with an exercise price of $4.95 per common share. The
grant of options resulted in compensation expense of $221,853 for the excess of
the fair value of the Common Stock over the exercise price at the date of the
grant. Due to the acquisition of the Company as discussed in Note 8, all stock
options were bought out by Metamor and any remaining deferred compensation was
recorded in the current period financial statements.
In September 1997, the Company granted 52,631 shares of Common Stock to a
key employee. The Company recorded a compensation charge of $287,900, based on
the fair value of the Common Stock at the date of grant.
The following is a summary of stock option activity for the period ended
January 1, 1998:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE FAIR VALUE
OPTIONS PRICE PER SHARE
<S> <C> <C> <C>
Outstanding at January 1, 1997................. -- $ -- $ --
Granted...................................... 86,453 2.28 3.90
Forfeited.................................... (31,884) $1.95 $3.55
------- ----- -----
Outstanding at January 1, 1998................. 54,569 $2.48 $4.10
======= ===== =====
</TABLE>
F-45
<PAGE> 121
WORKGROUP PRODUCTIVITY CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company has elected to follow APB 25 and related interpretations in
accounting for stock-based compensation arrangements.
Pro forma information regarding net income is required by FAS 123, which
also requires that the information be determined as if the Company had accounted
for its employee stock options granted under the fair value method of FAS 123.
The fair value for these options was estimated at the date of grant using the
minimum value option pricing model using the following assumptions: dividend
yield of 0.0%, risk-free interest rate of 6.0%, and a weighted average expected
life of 3 months. The Company's pro forma information for the period ended
January 1, 1998, as if the Company had accounted for its employee stock options
granted under the fair value method prescribed by FAS 123, is the same as
reported in the accompanying financial statements.
8. SUBSEQUENT EVENT
Effective January 2, 1998, all of the outstanding common stock of the
Company was acquired by Metamor for approximately $5.8 million in cash. Under
terms of the merger agreement, the previous stockholders of the Company are
entitled to contingent consideration of up to $16.0 million based on the
increase in earnings before interest and taxes, as defined.
F-46
<PAGE> 122
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Xpedior Incorporated
We have audited the accompanying balance sheet of Sage I.T. Partners, Inc.
(the "Company"), as of January 6, 1998, and the related statements of
operations, stockholders' equity, and cash flows for the period from January 7,
1997 to January 6, 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sage I.T. Partners, Inc., at
January 6, 1998, and the results of its operations and its cash flows for the
period from January 7, 1997 to January 6, 1998, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Houston, Texas
July 6, 1999
F-47
<PAGE> 123
SAGE I.T. PARTNERS, INC.
BALANCE SHEET
JANUARY 6, 1998
ASSETS
<TABLE>
<S> <C>
Current Assets:
Cash and cash equivalents................................. $ 76,987
Accounts receivable, net of allowance of $15,000.......... 1,646,384
Deferred tax assets....................................... 576,231
Other current assets...................................... 19,476
-----------
Total current assets.............................. 2,319,078
Fixed assets:
Furniture and fixtures.................................... 174,156
Computer equipment........................................ 239,936
Leasehold improvements.................................... 22,612
Assets under capital lease................................ 163,434
-----------
600,138
Less accumulated depreciation and amortization............ (267,927)
-----------
332,211
Other assets................................................ 51,307
-----------
Total assets...................................... $ 2,702,596
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 274,433
Line of credit............................................ 500,000
Current portion of capital lease obligation............... 54,070
Accrued liabilities....................................... 149,903
Deferred revenues......................................... 26,909
Accrued bonuses........................................... 130,398
-----------
Total current liabilities......................... 1,135,713
Equipment line of credit.................................... 121,377
Capital lease obligation, net of current portion............ 30,978
Commitments and contingencies
Stockholders' equity:
Common stock -- no par value, 10,000,000 shares
authorized, 2,000,000 shares issued and outstanding.... 20,000
Additional paid-in capital................................ 2,418,371
Accumulated deficit....................................... (1,023,843)
-----------
Total stockholders' equity........................ 1,414,528
-----------
Total liabilities and stockholders' equity........ $ 2,702,596
===========
</TABLE>
See accompanying notes.
F-48
<PAGE> 124
SAGE I.T. PARTNERS, INC.
STATEMENT OF OPERATIONS
PERIOD FROM JANUARY 7, 1997 TO JANUARY 6, 1998
<TABLE>
<S> <C>
Revenues.................................................... $ 7,470,957
Cost of services............................................ 5,117,868
-----------
Gross profit................................................ 2,353,089
Operating costs and expenses:
Selling, general, and administrative...................... 1,900,804
Stock compensation charge................................. 2,418,371
Depreciation and amortization............................. 139,632
-----------
4,458,807
-----------
Operating loss.............................................. (2,105,718)
Interest expense............................................ 63,218
-----------
Loss before income taxes.................................... (2,168,936)
Benefit for income taxes.................................... 820,192
-----------
Net loss.................................................... $(1,348,744)
===========
</TABLE>
See accompanying notes.
F-49
<PAGE> 125
SAGE I.T. PARTNERS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL EARNINGS
------------------- PAID-IN (ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT) TOTAL
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 7, 1997.......... 2,000,000 $20,000 $ -- $ 324,901 $ 344,901
Stock compensation charge
related to issuance of stock
options...................... -- -- 2,418,371 -- 2,418,371
Net loss........................ -- -- -- (1,348,744) (1,348,744)
--------- ------- ---------- ----------- -----------
BALANCE, JANUARY 6, 1998.......... 2,000,000 $20,000 $2,418,371 $(1,023,843) $ 1,414,528
========= ======= ========== =========== ===========
</TABLE>
See accompanying notes.
F-50
<PAGE> 126
SAGE I.T. PARTNERS, INC.
STATEMENT OF CASH FLOWS
PERIOD FROM JANUARY 7, 1997 TO JANUARY 6, 1998
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................... $(1,348,744)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 139,632
Deferred income tax benefit............................... (825,249)
Stock compensation charge................................. 2,418,371
Changes in operating assets and liabilities:
Accounts receivable.................................... (711,250)
Accounts payable....................................... 151,257
Accrued liabilities.................................... 262,372
Deferred revenue....................................... (48,514)
Other assets........................................... (53,838)
-----------
Net cash used in operating activities....................... (15,963)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment......................... (312,472)
-----------
Net cash used in investing activities....................... (312,472)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings on line of credit............................ 421,377
Payments on capital lease obligations....................... (43,956)
-----------
Net cash provided by financing activities................... 377,421
-----------
Net increase in cash and cash equivalents................... 48,986
Cash and cash equivalents at beginning of period............ 28,001
-----------
Cash and cash equivalents at end of period.................. $ 76,987
===========
Cash paid during the period for:
Interest.................................................. $ 64,466
===========
Income taxes.............................................. $ 11,379
===========
</TABLE>
During the period, the Company financed certain equipment acquisitions, totaling
$12,600, with capital lease obligations. See Note 2.
See accompanying notes.
F-51
<PAGE> 127
SAGE I.T. PARTNERS, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 6, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Sage I.T. Partners, Inc. (the "Company"), is a California-based provider of
eBusiness consulting services. The Company was acquired by Metamor Worldwide,
Inc. ("Metamor") on January 7, 1998 (see Note 9).
Cash and Cash Equivalents
All short-term investments with an original maturity of 90 days or less are
considered cash equivalents.
Revenue Recognition
Revenues are recorded at the time services are performed, except for
fixed-price contracts for which revenues are recognized under the
percentage-of-completion method. Estimated losses on fixed-price contracts are
recorded in the period the losses are determinable.
Fixed Assets
Fixed assets are recorded at cost. Certain equipment was acquired under
capital lease arrangements (see Note 2). Depreciation of property and equipment
and amortization of assets under capital leases are provided using accelerated
methods for financial reporting purposes over estimated useful lives of three to
seven years.
Research and Development Costs
Research and development costs are expensed as incurred. Such costs were
approximately $324,000 during the period.
Income Taxes
The Company follows the liability method of accounting for income taxes.
Under this method, deferred income tax assets and liabilities are determined
based on differences between the financial statement and income tax bases of
assets and liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The carrying amounts of cash, accounts receivable, and accounts payable
approximate their fair values due to the short-term maturities of these
instruments. The carrying value of
F-52
<PAGE> 128
SAGE I.T. PARTNERS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
borrowings under the notes payable approximates fair value because the interest
rates under the agreement approximate current market.
Stock Options
The Company follows Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees ("APB 25"), and related interpretations in
accounting for its employee stock options plan. The pro forma disclosures
required by Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("FAS 123"), which established a fair-value based
method of accounting for stock-based compensation plans, are set forth in Note
6.
2. CAPITAL LEASES
The Company leases computer equipment under various capital lease
agreements. Interest was imputed at rates ranging from 15% to 25% on the
computer equipment leases. The related future minimum lease payments as of
January 6, 1998 are as follows:
<TABLE>
<S> <C>
1999...................................................... $67,174
2000...................................................... 31,270
2001...................................................... 1,088
-------
Total minimum lease payments.............................. 99,532
Less amount representing interest......................... 14,484
-------
Present value of net minimum lease payments............... 85,048
Less current portion...................................... 54,070
-------
$30,978
=======
</TABLE>
Assets under capital lease shown at January 6, 1998 are net of accumulated
amortization of $120,254.
3. COMMITMENTS AND CONTINGENCIES
The Company leases various office space and equipment under noncancelable
operating leases. Rent expense was $220,705 during the period. The related
future minimum lease payments as of January 6, 1998 follows:
<TABLE>
<S> <C>
1999..................................................... $317,410
2000..................................................... 229,529
2001..................................................... 80,447
2002..................................................... 40,263
--------
$667,649
========
</TABLE>
4. RETIREMENT PLAN
The Company sponsors a 401(k) profit sharing plan for the benefit of its
employees. Employees are permitted to make tax-deferred contributions to the
plan up to limits established by the Internal Revenue Service. The Company may
also make deductible contributions to the
F-53
<PAGE> 129
SAGE I.T. PARTNERS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Plan at management's discretion. There were no Company contributions to the plan
during the period.
5. CREDIT RISK
A majority of the Company's revenues are from a few customers. There are no
geographic or industry concentrations in the Company's revenues. The Company had
three customers which comprised 15%, 13%, and 11% of revenues for the period
ended January 6, 1998.
6. STOCK PLANS
The Company adopted a stock plan (the "Plan") in 1994 under which
incentive, nonstatutory stock options, or stock purchase rights may be granted
to employees and consultants for the purchase of an aggregate of 900,000 shares
of common stock of the Company (the "Common Stock"). The Plan is administered by
the Board of Directors. Under terms of the Plan, stock options vest over a four
year period from the date of grant and expire after ten years.
During the current year, the Company granted 393,000 stock options to
purchase Common Stock with an exercise price ranging from $0.20 -- 0.35 per
common share. The grant of options resulted in compensation expense of
$2,418,371 for the excess of the fair value of the Common Stock over the
exercise price at the date of the grant. Due to acquisition by Metamor as
discussed in Note 9, all stock options were bought out by Metamor and any
remaining deferred compensation was recorded in the current period financial
statements.
The following is a summary of stock option activity for the period ended
January 6, 1998:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE FAIR
EXERCISE VALUE PER
OPTIONS PRICE SHARE
<S> <C> <C> <C>
Outstanding at January 7, 1997........................ 315,000 $.14 $ .02
Granted............................................. 393,000 .35 6.16
Canceled............................................ (14,000) .20 .02
------- ---- -----
Outstanding at January 6, 1998........................ 694,000 $.26 $3.50
======= ==== =====
</TABLE>
Pro forma information regarding net income is required by FAS 123, which
also requires that the information be determined as if the Company had accounted
for its employee stock options granted under the fair value method of FAS 123.
The fair value for these options was estimated at the date of grant using the
minimum value option pricing model using the following assumptions: dividend
yield of 0.0%, risk-free interest rate of 6.0%, and a weighted average
contractual expected life of 18 months. The Company's pro forma information for
the period ended January 6, 1998, as if the Company had accounted for its
employee stock options granted under the fair value method prescribed by FAS 123
is the same as reported in the accompanying financial statements.
F-54
<PAGE> 130
SAGE I.T. PARTNERS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES
The provision (benefit) for income taxes consisted of the following:
<TABLE>
<S> <C>
Federal current.......................................... $ 94
State current............................................ 4,963
Federal and state deferred............................... (825,249)
---------
$(820,192)
=========
</TABLE>
The Company recognizes taxable income on a cash basis. The deferred income
taxes reflect the temporary differences between the tax basis of assets and
liabilities and their reported amounts in the financial statements. Deferred tax
assets (liabilities) were comprised of the following:
<TABLE>
<S> <C>
Deferred tax assets:
Bad debts.............................................. $ 5,843
Accounts payable....................................... 106,892
Accrued liabilities.................................... 82,311
Deferred revenue....................................... 10,481
Other.................................................. 2,532
Accrued vacation....................................... 26,866
Net operating loss carryforwards....................... 988,415
----------
Total deferred tax assets...................... 1,223,340
Deferred tax liability:
Accounts receivable.................................... (647,109)
----------
Net deferred tax asset......................... $ 576,231
==========
</TABLE>
There was no valuation reserve against deferred tax assets since all are
expected to be realized in future years.
The differences between income taxes computed at the federal statutory
income tax rate and the provision for income taxes follow:
<TABLE>
<S> <C>
Income tax benefit computed at federal statutory income
tax rate................................................. $(737,438)
State income taxes (net of federal benefit).............. (101,603)
Non-deductible portion of business meals and
entertainment.......................................... 9,412
Other.................................................... 9,437
---------
$(820,192)
=========
</TABLE>
As of January 6, 1998, the Company has net operating loss carryforwards of
approximately $2,540,900 for federal and state income taxes, expiring in 2012.
8. LINES OF CREDIT
The Company maintains a $500,000 revolving line of credit, secured by
certain equipment, accounts receivable, inventory, contract rights, and general
intangibles. Under this arrangement, the Company can borrow up to 70% of the
Company's qualifying receivables. Interest is payable at the bank's prime rate
plus 1.75% (10.25% at January 6, 1998).
F-55
<PAGE> 131
SAGE I.T. PARTNERS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company also had a $150,000 equipment line of credit that provides for
a six-month drawdown period prior to amortization and matures June 30, 2000. The
Company pays interest on borrowings under the equipment line at the bank's prime
rate plus 2.25% (10.75% at January 6, 1998).
The loan and security agreements with the bank require the Company to meet
certain liquidity and profitability covenants.
9. SUBSEQUENT EVENT
Effective January 7, 1998, the Company was acquired by Metamor for
approximately $11.0 million in cash. Under terms of the merger agreement, the
previous stockholders of the Company are entitled to contingent consideration of
up to $35.0 million based on the increase in earnings before interest and taxes,
as defined.
F-56
<PAGE> 132
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Xpedior Incorporated
We have audited the balance sheet of NDC Group, Inc. as of April 15, 1998
and the related statements of operations, stockholders' equity, and cash flows
for the period from July 1, 1997 to April 15, 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 audit.
We conducted our audit 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
misstatements. 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 audit provides a reasonable basis for our opinion.
In our opinion, the Company's financial statements referred to above
present fairly, in all material respects, the financial position of NDC Group,
Inc. at April 15, 1998, and the results of its operations and its cash flows for
the period from July 1, 1997 to April 15, 1998, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Houston, Texas
September 15, 1999
F-57
<PAGE> 133
NDC GROUP, INC.
BALANCE SHEET
APRIL 15, 1998
ASSETS
<TABLE>
<S> <C>
Current Assets:
Cash...................................................... $ 18,450
Accounts receivable, net of allowance of $219,000......... 2,630,510
Notes from stockholders................................... 429,896
Prepaid expenses.......................................... 46,909
------------
Total current assets.............................. 3,125,765
Property and equipment, net of accumulated depreciation and
amortization of $312,880.................................. 742,238
Other assets................................................ 43,116
------------
Total assets...................................... $ 3,911,119
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Line of credit............................................ $ 960,000
Accounts payable.......................................... 381,136
Accrued payroll and related taxes......................... 343,636
Other accrued expenses.................................... 233,081
Income taxes payable...................................... 437,205
------------
Total current liabilities......................... 2,355,058
Commitments and contingencies
Stockholders' equity
Common stock, no par value; 4,000,000 shares authorized;
1,775,000 shares issued and outstanding................ 17,221,000
Additional paid-in capital................................ 11,492,000
Accumulated deficit....................................... (27,156,939)
------------
Stockholders' equity........................................ 1,556,061
------------
Total liabilities and stockholders' equity........ $ 3,911,119
============
</TABLE>
See accompanying notes.
F-58
<PAGE> 134
NDC GROUP, INC.
STATEMENT OF OPERATIONS
PERIOD FROM JULY 1, 1997 TO APRIL 15, 1998
<TABLE>
<S> <C>
Revenues.................................................... $ 7,902,384
Cost of services............................................ 4,856,670
------------
Gross profit................................................ 3,045,714
Operating costs and expenses:
Selling, general, and administrative expenses............. 2,459,163
Depreciation and amortization............................. 148,000
Stock compensation charge................................. 28,613,000
------------
31,220,163
------------
Operating loss.............................................. (28,174,449)
Other income (expense):
Interest expense.......................................... (41,977)
Interest income........................................... 32,111
------------
(9,866)
------------
Loss before income taxes.................................... (28,184,315)
Benefit from income taxes................................... 105,308
------------
Net loss.................................................... $(28,079,007)
============
</TABLE>
See accompanying notes.
F-59
<PAGE> 135
NDC GROUP, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
PERIOD FROM JULY 1, 1997 TO APRIL 15, 1998
<TABLE>
<CAPTION>
RETAINED
SHARES OF ADDITIONAL EARNINGS
COMMON COMMON PAID-IN (ACCUMULATED
STOCK STOCK CAPITAL DEFICIT) TOTAL
<S> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1997............... 520,000 $ 50,000 $ -- $ 922,068 $ 972,068
Exercise of stock options.......... 30,000 50,000 50,000
Stock compensation charge for:
Issuance of common stock......... 1,225,000 17,121,000 -- 17,121,000
Issuance of stock options........ -- -- 11,492,000 -- 11,492,000
Net loss........................... -- -- -- (28,079,007) (28,079,007)
--------- ----------- ----------- ------------ -------------
BALANCE, APRIL 15, 1998.............. 1,775,000 $17,221,000 $11,492,000 $(27,156,939) $ 1,556,061
========= =========== =========== ============ =============
</TABLE>
See accompanying notes.
F-60
<PAGE> 136
NDC GROUP, INC.
STATEMENT OF CASH FLOWS
PERIOD FROM JULY 1, 1997 TO APRIL 15, 1998
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(28,079,007)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization............................. 148,000
Provision for doubtful accounts........................... 128,000
Deferred income tax benefit............................... (543,192)
Stock compensation charge................................. 28,613,000
Changes in operating assets and liabilities:
Accounts receivable.................................... (585,990)
Prepaid expenses and other............................. (77,699)
Accounts payable....................................... 119,153
Income taxes payable................................... 435,337
Accrued liabilities.................................... 25,269
------------
Net cash provided by operating activities................... 182,871
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................................ (442,061)
Advances to stockholder..................................... (376,774)
------------
Net cash used in investing activities....................... (818,835)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations............. (21,857)
Net proceeds on line of credit.............................. 610,000
Proceeds from sale of common stock.......................... 50,000
------------
Net cash provided by financing activities................... 638,143
Net increase in cash........................................ 2,179
Cash at beginning of period................................. 16,271
------------
Cash at end of period....................................... $ 18,450
============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during period for interest........................ $ 41,977
============
Cash paid during period for taxes........................... $ --
============
</TABLE>
See accompanying notes.
F-61
<PAGE> 137
NDC GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 15, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
NDC Group, Inc. (the "Company") is a Virginia-based provider of eBusiness
consulting services. The Company was acquired by Metamor Worldwide, Inc.
("Metamor") on April 16, 1998 (see Note 10).
Revenue Recognition
The majority of the Company's revenues are derived from time and material
contracts and revenues are recognized as the services are performed. Revenues
from fixed fee contracts are recognized on a percentage of completion basis and
estimated losses on these contracts are recorded in the period the losses are
determinable.
Property, Equipment, and Depreciation
Property and equipment, which consists primarily of computer equipment and
furniture and fixtures, are recorded at cost. Depreciation is computed on a
straight-line basis over the estimated useful lives of the assets of three to
five years. Amortization of leasehold improvements is computed on a
straight-line basis over the useful life of the asset or lease term, whichever
is shorter.
Income Taxes
The Company follows the liability method of accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based on
differences between the financial statement and income tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and the
accompanying notes. Actual results could differ from these estimates.
Stock-based Compensation
The Company follows Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" and related interpretations ("APB 25") in
accounting for its employee stock options and other stock based awards and
transactions. The pro forma disclosures required by Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation ("FAS
123"), which established a fair-value based method of accounting for stock-based
compensation plans, are set for in Note 5.
F-62
<PAGE> 138
NDC GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. LINE OF CREDIT
The Company has a revolving credit agreement with a financial institution
which provides for borrowings up to $1,000,000 with a variable interest rate
(10% at April 15, 1998). The line of credit is collateralized by substantially
all assets of the Company and is guaranteed by the principal stockholder of the
Company. At April 15, 1998, the Company has total borrowings of $960,000 and
unused available borrowings of $40,000. The line of credit was repaid and
retired upon the consummation of the merger of the Company with Metamor (See
Note 10).
3. RETIREMENT PLAN
The Company has a retirement plan under Section 401(k) of the Internal
Revenue Code. The plan provides retirement benefits for employees who meet
certain age and service eligibility requirements. The Company may make
discretionary contributions. During the period from July 1, 1997 to April 15,
1998 no contributions were made by the Company.
4. LEASE COMMITMENTS
The Company leases its office and certain equipment under noncancelable
operating leases. Rent expense for the period from July 1, 1997 to April 15,
1998 was $150,051. The related future minimum rental payments for the
twelve-month period ending April 15 are as follows:
<TABLE>
<S> <C>
1999.................................................... $ 243,305
2000.................................................... 250,480
2001.................................................... 257,866
2002.................................................... 262,435
2003.................................................... 188,903
----------
Total................................................... $1,202,989
==========
</TABLE>
5. STOCK-BASED COMPENSATION
In fiscal year ended June 30, 1997, the Company adopted three stock option
plans authorizing the granting to employees and others, of options to purchase
common stock at exercise prices no less than 100% of the fair market value of
the common stock on the date of the grant. Options for up to 200,000 shares may
be granted under the Company's "Continuous Service Plan." Options under this
plan become exercisable at dates ranging between three and one-half and five
years after the date of the grant and expire thirty days after the exercisable
date. Under the "Senior Executive and Members of the Board Plan" and the
"Advisory Group Plan," options may be granted for 100,000 and 150,000 shares of
stock, respectively. Under both of these two plans, options are exercisable as
of the effective date of the grant and expire two years after the date of the
grant.
On April 10, 1998, all vested and unvested stock options under the three
plans mentioned above were canceled, and new vested options were granted to
certain executives and employees of the Company in accordance with the "New
Vested Option Exchange Agreement." This agreement allowed the holders of the new
vested options the right to participate in the proceeds of the merger agreement
between the Company and Metamor discussed in Note 10 in exchange for the
cancellation of the new vested options. In connection with these grants, the
Company
F-63
<PAGE> 139
NDC GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
recognized $11,492,000 of compensation expense for the excess of the fair value
of the options over the exercise price of the options. Fair value was determined
based on the acquisition price of the subsequent sale of the Company which is
deemed to be an arm's length transaction. (See Note 10)
The following tables summarize option activities of the four stock option
plans:
<TABLE>
<CAPTION>
CONTINUOUS SERVICE PLAN ADVISORY BOARD PLAN
----------------------------- -----------------------------
NUMBER OF WEIGHTED- NUMBER OF WEIGHTED-
SHARES UNDER AVERAGE SHARES UNDER AVERAGE
OPTION EXERCISE PRICE OPTIONS EXERCISE PRICE
<S> <C> <C> <C> <C>
Outstanding at June 30, 1997.............. -- $ -- 142,500 $2.39
Granted................................... 50,000 3.00 -- --
Exercised................................. -- -- -- --
Cancelled................................. 50,000 3.00 142,500 2.39
------ ----- ------- -----
Outstanding at April 15, 1998............. -- $ -- -- $ --
====== ===== ======= =====
</TABLE>
<TABLE>
<CAPTION>
SENIOR EXECUTIVE AND MEMBERS NEW VESTED OPTION EXCHANGE
OF THE BOARD PLAN AGREEMENT
----------------------------- -----------------------------
NUMBER OF WEIGHTED- NUMBER OF WEIGHTED-
SHARES UNDER AVERAGE SHARES UNDER AVERAGE
OPTION EXERCISE PRICE OPTIONS EXERCISE PRICE
<S> <C> <C> <C> <C>
Outstanding at June 30, 1997.............. $ -- $ -- $ -- $ --
Granted................................... 225,000 3.00 -- --
Granted................................... -- -- 375,000 3.00
Granted................................... -- -- 1,671,050 9.23
Exercised................................. -- -- -- --
Cancelled................................. 225,000 3.00 -- --
-------- ----- ---------- -----
Outstanding at April 15, 1998............. $ -- $ -- $2,046,050 $8.09
======== ===== ========== =====
</TABLE>
Pro forma information regarding net income is required by FAS 123, which
also requires that the information be determined as if the Company had accounted
for its employee stock options granted under the fair value method of FAS 123.
The fair value for these options was estimated at the date of grant using the
minimum value option pricing model using the following assumptions: dividend
yield of 0.0%, risk free interest rate of 6.0%, and a weighted average expected
life of 0 months (due to the Metamor acquisition -- see Note 10). The Company's
pro forma information for the period ended April 15, 1998, as if the Company had
accounted for its employee stock options granted under the fair value method
prescribed by FAS 123, is the same as reported in the accompanying financial
statements.
6. INCOME TAXES
The provision for income taxes for the period from July 1, 1997 to April
15, consists of the following:
<TABLE>
<S> <C>
Current:
Federal.............................................. $ 364,727
State................................................ 73,157
Deferred:
Federal.............................................. (543,192)
-----------
Income tax benefit..................................... $ (105,308)
===========
</TABLE>
F-64
<PAGE> 140
NDC GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The differences between income taxes computed at the federal statutory
income tax rate and the provision for income taxes for the period from July 1,
1997 to April 15, 1998 follows:
<TABLE>
<CAPTION>
AMOUNT
<S> <C>
Tax benefit at statutory federal income tax rate............ $(9,582,671)
Valuation allowance......................................... 9,419,548
Nondeductible expenses...................................... 9,531
State income taxes, net of federal income tax benefit....... 48,284
-----------
Income tax benefit.......................................... $ (105,308)
===========
</TABLE>
The deferred tax assets and liabilities as of April 15, 1998 are composed
of the following:
<TABLE>
<S> <C>
DEFERRED TAX ASSETS:
Bad debt expense...................................... $ 98,600
Stock compensation.................................... 9,728,140
----------
Total deferred tax assets..................... $9,826,740
----------
DEFERRED TAX LIABILITIES:
Conversion from cash basis to accrual basis........... $ (371,192)
Property and equipment................................ (36,000)
----------
Total deferred tax liabilities................ (407,192)
----------
Valuation allowance........................... (9,419,548)
----------
Net deferred tax assets....................... $ --
==========
</TABLE>
The Company has recorded a valuation allowance due to the uncertainty of
the ability to utilize the net deferred tax assets in the future.
7. COMMON STOCK
During the period from July 1, 1997 to April 15, 1998 the Company increased
the number of authorized shares from 1,000,000 to 4,000,000. The Company granted
1,225,000 shares of common stock to certain employees. In connection with the
stock issuances, the Company recognized $17,121,000 of compensation expense
based on the fair value of the common stock. Fair value was determined based on
the acquisition price of the subsequent sale of the Company which is deemed to
be an arm's length transaction. (See Note 10)
In fiscal year ended June 30, 1997 the Company entered into an agreement
with a consultant in which the consultant was granted an option to purchase
30,000 shares of common stock for a total of $50,000 and the option was
exercised in 1998.
8. RELATED PARTY TRANSACTIONS
At April 15, 1998, the Company had unsecured notes receivable from
stockholders totaling $429,896. These notes bear interest at 7% and are due on
demand. Interest income from these notes for the period from July 1, 1997 to
April 15, 1998 was $32,111.
On October 1, 1997, the Company entered into an employment search and
placement services agreement with an affiliate company owned by two stockholders
of the Company. The term of the agreement was for 39 months, and the
compensation paid to the affiliate company
F-65
<PAGE> 141
NDC GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
was based on the monthly projected hiring needs of the Company. For the period
from July 1, 1997 to April 15, 1998 total payments made to the affiliate company
for employment search and placement services were $217,607.
9. FINANCIAL CREDIT RISK
All accounts receivable are made on an unsecured basis. The Company
believes it is not exposed to any significant credit risk on accounts
receivable.
A significant amount of the Company's revenues are from three companies.
Revenues from these customers for the period from July 1, 1997 to April 15,
1998, were 24%, 21%, and 11% of revenue.
10. SUBSEQUENT EVENTS
Effective April 16, 1998, all of the outstanding Common Stock of the
Company was acquired by Metamor for approximately $20.5 million. Under terms of
the merger agreement, the previous stockholders and option holders of the
Company are entitled to contingent consideration of up to $26.0 million based on
the increase in earnings before interest and taxes, as defined.
F-66
<PAGE> 142
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Virtual Solutions, Inc.:
We have audited the accompanying balance sheet of Virtual Solutions, Inc.
as of December 28, 1997, and the related statements of operations and retained
earnings and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Virtual Solutions, Inc. at
December 28, 1997, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas
February 2, 1998
F-67
<PAGE> 143
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Virtual Solutions, Inc.
We have audited the accompanying balance sheet of Virtual Solutions, Inc.
as of December 29, 1996, and the related statements of operations and retained
earnings and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Virtual Solutions, Inc. at
December 29, 1996, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Fort Worth, Texas
April 10, 1997
F-68
<PAGE> 144
VIRTUAL SOLUTIONS, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 28, MARCH 29,
1996 1997 1998
(UNAUDITED)
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents............................. $1,095,290 $1,224,215 $ 724,621
Accounts receivable:
Billed, net of allowance for doubtful accounts of
$32,157, $29,344 and $33,214..................... 1,338,225 2,078,879 2,308,372
Unbilled........................................... 176,755 180,061 156,074
Other.............................................. 2,139 21,952 129,362
Prepaid expenses and other current assets............. 76,099 194,066 261,139
---------- ---------- ----------
Total current assets.......................... 2,688,508 3,699,173 3,579,568
Property and equipment, at cost:
Computer equipment.................................... 324,288 494,860 578,459
Furniture and fixtures................................ 67,650 110,503 140,799
Office equipment...................................... 2,941 21,347 24,069
Leasehold improvements................................ 5,600 5,600 5,600
---------- ---------- ----------
400,479 632,310 748,927
Less accumulated depreciation......................... 144,368 227,137 259,664
---------- ---------- ----------
256,111 405,173 489,263
Intangible and other assets, net of accumulated
amortization of $5,014, $17,596 and $20,974........... 131,016 88,189 95,871
---------- ---------- ----------
Total assets.................................. $3,075,635 $4,192,535 $4,164,702
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable, trade............................... $ 351,989 $ 487,294 $ 437,340
Accrued expenses...................................... 402,224 675,337 674,372
Unearned revenue...................................... 31,100 -- --
Due to officer........................................ 25,000 -- --
Revolving line of credit.............................. 225,000 -- --
Deferred income taxes................................. 141,382 417,400 495,142
---------- ---------- ----------
Total current liabilities..................... 1,176,695 1,580,031 1,606,854
Deferred income taxes................................... -- 24,403 24,403
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value, 500,000 shares
authorized, 7,525 shares issued and outstanding.... 75 75 75
Common stock, $.01 par value, 500,000 shares
authorized, 100,000 shares issued and
outstanding........................................ 1,000 1,000 1,000
Additional paid-in capital............................ 1,901,425 1,901,425 1,901,425
Retained earnings..................................... 221,440 898,101 830,945
---------- ---------- ----------
2,123,940 2,800,601 2,733,445
Less:
Note receivable from officer.......................... 187,500 187,500 187,500
Unvested restricted stock............................. 37,500 25,000 12,500
---------- ---------- ----------
Total shareholders' equity.................... 1,898,940 2,588,101 2,533,445
---------- ---------- ----------
Total liabilities and shareholders' equity.... $3,075,635 $4,192,535 $4,164,702
========== ========== ==========
</TABLE>
See accompanying notes.
F-69
<PAGE> 145
VIRTUAL SOLUTIONS, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED QUARTER ENDED QUARTER ENDED
DECEMBER 29, DECEMBER 28, MARCH 30, MARCH 29,
1996 1997 1997 1998
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Service fees.............................. $7,901,288 $12,456,408 $2,557,787 $3,201,104
Cost of services.......................... 5,733,790 7,748,053 1,565,764 2,354,595
---------- ----------- ---------- ----------
Gross Profit.............................. 2,167,498 4,708,355 992,023 846,509
Operating Costs and Expenses:
Selling, general and administrative..... 2,370,617 3,599,156 848,077 933,304
Depreciation and amortization........... 56,085 95,350 21,113 35,906
---------- ----------- ---------- ----------
2,426,702 3,694,506 869,190 969,210
---------- ----------- ---------- ----------
(Loss) income from operations............. (259,204) 1,013,849 122,833 (122,701)
Interest income........................... 15,494 67,169 12,787 15,423
---------- ----------- ---------- ----------
(Loss) income before income taxes......... (243,710) 1,081,018 135,620 (107,278)
Income tax (benefit) provision............ (66,118) 404,357 50,722 (40,122)
---------- ----------- ---------- ----------
Net (loss) income......................... (177,592) 676,661 84,898 (67,156)
Retained earnings at beginning of
period.................................. 399,032 221,440 221,440 898,101
---------- ----------- ---------- ----------
Retained earnings at end of period........ $ 221,440 $ 898,101 $ 306,338 $ 830,945
========== =========== ========== ==========
</TABLE>
See accompanying notes.
F-70
<PAGE> 146
VIRTUAL SOLUTIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED QUARTER ENDED QUARTER ENDED
DECEMBER 29, DECEMBER 28, MARCH 30, MARCH 29,
1996 1997 1997 1998
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income.......................... $ (177,592) $ 676,661 $ 84,898 $ (67,156)
Adjustments to reconcile net (loss) income
to net cash (used in) provided by
operating activities:
Depreciation and amortization............ 56,085 95,350 21,113 35,906
Vesting of restricted stock for
consulting fees....................... 12,500 12,500 12,500 12,500
Deferred tax (benefit) provision......... (66,118) 300,421 50,722 77,742
Changes in working capital accounts --
Accounts receivable, net.............. (428,501) (763,773) (298,966) (312,916)
Prepaid expenses and other current
assets.............................. (71,185) (117,967) (88,855) (67,074)
Intangibles and other assets.......... (127,093) 30,246 30,740 (11,060)
Accounts payable, trade............... (854) 135,305 (29,460) (49,954)
Accrued expenses and other
liabilities......................... 293,039 273,113 27,753 (965)
Unearned revenue...................... 31,100 (31,100) -- --
---------- ---------- ---------- ----------
Net cash (used in) provided by operating
activities............................... (478,619) 610,756 (189,555) (382,977)
INVESTING ACTIVITY
Purchase of property and equipment......... (176,370) (231,831) (4,109) (116,617)
FINANCING ACTIVITIES
Net borrowings (payments) under revolving
line of credit........................... 100,000 (225,000) -- --
Borrowings from officer.................... 25,000 -- -- --
Repayments of note from officer............ -- (25,000) (25,000) --
Payments on notes payable.................. (45,949) -- -- --
Proceeds from issuance of preferred
stock.................................... 1,500,000 -- -- --
Proceeds from issuance of common stock..... 139,000 -- -- --
---------- ---------- ---------- ----------
Net cash provided by (used in) financing
activities............................... 1,718,051 (250,000) (25,000) --
---------- ---------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents.............................. 1,063,062 128,925 (218,664) (499,594)
Cash and cash equivalents at beginning of
period................................... 32,228 1,095,290 1,095,290 1,224,215
---------- ---------- ---------- ----------
Cash and cash equivalents at end of
period................................... $1,095,290 $1,224,215 $ 876,626 $ 724,621
========== ========== ========== ==========
SUPPLEMENTAL INFORMATION
Cash paid during the period for interest... 2$3,740..... $ 5,564
========== ==========
Cash paid during the period for taxes...... -$-......... $ 190,400
========== ==========
</TABLE>
See accompanying notes.
F-71
<PAGE> 147
VIRTUAL SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Virtual Solutions, Inc. (the "Company") is an integrated technology
consulting and custom software development company serving customers in a
variety of industries throughout the United States. The Company's customized
technology implementation services include, distributed computing,
object-oriented development, N-tier client/server systems, data warehousing,
middle-ware, advanced operating systems, and systems management technologies.
The Company's principal offices are located in Irving, Texas.
The Company uses a 52 or 53 week year ending on the Sunday closest to
December 31.
2. SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash and cash equivalents represent cash on hand, demand deposits, money
market accounts, and short-term investments with original maturities of three
months or less.
Property and Equipment
Property and equipment, which is stated at cost, is depreciated using
accelerated methods over the estimated useful lives of the property and
equipment as follows:
<TABLE>
<S> <C>
Computer equipment...................................... 3 to 5 years
Furniture and fixtures.................................. 7 years
Office equipment........................................ 7 years
</TABLE>
Long-lived assets are reviewed periodically for recoverability in
accordance with Statement of Financial Accounting Standards No. 121 and carrying
values are adjusted as necessary.
Intangible and Other Assets
Intangible and other assets consists of refundable deposits, organization
costs and trademarks. Capitalized amounts for intangibles and other assets are
being amortized on a straight-line basis over periods ranging from 12 to 60
months.
Revenue Recognition
Service fees, based on time and expenses incurred, are recorded as revenue
when the service has been provided. Service fees from fixed price contracts are
recognized in earnings proportionately over the contract periods or as services
are provided. Estimated losses on fixed price contracts are recorded in the
period the losses are determinable.
Income Taxes
Deferred income taxes are recognized using the liability method. Under this
method of accounting, deferred income taxes are recorded for the difference
between the financial reporting and income tax bases of assets and liabilities
using enacted tax rates in effect for the period in which the differences are
expected to reverse. The Company's interim provisions for income taxes were
computed using its estimated effective tax rate for the year.
F-72
<PAGE> 148
VIRTUAL SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Incentive Compensation
The Company follows Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," ("APB 25") and related interpretations in
accounting for its incentive compensation plan.
Interim Financial Information
The financial statements for the quarters ended March 30, 1997 and March
29, 1998 are unaudited. Certain information and footnote disclosures normally
included in the financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted from the unaudited
interim financial information. In the opinion of management, the unaudited
interim financial statements include all adjustments, consisting solely of
normal recurring adjustments, necessary for a fair presentation.
The results of operations for the interim periods are not necessarily
indicative of the results of operations for the respective full years.
3. MAJOR CUSTOMERS
During 1996, service fees from four customers approximated $6,081,000, or
77% of total service fees (30%, 17%, 17% and 13%, respectively). During 1997,
service fees from three customers approximated $6,942,000, or 55% of total
service fees (25%, 16% and 14%, respectively). These customers' balances
approximated $1,068,000 and $1,315,000 of accounts receivable at December 29,
1996 and December 28, 1997, respectively. The Company routinely assesses the
financial strength of its customers and generally collateral is not required.
Historically, the Company's credit losses have been insignificant and within
management's expectations. One of these customers, representing 30% and 25% in
service fees during 1996 and 1997, respectively, is a preferred shareholder in
the Company (see Note 10).
4. REVOLVING LINE OF CREDIT
The Company has a $500,000 revolving line of credit ("revolver") with a
bank which matures April 30, 1998. At December 29, 1996 and December 28, 1997,
borrowings under the revolver were $225,000 and $0. Interest is payable monthly
at prime plus 1/2% (9.0% at December 28, 1997). The revolver is collateralized
by the Company's accounts receivable and guaranteed by the officers and
shareholders of the Company.
F-73
<PAGE> 149
VIRTUAL SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. FEDERAL INCOME TAXES
Income tax (benefit) provision consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 29, DECEMBER 28,
1996 1997
<S> <C> <C>
Current............................................. $ -- $103,936
Deferred............................................ (66,118) 300,421
-------- --------
Total income tax (benefit) provision...... $(66,118) $404,357
======== ========
</TABLE>
The components of the net deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 28,
1996 1997
<S> <C> <C>
Deferred tax assets:
Accounts payable and accrued expenses............. $ 257,626 $ 394,687
Net operating loss carryforward................... 149,325 --
--------- ---------
Total deferred tax assets................. 406,951 394,687
Deferred tax liabilities:
Accounts receivable............................... (504,160) (775,503)
Prepaid expense and other assets.................. (36,961) (36,584)
Property and equipment............................ (7,212) (24,403)
--------- ---------
Total deferred tax liabilities............ (548,333) (836,490)
--------- ---------
Net deferred tax liabilities.............. $(141,382) $(441,803)
========= =========
</TABLE>
The net deferred tax liabilities are a result of the Company filing its tax
return on the cash receipts and disbursements basis of accounting and relate
principally to differences in the carrying value of receivables, payables and
other accrued expenses. At December 29, 1997, the Company has a net operating
loss carryforward of approximately $439,000, which will, if unused, expire in
2011. The difference between the federal income tax benefit and income taxes
computed using the statutory federal income tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 29, DECEMBER 28,
1996 1997
<S> <C> <C>
Federal income tax (benefit) provision at statutory
rate................................................ $(82,861) $367,546
Nondeductible expenses.............................. 15,780 16,215
Other............................................... 963 20,596
-------- --------
Federal income tax (benefit) provision.............. $(66,118) $404,357
======== ========
</TABLE>
6. LEASES
The Company leases its office facilities, certain computer and office
equipment, and furniture under operating leases expiring at various times during
the next five years. Certain lease agreements provide for periodic increases in
lease payments. Rental expense under the leases approximated $352,000 and
$559,000 in 1996 and 1997, respectively. During 1996, the Company relocated its
corporate offices and entered into a new noncancelable operating lease
agreement. A portion of the Company's previous office space was sub-leased to a
third party for the remainder of the lease term. Subsequent to December 29,
1996, the Company sub-leased to a third party under an operating lease expiring
in April 1999. Sublease rental income was approximately
F-74
<PAGE> 150
VIRTUAL SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
$17,000 and $75,000 in 1996 and 1997, respectively. Certain lease agreements are
personally guaranteed by officers and shareholders of the Company.
Future minimum lease payments and sublease rental income as of December 28,
1997 under operating leases that have initial or remaining noncancelable lease
terms in excess of one year are as follows:
<TABLE>
<CAPTION>
LEASE SUB-LEASE NET
COMMITMENT RENTAL INCOME COMMITMENTS
<S> <C> <C> <C>
1998........................................... $ 617,688 $(62,033) $ 555,655
1999........................................... 432,627 $(11,227) $ 421,400
2000........................................... 356,932 -- $ 356,932
2001........................................... 127,138 -- $ 127,138
2002........................................... -- -- --
---------- -------- ----------
Total................................ $1,534,385 $(73,260) $1,461,125
========== ======== ==========
</TABLE>
7. EMPLOYEE BENEFIT PLAN
The Company provides a 401(k) benefit plan (the "Plan") covering
substantially all employees. Employees are eligible to participate after
completing six months of service and can make voluntary contributions of up to
15% of their compensation each year subject to Internal Revenue Code
limitations. The Plan provides for matching contributions by the Company at the
discretion of the Board of Directors. Total plan expense for the years ended
December 29, 1996 and December 28, 1997 was approximately $30,000 and $48,000,
respectively.
8. OFFICERS' LIFE INSURANCE
The Company pays the premium on three officers' life insurance policies for
which the Company is the beneficiary. The proceeds are to be used to purchase
the officers' stock from any holders who may inherit it. Premiums paid during
1996 and 1997 were approximately $39,000 and $39,000.
9. CAPITAL STOCK
In June 1996, the Company amended its Articles of Incorporation to increase
the number of Company common shares authorized to 500,000 and to change the par
value to $.01. The shareholders subsequently entered into a new shareholders'
agreement which provided for an increase in the number of issued and outstanding
shares to 100,000, of which 3,000 are restricted at December 29, 1996.
In August 1996, the Company entered into a Restricted Stock Agreement with
an officer and his wholly-owned S corporation, which provides for the issuance
of 3,000 restricted shares of the Company's common stock in lieu of payment for
consulting services provided by the officer's S corporation in the amount of
$50,000. The restricted shares vest ratably over four years. At December 29,
1996 and December 28, 1997, 750 and 1,500 restricted shares are vested and the
remaining 2,250 and 1,500 are unvested, respectively.
In October 1996, the Company issued 7,525 shares of preferred stock to a
significant customer for $1,500,000 in cash. The shares have been designated by
the Company as Series A
F-75
<PAGE> 151
VIRTUAL SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Preferred Stock (Preferred Stock) and are convertible into common stock at any
time at the holders' option, or automatically upon a change in control of the
Company. Accordingly, 7,525 shares of common stock are reserved for issuance
upon conversion.
The Company can repurchase the Preferred Stock at par no sooner than
September 30, 2001 at a price of $199.34 per share. Holders of the Preferred
Stock are entitled to a Liquidation Preference, as defined, of $199.34 per share
and dividends at a rate of $19.93 per share when dividends are declared on the
common stock.
10. RELATED PARTY TRANSACTIONS
At December 29, 1996 and December 28, 1997, the Company has a note
receivable from an officer in the amount of $187,500, bearing interest at 6.83%.
This note represents partial consideration for the purchase of 15,000 shares of
common stock for $351,500.
The Company has a note payable to an officer in the amount of $25,000 at
December 29, 1996. The note bears interest at 10% and is payable upon demand.
This note including interest was repaid by the Company during 1997.
Fees for services provided to the preferred stockholder were $2.4 million
and $3.1 million in 1996 and 1997, respectively. Included in accounts receivable
at December 29, 1996 and December 28, 1997 are approximately $619,000 and
$600,000, respectively, due from the preferred stockholder for services rendered
in the normal course of business.
11. INCENTIVE COMPENSATION PLAN
During 1995, the Company adopted a Stock Appreciation Rights Plan (the SAR
Plan) whereby individual employees can be granted stock appreciation rights
(Rights). The effects of the SAR Plan were insignificant to the financial
statements.
During April 1997, the Company replaced the SAR Plan with a Performance
Stock Plan (the "PS Plan") under which 6,000 shares of performance stock that
imitate the performance of the Company's common stock can be granted to
individual key employees. Eligibility in the PS Plan is subject to the
discretion of the Board of Directors on an annual basis. The performance stock
vests ratably over a period of three years from the date of issuance but is not
exercisable until the occurrence of a "triggering event" (see below). If
employment of a participant is terminated for any reason other than death or
disability, the rights of that participant lapse without notice 30 days from the
date of termination. In the case of termination of a participant by death or
disability, the rights of that participant lapse without notice 12 months after
the date of termination. The right of a participant to convert shares of
performance stock into cash or other consideration is subject to the occurrence
of a "triggering event" (a change in control of the Company), as specified in
the PS Plan document. The amount of cash or other consideration the participant
is eligible to receive upon the occurrence of a "triggering event" is equal to
(i) the aggregate current market value of the shares converted on the conversion
date less (ii) the aggregate award value of the shares converted. As a result of
the specific provisions of the PS Plan, the liability and related compensation
expense, if any, will be recognized in the financial statements when a
"triggering event" occurs. All shares of performance stock will lapse if a
"triggering event" does not occur within 10 years of the date of grant.
F-76
<PAGE> 152
VIRTUAL SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
12. SUBSEQUENT EVENT (UNAUDITED)
In June 1998, the Company was acquired by Metamor Worldwide, Inc. for
approximately $10.3 million in cash. Under terms of the purchase agreement, the
previous stockholders of the Company are entitled to contingent consideration of
up to $18.0 million based on the increase in earnings before interest and taxes,
as defined.
F-77
<PAGE> 153
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder of
Kinderhook Systems, Inc.:
In our opinion, the accompanying balance sheets and the related statements
of operations, retained earnings, and cash flows present fairly, in all material
respects, the financial position of KINDERHOOK SYSTEMS, INC. (the "Company") at
December 31, 1998 and 1997 and the results of its operations and its cash flows
for each of the two years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
New York, New York
March 5, 1999
F-78
<PAGE> 154
KINDERHOOK SYSTEMS, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JULY 31,
1997 1998 1999
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 118,906 $ 50,073 $1,436,415
Accounts receivable, net of allowance for doubtful
accounts of $187,806 and $369,474................... 1,729,644 2,900,193 2,071,616
Other receivables...................................... 37,683 32,876 50,402
Prepaid expenses....................................... 50,719 90,262 59,498
---------- ---------- ----------
Total current assets........................... 1,936,952 3,073,404 3,617,931
Furniture and equipment, net............................. 108,352 187,109 170,217
Security deposit......................................... 24,424 55,442 74,071
---------- ---------- ----------
Total assets................................... $2,069,728 $3,315,955 $3,862,219
========== ========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses.................. $ 80,885 $ 333,776 $ 196,885
Other payables......................................... 44,873 220,087 314,326
Deferred income tax.................................... 142,483 219,327 145,865
---------- ---------- ----------
Total current liabilities...................... 268,241 773,190 657,076
---------- ---------- ----------
Deferred rent expense.................................... 25,911 24,581 22,716
---------- ---------- ----------
Total liabilities.............................. 294,152 797,771 679,792
---------- ---------- ----------
Commitments
Stockholder's equity
Capital stock -- $.01 per share par value; 20,000,000 and
12,000,000 shares authorized December 31, 1998 and
1997, respectively, 7,200,000 issued and outstanding... 10 72,000 72,000
Additional paid-in capital............................... 225,490 153,500 153,500
Unearned compensation.................................... (115,000) (57,500) (23,956)
Unrealized gain on securities available for sale......... 1,658 -- --
Retained earnings........................................ 1,663,418 2,350,184 2,980,883
---------- ---------- ----------
Total stockholder's equity..................... 1,775,576 2,518,184 3,182,427
---------- ---------- ----------
Total liabilities and stockholder's equity..... $2,069,728 $3,315,955 $3,862,219
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-79
<PAGE> 155
KINDERHOOK SYSTEMS, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED SEVEN MONTHS ENDED
DECEMBER 31, JULY 31,
------------------------ -----------------------
1997 1998 1998 1999
(UNAUDITED)
<S> <C> <C> <C> <C>
Consulting Services Revenue................. $6,270,087 $10,207,913 $5,566,904 $7,353,785
Cost of Services............................ 2,658,882 5,024,209 2,379,289 3,452,583
---------- ----------- ---------- ----------
Gross Profit.............................. 3,611,205 5,183,704 3,187,615 3,901,202
Selling, general and administrative
expenses.................................. 2,783,645 4,212,162 2,171,579 3,179,716
Depreciation and Amortization............... 83,281 62,945 50,500 41,632
---------- ----------- ---------- ----------
Operating Income (Loss)..................... 744,279 908,597 965,536 679,854
Interest Expense............................ (6,124) (9,502) (4,049) (889)
Other Income................................ 53,839 44,206 27,916 16,320
---------- ----------- ---------- ----------
Income before provision for income
taxes.................................. 791,994 943,301 989,403 695,285
Provision for income taxes.................. 48,805 89,555 44,043 58,737
---------- ----------- ---------- ----------
Net income................................ 743,189 853,746 945,360 636,548
Retained earnings, beginning of period...... 1,124,128 1,663,418 1,663,418 2,350,184
Less: Distribution to stockholder........... (203,899) (166,980) (166,977) (5,849)
---------- ----------- ---------- ----------
Retained earnings, end of period............ $1,663,418 $ 2,350,184 $2,441,801 $2,980,883
========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-80
<PAGE> 156
KINDERHOOK SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEVEN MONTHS ENDED
DECEMBER 31, JULY 31,
----------------------- ------------------------
1997 1998 1998 1999
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................... $ 743,189 $ 853,746 $ 945,360 $ 636,548
--------- ----------- ----------- ----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation expense....................... 83,281 62,945 50,500 41,632
Compensation expense....................... 57,500 57,500 -- 33,542
Changes in assets and liabilities:
Deferred rent........................... 1,100 (1,330) -- (1,865)
Accounts receivable..................... (528,644) (1,170,549) (1,108,093) 828,577
Other receivables....................... (37,683) 4,807 24,671 (17,526)
Prepaid expenses and Other expenses..... (31,357) (39,543) (15,512) 30,764
Accounts payables and accrued
expenses.............................. 23,936 252,891 12,686 (140,345)
Other payables.......................... (3,561) 175,214 255,451 94,240
Deferred taxes.......................... -- 76,844 -- (73,462)
--------- ----------- ----------- ----------
Total adjustments.................. (435,428) (581,221) (780,297) 795,557
--------- ----------- ----------- ----------
Net cash provided by operating
activities....................... 307,761 272,525 165,063 1,432,105
--------- ----------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture and equipment........ (117,805) (141,702) (63,952) (21,285)
Security deposits.......................... (24,424) (31,018) (10,925) (18,629)
Sale of investments in marketable
securities.............................. 11,658 (1,658) -- --
--------- ----------- ----------- ----------
Net cash used for investing
activities....................... (130,571) (174,378) (74,877) (39,914)
--------- ----------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distribution to stockholder................ (203,899) (166,980) (166,977) (5,849)
--------- ----------- ----------- ----------
Net cash used for financing
activities....................... (203,899) (166,980) (166,977) (5,849)
--------- ----------- ----------- ----------
Net increase (decrease) in cash.............. (26,709) (68,833) (76,791) 1,386,342
Cash and cash equivalents, beginning of
year....................................... 145,615 118,906 118,906 50,073
--------- ----------- ----------- ----------
Cash and cash equivalents, end of
year............................. $ 118,906 $ 50,073 $ 42,115 $1,436,415
========= =========== =========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Taxes.............................. $ 37,189 $ 66,903 $ -- $ --
Interest........................... $ 6,124 $ 9,504 $ 4,049 $ 889
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-81
<PAGE> 157
KINDERHOOK SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Description of Business:
Kinderhook Systems, Inc. (the "Company"), a Delaware Corporation, is a
software consulting and application development company specializing in
eBusiness including internet, extranet, intranet sites and groupware solutions.
The Company has developed a wide range of automated solutions including sales
force automation, project management, budgeting, resource allocation and
scheduling, financial management, purchasing, and publishing. The Company
partners with leading software firms such as IBM, Lotus, Microsoft and Netscape.
By working with the sales forces of these partners, the Company is able to reach
a wide range of large corporate clients in industries which include financial
services, telecommunications, pharmaceuticals, manufacturing, consumer products,
and media and information technology.
Revenue Recognition:
Revenue is billed on a time and materials basis and is recognized as
services are performed.
Cash and Cash Equivalents:
The Company considers all highly liquid instruments purchased with original
maturities of three months or less to be cash equivalents.
Fixed Assets:
Depreciation of computer equipment, office equipment, and furniture and
fixtures is provided for by the straight-line method over their estimated lives
ranging from three to seven years. Depreciation of computer software is
depreciated by the straight-line method over three years. Amortization of
leasehold improvements is provided for over the lesser of the term of the
related lease or estimated useful lives. Accumulated amortization includes the
amortization of assets recorded under capital lease. The cost of additions and
betterments is capitalized, and repairs and maintenance costs are charged to
operations in the periods incurred. When depreciable assets are retired or sold,
the cost and related allowances for depreciation are removed from the accounts
and the gain or loss is recognized.
Income Taxes:
The Company provides for income taxes on the basis of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined on the basis of differences between the financial
statement and tax basis of assets and liabilities at enacted tax rates
applicable to the years in which the differences are expected to reverse.
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
F-82
<PAGE> 158
KINDERHOOK SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
amount of assets and liabilities, 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.
Stock-Based Employee Compensation:
The accompanying financial statements have been prepared in accordance with
APB Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Under
APB 25, generally no compensation expense is recognized in the accompanying
financial statements in connection with the awarding of stock option grants to
employees provided that, as of the grant date, all terms associated with the
award are fixed and the minimum value of the Company's stock, as of the grant
date, is not greater than the amount an employee must pay to acquire the stock
as defined; however, to the extent that stock options are granted to
non-employees for goods or services, the fair value of these options is included
in operating results as an expense.
Disclosures required by Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation ("SFAS No. 123"), have been
included in Note 7.
Interim Financial Data
The financial data at July 31, 1999 and for the seven months ended July 31,
1999 and 1998 are unaudited. In the opinion of management, they include all
adjustments, consisting of normal recurring adjustments, necessary to present
fairly the results of operations and cash flows. The results of operations for
the seven months ended July 31, 1999 are not necessarily indicative of the
operating results to be expected for the entire year ending December 31, 1999.
2. COMMITMENTS:
The Company generally leases its office facilities, office equipment and
computer equipment under operating leases that expire between 1999 and 2002. The
future minimum noncancelable lease commitments at December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
OFFICE
SPACE EQUIPMENT TOTAL
<S> <C> <C> <C>
1999...................................... $ 640,473 $308,715 $ 949,188
2000...................................... 609,559 170,791 780,350
2001...................................... 581,185 45,860 627,045
2002...................................... 326,667 27,652 354,319
---------- -------- ----------
$2,157,884 $553,018 $2,710,902
========== ======== ==========
</TABLE>
Rent expense amounted to $584,650 and $271,097 for the years ended December
31, 1998 and 1997, respectively.
3. CONCENTRATION OF CREDIT RISK:
Financial instruments which potentially subject the Company to
concentration of credit risk consist primarily of accounts receivable. Three
customers accounted for 21%, 11% and 10% of the Company's total revenues for the
fiscal year ended December 31, 1998 and 23%, 19% and
F-83
<PAGE> 159
KINDERHOOK SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6% for the fiscal year ended December 31, 1997. The Company generally requires
no collateral from its customers.
4. FIXED ASSETS:
Fixed assets at December 31, 1997 and 1998, consist of the following:
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Computer equipment.................................... $ 210,840 $ 340,256
Office equipment...................................... 22,375 29,249
Leasehold improvements................................ 15,674 21,086
--------- ---------
248,889 390,591
Less, Accumulated depreciation and amortization....... (140,537) (203,482)
--------- ---------
$ 108,352 $ 187,109
========= =========
</TABLE>
Depreciation expense amounted to $62,945, and $83,281, for the years ended
December 31, 1998 and 1997, respectively.
5. DEFINED CONTRIBUTION SAVINGS PLAN:
The Company sponsors a defined contribution employee savings plan (the
"Plan") covering substantially all of its employees. An employee becomes
eligible to participate in the Plan immediately upon employment after reaching
the age of 21. The Plan provides for employee contributions between 1% and 15%
of eligible compensation, as defined. The Company contributed approximately
$71,000 to the savings plan for the year ended December 31, 1998 and no such
contributions were made for the year ended December 31, 1997.
The Company may make discretionary contributions to the Plan which vest
over a period of three years.
6. INCOME TAXES:
The Company is an "S" Corporation for Federal and New York State income tax
purposes. Accordingly, the Company is not subject to Federal income taxes;
however, it is subject to the New York State "S" Corporation Franchise Tax and
New York City General Corporation Tax. As an "S" Corporation, the Company's
profits and losses are passed directly to its shareholder for inclusion in the
shareholder's personal income tax return for Federal and New York State income
tax purposes.
Deferred income taxes are recognized for differences between the financial
statement and tax bases of assets and liabilities ("temporary differences") at
enacted tax rates in effect for the year in which such temporary differences are
expected to reverse. Accordingly, the effect on deferred taxes of a change in
tax rates is recognized in income in the period that includes the enactment
date.
The income tax provision is composed of state and local taxes amounting to
approximately $18,000 and deferred taxes of approximately $72,000 for the year
ended December 31, 1998.
F-84
<PAGE> 160
KINDERHOOK SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to state and local
deferred tax liabilities at December 31, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
TYPES OF DIFFERENCES 1997 1998
<S> <C> <C>
Deferred tax asset:
Unexercised stock options............................. $ 4,688 $ 9,107
Total deferred tax asset...................... 4,688 9,107
-------- --------
Deferred tax liability:
Cash to accrual conversion............................ 147,171 228,434
-------- --------
Total deferred tax liability.................. 147,171 228,434
-------- --------
Net deferred tax liability.................... $142,483 $219,327
======== ========
</TABLE>
7. NON-QUALIFIED STOCK OPTIONS:
In December 1995, the Board of Directors of the Company authorized the
issuance of non-qualified stock options to purchase up to 1,600,000 shares of
the Company's Common Stock. The stock options generally vest over a period of
three to five years.
In December 1995 and July 1996, 800,000 and 420,800 stock options,
respectively, were issued at an exercise price of $.03. The difference between
the exercise price and the fair value of the options at the measurement date is
amortized over the vesting period. Approximately $57,500 has been recorded as
compensation expense for each of the years ended December 31, 1997 and 1998.
Unamortized compensation expense is included as a component of stockholder's
equity.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock-Issued to Employees" and related interpretations in accounting for its
stock option issuances. The Company has adopted the disclosure-only provisions
of SFAS No. 123, "Accounting for Stock-Based Compensation", whereby compensation
expense is recognized ratably over the vesting period. Had compensation cost for
the Company's stock options issued at the fair value of the Company's stock been
determined based on the fair value of the stock options at the grant date for
awards in 1997 and 1998 consistent with the provisions of SFAS No. 123, the
Company's net income would have been adjusted to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
<S> <C> <C>
Net income:
As reported....................................... $743,189 $853,746
Pro forma......................................... $732,035 $830,717
</TABLE>
The fair value of each option grant is estimated using the minimum value
method of the Black-Scholes option pricing model which assumes no volatility.
The weighted average assumptions used for grants made in 1997 and 1998 were as
follows: Risk free interest rates of 4.63%-5.87% in 1998 and 5.81%-6.93% in
1997; Expected option life 7 years; Dividend yield 0.0%.
F-85
<PAGE> 161
KINDERHOOK SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the non-qualified stock options:
<TABLE>
<CAPTION>
SHARES EXERCISE PRICE
<S> <C> <C>
Options outstanding December 31, 1996............... 1,220,800 $.03
---------
Granted............................................. 78,000 $.21 - $1.23
---------
Options outstanding December 31, 1997............... 1,298,800 $.03 - $1.23
=========
Options exercisable -- December 31, 1997............ 696,320 $.03
---------
Granted............................................. 123,000 $1.25 - $1.90
Cancelled........................................... 16,000 $.86 - $1.23
---------
Options outstanding December 31, 1998............... 1,405,800 $.03 - $1.90
=========
Options exercisable -- December 31, 1998............ 1,067,280 $.03 - $1.23
=========
</TABLE>
8. STOCKHOLDER'S EQUITY:
On June 5, 1998, the Board of Directors ("BOD") approved a 4 for 1 stock
split which increased the outstanding shares to 7,200,000. The stock split has
been retroactively restated to the inception date. The BOD also approved an
increase to the number of authorized shares to 20,000,000.
Distribution to shareholder represents a cash distribution to shareholder
for income taxes.
9. LINE OF CREDIT:
The Company maintains a revolving line of credit which provides for
borrowing up to $2,000,000, of which $1,742,239 is available for direct debt and
$257,761 is available for a standby letter of credit. The agreement expires on
June 30, 1999. Interest accrued at the prime rate plus .5% and is payable
monthly on outstanding balances. At December 31, 1998 and 1997 no balance was
outstanding on this line of credit.
The agreement is personally guaranteed by the stockholder of the Company.
Advances under the line are limited to 75% of eligible accounts receivable.
10. SUBSEQUENT EVENT (UNAUDITED):
Effective September 24, 1999, the Company was acquired by Xpedior
Incorporated ("Xpedior"). Purchase consideration consisted of $14.9 million in
cash and convertible debt of Xpedior valued at $9.1 million. In connection with
the acquisition by Xpedior, the Company repurchased certain options held by
employees for approximately $190,000 in cash.
F-86
<PAGE> 162
[SCREEN SHOT OF ONLINEOFFICESUPPLIES.COM WEB SITE HOME PAGE]
[SCREEN SHOT OF BELL CANADA VIRTUAL STORE WEB SITE HOME PAGE]
[SCREEN SHOT OF HEWLETT-PACKARD SHOPPING VILLAGE WEB SITE HOME PAGE]
<TABLE>
<S> <C>
XPEDIOR CREATED MICROSOFT CORPORATION'S 1999 When OnlineOfficeSupplies, a ".com" start-up,
ECOMMERCE SOLUTION OF THE YEAR. needed a technology company with a track
record in eCommerce, user interface design and
interactive marketing, it turned to Xpedior to
design, build and deploy its innovative
web-based business model as fast as possible.
Xpedior created an intuitive, visually
pleasing user interface. The site also
required a fully searchable database, capacity
to handle tens of thousands of individual
items and ability to process hundreds of
orders per day.
XPEDIOR HELPED BELL CANADA DEVELOP AN INTERACTIVE Bell Canada needed to create a comprehensive
ECOMMERCE AND CUSTOMER SERVICE SITE. electronic channel with the ability to handle
transactions and allow direct communications
with corporate, small business and residential
customers.
Xpedior integrated the creative look and feel
of the site into an architecture that works
securely with a credit card pre-authorization
system. To combine eCommerce with market-data
collection, Xpedior also built a
permission-based marketing system. Xpedior's
solution enabled the company to reduce
information-distribution time and collect
valuable customer data to enhance customer
service.
XPEDIOR'S ONE-TO-ONE ECOMMERCE SOLUTION WORKS FOR H-P chose Xpedior to develop its innovative
HEWLETT-PACKARD. Shopping Village -- a web destination where
businesses and consumers can find information,
access customer service and order H-P
products.
With H-P's image in mind, Xpedior created a
robust, scalable, eCommerce/knowledge
management solution with a personal-profiling
capability that enables H-P to present
shoppers with personalized promotions and
coupons, customized to their ordering history
and specific needs.
</TABLE>
<PAGE> 163
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 1999
[XPEDIOR LOGO]
8,535,000 SHARES OF COMMON STOCK
------------------------------
PROSPECTUS
------------------------------
DONALDSON, LUFKIN & JENRETTE
FIRST UNION SECURITIES, INC.
J.P. MORGAN & CO.
THE ROBINSON-HUMPHREY COMPANY
DLJDIRECT INC.
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of Xpedior have
not changed since the date hereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Until , 2000 (25 days after the date of this prospectus), all
dealers that effect transactions in 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> 164
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of common stock being registered. All amounts are estimates except
the SEC registration fee and the NASD filing fees.
<TABLE>
<S> <C>
SEC Registration fee........................................ $ 43,659
NASD fee.................................................... 16,205
Nasdaq National Market initial listing fee.................. 95,000
Printing and engraving...................................... 400,000
Legal fees and expenses of the Company...................... 400,000
Accounting fees and expenses................................ 1,200,000
Transfer agent fees......................................... 20,000
Miscellaneous expenses...................................... 25,136
----------
Total............................................. 2,200,000
==========
</TABLE>
- ------------------------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law ("DGCL") provides that
a corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Section 145 further
provides that a corporation similarly may indemnify any such person serving in
any such capacity who was or is a party or is threatened to be made a party to
any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees) actually and reasonably
incurred in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Delaware Court of Chancery or such other
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all of the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Delaware Court of Chancery or such other
court shall deem proper.
II-1
<PAGE> 165
Xpedior's certificate of incorporation and bylaws provide that
indemnification shall be to the fullest extent permitted by the DGCL for all
current or former directors or officers of Xpedior.
As permitted by the DGCL, the certificate of incorporation provides that
directors of Xpedior shall have no personal liability to Xpedior or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except (1) for any breach of the director's duty of loyalty to Xpedior or its
stockholders, (2) for acts or omissions not in good faith or which involve
intentional misconduct or knowing violation of law, (3) under Section 174 of the
DGCL or (4) for any transaction from which a director derived an improper
personal benefit.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Xpedior has not sold any securities, registered or otherwise, within the
past three years, except as set forth below.
On September 9, 1999, Xpedior issued 179,702 shares of common stock to
David N. Campbell in an exempt transaction pursuant to Section 4(2) of the
Securities Act.
On September 24, 1999, Xpedior issued $9.1 million in subordinated
convertible notes, convertible into shares of common stock at the initial public
offering price, in reliance on Regulation D.
As of October 31, 1999, Xpedior has granted to employees options to
purchase 9,034,150 shares of common stock under the Xpedior Stock Incentive
Plan. The option and restricted stock grants were exempt from the registration
requirement of the Securities Act by virtue of Rule 701 thereunder and Section
4(2) thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<C> <S>
1.1 -- Form of Underwriting Agreement
2.1* -- Merger Agreement dated as of March 26, 1997 by and among
Irvin M. Shapiro, The Irvin M. Shapiro Children's Trust,
Metamor Technologies, Ltd. and CORESTAFF, Inc and
CORESTAFF Acquisition Sub #9, Inc.
2.2* -- Agreement and Plan of Merger dated as of December 23,
1997 by and among CORESTAFF, Inc., CORESTAFF Acquisition
Sub #12, Inc., Sage I.T. Partners, Inc., and the
Shareholders of Sage I.T. Partners, Inc.
2.3* -- Stock Purchase Agreement dated as of December 31, 1997 by
and among CORESTAFF, Inc., Workgroup Productivity
Corporation, and the Shareholders of Workgroup
Productivity Corporation
2.4* -- Agreement and Plan of Merger dated as of April 16, 1998
by and among Metamor Worldwide, Inc., CORESTAFF
Acquisition Sub #13, Inc., NDC Group, Inc., and the
Stockholders of NDC Group, Inc.
2.5* -- Stock Purchase Agreement dated as of June 17, 1998 by and
among Metamor Worldwide, Inc., Informix Corporation and
the Sellers
2.6* -- Stock Purchase Agreement dated as of July 16, 1998 by and
among Metamor Worldwide, Inc., Advanced Information
Solutions, Inc. and the Sellers
2.7* -- Asset Purchase Agreement dated as of November 12, 1998 by
and among Metamor Worldwide, Inc., Metamor Technologies,
Ltd., New Technology Partners, Inc. and the Shareholders
of New Technology Partners, Inc.
</TABLE>
II-2
<PAGE> 166
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<C> <S>
2.8* -- Stock Purchase Agreement dated as of September 17, 1999
by and among Xpedior Incorporated, Kinderhook Systems,
Inc. and the Sellers
3.1 -- Form of Amended and Restated Certificate of Incorporation
3.2 -- Form of Restated Bylaws
4.1 -- Form of Common Stock Certificate
5.1 -- Opinion of Vinson & Elkins L.L.P.
10.1 -- Employment Agreement between Xpedior Incorporated and
David N. Campbell
10.2 -- Employment Agreement between Xpedior Incorporated and J.
Brian Farrar
10.3 -- Form of Indemnification Agreement
10.4 -- Form of Registration Rights Agreement
10.5 -- Form of Services Agreement
10.6 -- Assignment and Indemnification Agreement
21.1* -- Subsidiaries of the Company
23.1 -- Consent of Ernst & Young LLP
23.2 -- Consent of Arthur Andersen LLP
23.3 -- Consent of Morrison & Morrison, Ltd.
23.4 -- Consent of PricewaterhouseCoopers LLP
23.5 -- Consent of Vinson & Elkins L.L.P. (included in Exhibit
5.1)
24.1* -- Power of Attorney (included in signature page)
27.1* -- Financial Data Schedule
99.1* -- Consent of Nominee for Director dated October 15, 1999
(David N. Campbell)
99.2* -- Consent of Nominee for Director dated October 15, 1999
(J. Brian Farrar)
99.3* -- Consent of Nominee for Director dated October 15, 1999
(John M. Whiteside)
99.4* -- Consent of Nominee for Director dated October 15, 1999
(Eugene Rooney)
99.5 -- Consent of Nominee for Director dated December 7, 1999
(Robert K. Hatcher)
99.6 -- Consent of Nominee for Director dated December 7, 1999
(Marc Shapiro)
</TABLE>
- ------------------------------
* Previously filed.
(b) FINANCIAL STATEMENT SCHEDULE
No financial statement schedules are required to be included herewith or
they have been omitted because the information required to be set forth therein
is not applicable.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes:
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions described
in Item 14, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer
II-3
<PAGE> 167
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 Act and will be governed by the final
adjudication of such issue.
(b) To provide to the underwriter(s) at the closing specified in the
underwriting agreements, certificates in such denominations and registered
in such names as required by the underwriter(s) to permit prompt delivery
to each purchaser.
(c) For purpose of determining any liability under the Securities Act
of 1933, 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.
(d) For the purpose of determining any liability under the Securities
Act of 1933, 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-4
<PAGE> 168
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
State of Texas, on this 7th day of December, 1999.
Xpedior Incorporated
By: /s/ J. BRIAN FARRAR
----------------------------------
J. Brian Farrar
Executive Vice President and
Chief Operating Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
/s/ DAVID N. CAMPBELL President and Chief Executive December 7, 1999
- ------------------------------------------------ Officer (Principal
David N. Campbell Executive Officer)
/s/ STEVEN M. ISAACSON Chief Financial Officer December 7, 1999
- ------------------------------------------------ (Principal Financial and
Steven M. Isaacson Accounting Officer)
* Chairman of the Board December 7, 1999
- ------------------------------------------------
James W. Crownover
/s/ PETER T. DAMERIS Director December 7, 1999
- ------------------------------------------------
Peter T. Dameris
* By: /s/ MARGARET G. REED
-----------------------------------------
Margaret G. Reed
Attorney-In-Fact
</TABLE>
II-5
<PAGE> 169
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<C> <S>
1.1 -- Form of Underwriting Agreement
2.1* -- Merger Agreement dated as of March 26, 1997 by and among
Irvin M. Shapiro, The Irvin M. Shapiro Children's Trust,
Metamor Technologies, Ltd. and CORESTAFF, Inc and
CORESTAFF Acquisition Sub #9, Inc.
2.2* -- Agreement and Plan of Merger dated as of December 23,
1997 by and among CORESTAFF, Inc., CORESTAFF Acquisition
Sub #12, Inc., Sage I.T. Partners, Inc., and the
Shareholders of Sage I.T. Partners, Inc.
2.3* -- Stock Purchase Agreement dated as of December 31, 1997 by
and among CORESTAFF, Inc., Workgroup Productivity
Corporation, and the Shareholders of Workgroup
Productivity Corporation
2.4* -- Agreement and Plan of Merger dated as of April 16, 1998
by and among Metamor Worldwide, Inc., CORESTAFF
Acquisition Sub #13, Inc., NDC Group, Inc., and the
Stockholders of NDC Group, Inc.
2.5* -- Stock Purchase Agreement dated as of June 17, 1998 by and
among Metamor Worldwide, Inc., Informix Corporation and
the Sellers
2.6* -- Stock Purchase Agreement dated as of July 16, 1998 by and
among Metamor Worldwide, Inc., Advanced Information
Solutions, Inc. and the Sellers
2.7* -- Asset Purchase Agreement dated as of November 12, 1998 by
and among Metamor Worldwide, Inc., Metamor Technologies,
Ltd., New Technology Partners, Inc. and the Shareholders
of New Technology Partners, Inc.
2.8* -- Stock Purchase Agreement dated as of September 17, 1999
by and among Xpedior Incorporated, Kinderhook Systems,
Inc. and the Sellers
3.1 -- Form of Amended and Restated Certificate of Incorporation
3.2 -- Form of Restated Bylaws
4.1 -- Form of Common Stock Certificate
5.1 -- Opinion of Vinson & Elkins L.L.P.
10.1 -- Employment Agreement between Xpedior Incorporated and
David N. Campbell
10.2 -- Employment Agreement between Xpedior Incorporated and J.
Brian Farrar
10.3 -- Form of Indemnification Agreement
10.4 -- Form of Registration Rights Agreement
10.5 -- Form of Services Agreement
10.6 -- Assignment and Indemnification Agreement
21.1* -- Subsidiaries of the Company
23.1 -- Consent of Ernst & Young LLP
23.2 -- Consent of Arthur Andersen LLP
23.3 -- Consent of Morrison & Morrison, Ltd.
23.4 -- Consent of PricewaterhouseCoopers LLP
23.5 -- Consent of Vinson & Elkins L.L.P. (included in Exhibit
5.1)
24.1* -- Power of Attorney (included in signature page)
27.1* -- Financial Data Schedule
99.1* -- Consent of Nominee for Director dated October 15, 1999
(David N. Campbell)
99.2* -- Consent of Nominee for Director dated October 15, 1999
(J. Brian Farrar)
</TABLE>
<PAGE> 170
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<C> <S>
99.3* -- Consent of Nominee for Director dated October 15, 1999
(John M. Whiteside)
99.4* -- Consent of Nominee for Director dated October 15, 1999
(Eugene Rooney)
99.5 -- Consent of Nominee for Director dated December 7, 1999
(Robert K. Hatcher)
99.6 -- Consent of Nominee for Director dated December 7, 1999
(Marc J. Shapiro)
</TABLE>
- ------------------------------
* Previously filed.
<PAGE> 1
EXHIBIT 1.1
8,535,000 Shares
XPEDIOR INCORPORATED
Common Stock
UNDERWRITING AGREEMENT
__________, 1999
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
FIRST UNION SECURITIES, INC.
J.P. MORGAN SECURITIES INC.
THE ROBINSON-HUMPHREY COMPANY
DLJdirect INC.
as representatives of the several Underwriters
named in Schedule I hereto
c/o Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, New York 10172
Dear Sirs:
Xpedior Incorporated, a Delaware corporation (the "COMPANY"), proposes
to issue and sell 8,535,000 shares of its common stock, par value $0.01 per
share (the "FIRM SHARES"), to the several underwriters named in Schedule I
hereto (the "UNDERWRITERS"). Metamor Worldwide, Inc. (the "SELLING STOCKHOLDER")
proposes to issue and sell to the several Underwriters up to an additional
1,280,250 shares of the Company's common stock, par value $0.01 per share (the
"ADDITIONAL SHARES"), if requested by the Underwriters as provided in Section 2
hereof. The Firm Shares and the Additional Shares are hereinafter referred to
collectively as the "SHARES." The shares of common stock of the Company to be
outstanding after giving effect to the sales contemplated hereby are hereinafter
referred to as the "COMMON STOCK." The Company and the Selling Stockholder are
hereinafter sometimes referred to collectively as the "SELLERS."
SECTION 1. Registration Statement and Prospectus. The Company has
prepared and filed with the Securities and Exchange Commission (the
"COMMISSION") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "ACT"), a registration statement on Form S-1, including a
prospectus, relating to the Shares. The registration statement, as amended at
the time it became effective, including the information (if any) deemed to be
part of the registration statement at the time of effectiveness pursuant to Rule
430A under the Act, is hereinafter referred to as the "Registration Statement;"
and the prospectus in the form first used to confirm sales of Shares is
hereinafter referred to as the "Prospectus." If the Company has filed or is
required pursuant to the terms hereof to file a registration statement pursuant
to Rule 462(b) under the Act registering additional shares of Common Stock (a
"RULE 462(B) REGISTRATION STATEMENT"), then, unless
<PAGE> 2
otherwise specified, any reference herein to the term "Registration Statement"
shall be deemed to include such Rule 462(b) Registration Statement.
SECTION 2. Agreements to Sell and Purchase and Lock-Up Agreements. On
the basis of the representations and warranties contained in this Agreement, and
subject to its terms and conditions, the Company agrees to issue and sell and
each Underwriter agrees, severally and not jointly, to purchase from the Company
at a price per Share of $______ (the "PURCHASE PRICE") the number of Firm Shares
(subject to such adjustments to eliminate fractional shares as you may
determine) set forth opposite the name of such Underwriter in Schedule I hereto.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Selling Stockholder
agrees to issue and sell the Additional Shares and the Underwriters shall have
the right to purchase, severally and not jointly, up to 1,280,250 Additional
Shares from the Selling Stockholder at the Purchase Price. Additional Shares may
be purchased solely for the purpose of covering over-allotments made in
connection with the offering of the Firm Shares. The Underwriters may exercise
their right to purchase Additional Shares in whole or in part from time to time
by giving written notice thereof to the Selling Stockholder within 30 days after
the date of this Agreement. You shall give any such notice on behalf of the
Underwriters and such notice shall specify the aggregate number of Additional
Shares to be purchased pursuant to such exercise and the date for payment and
delivery thereof, which date shall be a business day (i) no earlier than two
business days after such notice has been given (and, in any event, no earlier
than the Closing Date (as hereinafter defined)) and (ii) no later than ten
business days after such notice has been given. If any Additional Shares are to
be purchased, each Underwriter, severally and not jointly, agrees to purchase
from the Selling Stockholder the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as you may determine) which bears the
same proportion to the total number of Additional Shares to be purchased from
the Company as the number of Firm Shares set forth opposite the name of such
Underwriter in Schedule I bears to the total number of Firm Shares.
Each Seller hereby agrees not to (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, or otherwise transfer
or dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock or
(ii) enter into any swap or other arrangement that transfers all or a portion of
the economic consequences associated with the ownership of any Common Stock
(regardless of whether any of the transactions described in clause (i) or (ii)
is to be settled by the delivery of Common Stock, or such other securities, in
cash or otherwise), except to the Underwriters pursuant to this Agreement, for a
period of 180 days after the date of the Prospectus without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation. Notwithstanding
the foregoing, during such period (i) the Company may grant stock options
pursuant to the Company's existing stock option plan and (ii) the Company may
issue shares of Common Stock upon the exercise of an option or warrant or the
conversion of a security outstanding on the date hereof. The Company also agrees
not to file any registration statement with respect to any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock for a period of 180 days after the date of the Prospectus without
the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation. In addition, the Selling Stockholder
2
<PAGE> 3
agrees that, for a period of 180 days after the date of the Prospectus without
the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation, it will not make any demand for, or exercise any right with respect
to, the registration of any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock. The Company shall, prior
to or concurrently with the execution of this Agreement, deliver an agreement
executed by (i) the Selling Stockholder and (iii) each stockholder listed on
Annex I hereto to the effect that such person will not, during the period
commencing on the date such person signs such agreement and ending 180 days
after the date of the Prospectus, without the prior written consent of
Donaldson, Lufkin & Jenrette Corporation, (A) engage in any of the transactions
described in the first sentence of this paragraph or (B) make any demand for, or
exercise any right with respect to, the registration of any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock.
The Company hereby confirms its engagement of Donaldson, Lufkin &
Jenrette Securities Corporation as, and Donaldson, Lufkin & Jenrette Securities
Corporation hereby confirms its agreement with the Company to render services
as, a "qualified independent underwriter," within the meaning of Section (b)(15)
of Rule 2720 of the National Association of Securities Dealers, Inc. with
respect to the offering and sale of the Shares. Donaldson, Lufkin & Jenrette
Securities Corporation, solely in its capacity as the qualified independent
underwriter and not otherwise, is referred to herein as the "QIU." As
compensation for the services of the QIU hereunder, the Company agrees to pay
the QIU $5,000 on the Closing Date. The price at which the Shares will be sold
to the public shall not be higher than the maximum price recommended by the QIU.
SECTION 3. Terms of Public Offering. The Sellers are advised by you
that the Underwriters propose (i) to make a public offering of their respective
portions of the Shares as soon after the execution and delivery of this
Agreement as in your judgment is advisable and (ii) initially to offer the
Shares upon the terms set forth in the Prospectus.
SECTION 4. Delivery and Payment. The Shares shall be represented by
definitive certificates and shall be issued in such authorized denominations and
registered in such names as Donaldson, Lufkin & Jenrette Securities Corporation
shall request no later than two business days prior to the Closing Date or the
applicable Option Closing Date (as defined below), as the case may be. The
Shares shall be delivered by or on behalf of the Sellers, with any transfer
taxes thereon duly paid by the respective Sellers, to Donaldson, Lufkin &
Jenrette Securities Corporation through the facilities of The Depository Trust
Company ("DTC"), for the respective accounts of the several Underwriters,
against payment to the Sellers of the Purchase Price therefore by wire transfer
of Federal or other funds immediately available in New York City. The
certificates representing the Shares shall be made available for inspection not
later than 9:30 A.M., New York City time, on the business day prior to the
Closing Date or the applicable Option Closing Date (as defined below), as the
case may be, at the office of DTC or its designated custodian (the "DESIGNATED
OFFICE"). The time and date of delivery and payment for the Firm Shares shall be
9:00 A.M., New York City time, on ________, 1999 or such other time on the same
or such other date as Donaldson, Lufkin & Jenrette Securities Corporation and
the Company shall agree in writing. The time and date of delivery and payment
for the Firm Shares are hereinafter referred to as the "CLOSING DATE." The time
and date of delivery and payment for any Additional Shares to be purchased by
the Underwriters shall be 9:00 A.M., New York City
3
<PAGE> 4
time, on the date specified in the applicable exercise notice given by you
pursuant to Section 2 or such other time on the same or such other date as
Donaldson, Lufkin & Jenrette Securities Corporation and the Company shall agree
in writing. The time and date of delivery and payment for any Additional Shares
are hereinafter referred to as the "OPTION CLOSING DATE." The documents to be
delivered on the Closing Date or any Option Closing Date on behalf of the
parties hereto pursuant to Section 9 of this Agreement shall be delivered at the
offices of Vinson & Elkins LLP, 1001 Fannin, Houston, Texas 77002, and the
Shares shall be delivered at the Designated Office, all on the Closing Date or
such Option Closing Date, as the case may be.
SECTION 5. Agreements of the Company. The Company agrees with you:
(a) To advise you promptly and, if requested by you, to confirm such
advice in writing, (i) of any request by the Commission for amendments to the
Registration Statement or amendments or supplements to the Prospectus or for
additional information, (ii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the suspension
of qualification of the Shares for offering or sale in any jurisdiction, or the
initiation of any proceeding for such purposes, (iii) when any amendment to the
Registration Statement becomes effective, (iv) if the Company is required to
file a Rule 462(b) Registration Statement after the effectiveness of this
Agreement, when the Rule 462(b) Registration Statement has become effective and
(v) of the happening of any event during the period referred to in Section 5(d)
below which makes any statement of a material fact made in the Registration
Statement or the Prospectus untrue or which requires any additions to or changes
in the Registration Statement or the Prospectus in order to make the statements
therein not misleading. If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, the Company will use
its best efforts to obtain the withdrawal or lifting of such order at the
earliest possible time.
(b) To furnish to you six signed copies of the Registration Statement
as first filed with the Commission and of each amendment to it, including all
exhibits, and to furnish to you and each Underwriter designated by you such
number of conformed copies of the Registration Statement as so filed and of each
amendment to it, without exhibits, as you may reasonably request.
(c) To prepare the Prospectus, the form and substance of which shall be
satisfactory to you, and to file the Prospectus in such form with the Commission
within the applicable period specified in Rule 424(b) under the Act; during the
period specified in Section 5(d) below, not to file any further amendment to the
Registration Statement and not to make any amendment or supplement to the
Prospectus of which you shall not previously have been advised or to which you
shall reasonably object after being so advised; and, during such period, to
prepare and file with the Commission, promptly upon your reasonable request, any
amendment to the Registration Statement or amendment or supplement to the
Prospectus which may be necessary or advisable in connection with the
distribution of the Shares by you, and to use its best efforts to cause any such
amendment to the Registration Statement to become promptly effective.
(d) Prior to 10:00 A.M., New York City time, on the first business day
after the date of this Agreement and from time to time thereafter for such
period as in the opinion of counsel
4
<PAGE> 5
for the Underwriters a prospectus is required by law to be delivered in
connection with sales by an Underwriter or a dealer, to furnish in New York City
to each Underwriter and any dealer as many copies of the Prospectus (and of any
amendment or supplement to the Prospectus) as such Underwriter or dealer may
reasonably request.
(e) If during the period specified in Section 5(d), any event shall
occur or condition shall exist as a result of which, in the opinion of counsel
for the Underwriters, it becomes necessary to amend or supplement the Prospectus
in order to make the statements therein, in the light of the circumstances when
the Prospectus is delivered to a purchaser, not misleading, or if, in the
opinion of counsel for the Underwriters, it is necessary to amend or supplement
the Prospectus to comply with applicable law, forthwith to prepare and file with
the Commission an appropriate amendment or supplement to the Prospectus so that
the statements in the Prospectus, as so amended or supplemented, will not in the
light of the circumstances when it is so delivered, be misleading, or so that
the Prospectus will comply with applicable law, and to furnish to each
Underwriter and to any dealer as many copies thereof as such Underwriter or
dealer may reasonably request.
(f) Prior to any public offering of the Shares, to cooperate with you
and counsel for the Underwriters in connection with the registration or
qualification of the Shares for offer and sale by the several Underwriters and
by dealers under the state securities or Blue Sky laws of such jurisdictions as
you may request, to continue such registration or qualification in effect so
long as required for distribution of the Shares and to file such consents to
service of process or other documents as may be necessary in order to effect
such registration or qualification; provided, however, that the Company shall
not be required in connection therewith to qualify as a foreign corporation in
any jurisdiction in which it is not now so qualified or to take any action that
would subject it to general consent to service of process or taxation other than
as to matters and transactions relating to the Prospectus, the Registration
Statement, any preliminary prospectus or the offering or sale of the Shares, in
any jurisdiction in which it is not now so subject.
(g) To mail and make generally available to its stockholders as soon as
practicable an earnings statement covering the twelve-month period beginning
after the effective date of the Registration Statement that shall satisfy the
provisions of Section 11(a) of the Act, and to advise you in writing when such
statement has been so made available.
(h) During the period of three years after the date of this Agreement,
to furnish to you as soon as available copies of all reports or other
communications furnished to the record holders of Common Stock or furnished to
or filed with the Commission or any national securities exchange on which any
class of securities of the Company is listed and such other publicly available
information concerning the Company and its subsidiaries as you may reasonably
request.
(i) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
expenses incident to the performance of the Sellers' obligations under this
Agreement, including: (i) the fees, disbursements and expenses of the Company's
counsel, the Company's accountants and any Selling Stockholder's counsel (in
addition to the Company's counsel) in connection with the
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registration and delivery of the Shares under the Act and all other fees and
expenses in connection with the preparation, printing, filing and distribution
of the Registration Statement (including financial statements and exhibits), any
preliminary prospectus, the Prospectus and all amendments and supplements to any
of the foregoing, including the mailing and delivering of copies thereof to the
Underwriters and dealers in the quantities specified herein, (ii) all costs and
expenses related to the transfer and delivery of the Shares to the Underwriters,
including any transfer or other taxes payable thereon, (iii) all costs of
printing or producing this Agreement and any other agreements or documents in
connection with the offering, purchase, sale or delivery of the Shares, (iv) all
expenses in connection with the registration or qualification of the Shares for
offer and sale under the securities or Blue Sky laws of the several states and
all costs of printing or producing any Preliminary and Supplemental Blue Sky
Memoranda in connection therewith (including the filing fees and fees and
disbursements of counsel for the Underwriters in connection with such
registration or qualification and memoranda relating thereto), (v) the filing
fees and disbursements of counsel for the Underwriters in connection with the
review and clearance of the offering of the Shares by the National Association
of Securities Dealers, Inc., (vi) all fees and expenses in connection with the
preparation and filing of the registration statement on Form 8-A relating to the
Common Stock and all costs and expenses incident to the listing of the Shares on
the Nasdaq National Market, (vii) the cost of printing certificates representing
the Shares, (viii) the costs and charges of any transfer agent, registrar and/or
depositary, (ix) the fees and expenses of the QIU (including the fees and
disbursements of counsel to the QIU), (x) all costs and expenses of the Company
relating to investor presentation on any "road show" undertaken in connection
with the marketing of the offering of the Common Stock and (xi) all other costs
and expenses incident to the performance of the obligations of the Company and
the Selling Stockholder hereunder for which provision is not otherwise made in
this Section. The provisions of this Section shall not supersede or otherwise
affect any agreement that the Company and the Selling Stockholder may otherwise
have for allocation of such expenses among themselves.
(j) To use its efforts to list for quotation the Shares on the Nasdaq
National Market and to maintain the listing of the Shares on the Nasdaq National
Market for a period of three years after the date of this Agreement.
(k) To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement by the Company prior to
the Closing Date or any Option Closing Date, as the case may be, and to satisfy
all conditions precedent to the delivery of the Shares.
(l) If the Registration Statement at the time of the effectiveness of
this Agreement does not cover all of the Shares, to file a Rule 462(b)
Registration Statement with the Commission registering the Shares not so covered
in compliance with Rule 462(b) by 10:00 P.M., New York City time, on the date of
this Agreement and to pay to the Commission the filing fee for such Rule 462(b)
Registration Statement at the time of the filing thereof or to give irrevocable
instructions for the payment of such fee pursuant to Rule 111(b) under the Act.
SECTION 6. Representations and Warranties of the Sellers. The Sellers,
jointly and severally, represent and warrant to each Underwriter that:
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<PAGE> 7
(a) The Registration Statement has become effective (other than any
Rule 462(b) Registration Statement to be filed by the Company after the
effectiveness of this Agreement); any Rule 462(b) Registration Statement filed
after the effectiveness of this Agreement will become effective no later than
10:00 P.M., New York City time, on the date of this Agreement; and no stop order
suspending the effectiveness of the Registration Statement is in effect, and no
proceedings for such purpose are pending before or threatened by the Commission.
(b) (i) The Registration Statement (other than any Rule 462(b)
Registration Statement to be filed by the Company after the effectiveness of
this Agreement), when it became effective, did not contain and, as amended, if
applicable, will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) the Registration Statement (other than
any Rule 462(b) Registration Statement to be filed by the Company after the
effectiveness of this Agreement) and the Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material respects with the Act,
(iii) if the Company is required to file a Rule 462(b) Registration Statement
after the effectiveness of this Agreement, such Rule 462(b) Registration
Statement and any amendments thereto, when they become effective (A) will not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading and (B) will comply in all material respects with the Act and (iv)
the Prospectus does not contain and, as amended or supplemented, if applicable,
will not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties set forth in this paragraph do not apply to
statements or omissions in the Registration Statement or the Prospectus based
upon information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein. (c) Each preliminary
prospectus filed as part of the registration statement as originally filed or as
part of any amendment thereto, or filed pursuant to Rule 424 under the Act,
complied when so filed in all material respects with the Act, and did not
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
except that the representations and warranties set forth in this paragraph do
not apply to statements or omissions in any preliminary prospectus based upon
information relating to any Underwriter furnished to the Company in writing by
such Underwriter through you expressly for use therein.
(d) Each of the Company and its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation and has the corporate power and
authority to carry on its business as described in the Prospectus and to own,
lease and operate its properties, and each is duly qualified and is in good
standing as a foreign corporation authorized to do business in each jurisdiction
in which the nature of its business or its ownership or leasing of property
requires such qualification, except where the failure to be so qualified would
not have a material adverse effect on the business, prospects, financial
condition or results of operations of the Company and its subsidiaries, taken as
a whole.
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(e) There are no outstanding subscriptions, rights, warrants, options,
calls, convertible securities, commitments of sale or liens granted or issued by
the Company or any of its subsidiaries relating to or entitling any person to
purchase or otherwise to acquire any shares of the capital stock of the Company
or any of its subsidiaries, except as otherwise disclosed in the Registration
Statement.
(f) All the outstanding shares of capital stock of the Company
(including the Shares to be sold by the Selling Stockholder) have been duly
authorized and validly issued and are fully paid, non-assessable and not subject
to any preemptive or similar rights; and the Shares to be issued and sold by the
Company have been duly authorized and, when issued and delivered to the
Underwriters against payment therefor as provided by this Agreement, will be
validly issued, fully paid and non-assessable, and the issuance of such Shares
will not be subject to any preemptive or similar rights.
(g) All of the outstanding shares of capital stock of each of the
Company's subsidiaries have been duly authorized and validly issued and are
fully paid and non-assessable, and are owned by the Company, directly or
indirectly through one or more subsidiaries, free and clear of any security
interest, claim, lien, encumbrance or adverse interest of any nature.
(h) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(i) Neither the Company nor any of its subsidiaries is in violation of
its respective charter or by-laws or in default in the performance of any
obligation, agreement, covenant or condition contained in any indenture, loan
agreement, mortgage, lease or other agreement or instrument that is material to
the Company and its subsidiaries, taken as a whole, to which the Company or any
of its subsidiaries is a party or by which the Company or any of its
subsidiaries or their respective property is bound.
(j) The execution, delivery and performance of this Agreement by the
Company, the compliance by the Company with all the provisions hereof and the
consummation of the transactions contemplated hereby will not (i) require any
consent, approval, authorization or other order of, or qualification with, any
court or governmental body or agency (except such as may be required under the
securities or Blue Sky laws of the various states), (ii) conflict with or
constitute a breach of any of the terms or provisions of, or a default under,
the charter or by-laws of the Company or any of its subsidiaries or any
indenture, loan agreement, mortgage, lease or other agreement or instrument that
is material to the Company and its subsidiaries, taken as a whole, to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries or their respective property is bound, (iii) violate or
conflict with any applicable law or any rule, regulation, judgment, order or
decree of any court or any governmental body or agency having jurisdiction over
the Company, any of its subsidiaries or their respective property or (iv) result
in the suspension, termination or revocation of any Authorization (as defined
below) of the Company or any of its subsidiaries or any other impairment of the
rights of the holder of any such Authorization.
(k) There are no legal or governmental proceedings pending or
threatened to which the Company or any of its subsidiaries is or could be a
party or to which any of their respective
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<PAGE> 9
property is or could be subject that are required to be described in the
Registration Statement or the Prospectus and are not so described; nor are there
any statutes, regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not so described or filed as
required.
(l) Neither the Company nor any of its subsidiaries has violated any
foreign, federal, state or local law or regulation relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS"), any provisions of the
Employee Retirement Income Security Act of 1974, as amended, or any provisions
of the Foreign Corrupt Practices Act or the rules and regulations promulgated
thereunder, except for such violations which, singly or in the aggregate, would
not have a material adverse effect on the business, prospects, financial
condition or results of operation of the Company and its subsidiaries, taken as
a whole.
(m) Each of the Company and its subsidiaries has such permits,
licenses, consents, exemptions, franchises, authorizations and other approvals
(each, an "AUTHORIZATION") of, and has made all filings with and notices to, all
governmental or regulatory authorities and self-regulatory organizations and all
courts and other tribunals, including, without limitation, under any applicable
Environmental Laws, as are necessary to own, lease, license and operate its
respective properties and to conduct its business, except where the failure to
have any such Authorization or to make any such filing or notice would not,
singly or in the aggregate, have a material adverse effect on the business,
prospects, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole. Each such Authorization is valid and in full
force and effect and each of the Company and its subsidiaries is in compliance
with all the terms and conditions thereof and with the rules and regulations of
the authorities and governing bodies having jurisdiction with respect thereto;
and no event has occurred (including, without limitation, the receipt of any
notice from any authority or governing body) which allows or, after notice or
lapse of time or both, would allow, revocation, suspension or termination of any
such Authorization or results or, after notice or lapse of time or both, would
result in any other impairment of the rights of the holder of any such
Authorization; and such Authorizations contain no restrictions that are
burdensome to the Company or any of its subsidiaries; except where such failure
to be valid and in full force and effect or to be in compliance, the occurrence
of any such event or the presence of any such restriction would not, singly or
in the aggregate, have a material adverse effect on the business, prospects,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole.
(n) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with Environmental
Laws or any Authorization, any related constraints on operating activities and
any potential liabilities to third parties) which would, singly or in the
aggregate, have a material adverse effect on the business, prospects, financial
condition or results of operations of the Company and its subsidiaries, taken as
a whole.
(o) This Agreement has been duly authorized, executed and delivered by
the Sellers.
(p) Ernst & Young LLP are independent public accountants with respect
to the Company and its subsidiaries as required by the Act.
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(q) The consolidated financial statements included in the Registration
Statement and the Prospectus (and any amendment or supplement thereto), together
with related schedules and notes, present fairly the consolidated financial
position, results of operations and changes in financial position of the Company
and its subsidiaries on the basis stated therein at the respective dates or for
the respective periods to which they apply; such statements and related
schedules and notes have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved,
except as disclosed therein; the supporting schedules, if any, included in the
Registration Statement present fairly in accordance with generally accepted
accounting principles the information required to be stated therein; and the
other financial and statistical information and data set forth in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto) are, in all material respects, accurately presented and prepared on a
basis consistent with such financial statements and the books and records of the
Company.
(r) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described in
the Prospectus, will not be, an "investment company" as such term is defined in
the Investment Company Act of 1940, as amended.
(s) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the Company to
file a registration statement under the Act with respect to any securities of
the Company or to require the Company to include such securities with the Shares
registered pursuant to the Registration Statement.
(t) Since the respective dates as of which information is given in the
Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), (i)
there has not occurred any material adverse change or any development involving
a prospective material adverse change in the condition, financial or otherwise,
or the earnings, business, management or operations of the Company and its
subsidiaries, taken as a whole, (ii) there has not been any material adverse
change or any development involving a prospective material adverse change in the
capital stock or in the long-term debt of the Company or any of its subsidiaries
and (iii) neither the Company nor any of its subsidiaries has incurred any
material liability or obligation, direct or contingent.
(u) Each certificate signed by any officer of the Company and delivered
to the Underwriters or counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to the Underwriters as to the matters
covered thereby.
(v) The Company and its subsidiaries own or possess, or can acquire on
reasonable terms, all patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), trademarks,
service marks and trade names ("INTELLECTUAL PROPERTY") currently employed by
them in connection with the business now operated by them except where the
failure to own or possess or otherwise be able to acquire such intellectual
property would not, singly or in the aggregate, have a material adverse effect
on the business, prospects, financial condition or results of operation of the
Company and its subsidiaries, taken as a whole; and neither the Company nor any
of its subsidiaries has received any notice of infringement of or
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<PAGE> 11
conflict with asserted rights of others with respect to any of such intellectual
property which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would have a material adverse effect on the
business, prospects, financial condition or results of operations of the Company
and its subsidiaries, taken as a whole.
(w) The pro forma financial statements of the Company and its
subsidiaries and the related notes thereto set forth in the Registration
Statement and the Prospectus (and any supplement or amendment thereto) have been
prepared on a basis consistent with the historical financial statements of the
Company and its subsidiaries, give effect to the assumptions used in the
preparation thereof on a reasonable basis and in good faith and present fairly
the historical and proposed transactions contemplated by the Registration
Statement and the Prospectus. Such pro forma financial statements have been
prepared in accordance with the applicable requirements of Rule 11-02 of
Regulation S-X promulgated by the Commission. The other pro forma financial and
statistical information and data set forth in the Registration Statement and the
Prospectus (and any supplement or amendment thereto) are, in all material
respects, accurately presented and prepared on a basis consistent with the pro
forma financial statements.
(x) All material tax returns required to be filed by the Company and
each of its subsidiaries in any jurisdiction have been filed, other than those
filings being contested in good faith, and all material taxes, including
withholding taxes, penalties and interest, assessments, fees and other charges
due pursuant to such returns or pursuant to any assessment received by the
Company or any of its subsidiaries have been paid, other than those being
contested in good faith and for which adequate reserves have been provided.
SECTION 7. Representations and Warranties of the Selling Stockholder.
The Selling Stockholder represents and warrants to each Underwriter that:
(a) Such Selling Stockholder is the lawful owner of the Shares to be
sold by such Selling Stockholder pursuant to this Agreement and has, and on the
Closing Date will have, good and clear title to such Shares, free of all
restrictions on transfer, liens, encumbrances, security interests, equities and
claims whatsoever.
(b) The Shares to be sold by such Selling Stockholder have been duly
authorized and are validly issued, fully paid and non-assessable. (c) Such
Selling Stockholder has, and on the Optional Closing Date will have, full legal
right, power and authority, and all authorization and approval required by law,
to enter into this Agreement, the Custody Agreement signed by such Selling
Stockholder and , as Custodian, relating to the deposit of the Shares to be sold
by such Selling Stockholder (the "CUSTODY AGREEMENT") and the Power of Attorney
of such Selling Stockholder appointing certain individuals as such Selling
Stockholder's attorneys-in-fact (the "Attorneys") to the extent set forth
therein, relating to the transactions contemplated hereby and by the
Registration Statement and the Custody Agreement (the "POWER OF ATTORNEY") and
to sell, assign, transfer and deliver the Shares to be sold by such Selling
Stockholder in the manner provided herein and therein.
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(d) This Agreement has been duly authorized, executed and delivered by
or on behalf of such Selling Stockholder.
(e) The Custody Agreement of such Selling Stockholder has been duly
authorized, executed and delivered by such Selling Stockholder and is a valid
and binding agreement of such Selling Stockholder, enforceable in accordance
with its terms.
(f) The Power of Attorney of such Selling Stockholder has been duly
authorized, executed and delivered by such Selling Stockholder and is a valid
and binding instrument of such Selling Stockholder, enforceable in accordance
with its terms, and, pursuant to such Power of Attorney, such Selling
Stockholder has, among other things, authorized the Attorneys, or any one of
them, to execute and deliver on such Selling Stockholder's behalf this Agreement
and any other document that they, or any one of them, may deem necessary or
desirable in connection with the transactions contemplated hereby and thereby
and to deliver the Shares to be sold by such Selling Stockholder pursuant to
this Agreement.
(g) Upon delivery of and payment for the Shares to be sold by such
Selling Stockholder pursuant to this Agreement, good and clear title to such
Shares will pass to the Underwriters, free of all restrictions on transfer,
liens, encumbrances, security interests, equities and claims whatsoever.
(h) The execution, delivery and performance of this Agreement and the
Custody Agreement and Power of Attorney of such Selling Stockholder by or on
behalf of such Selling Stockholder, the compliance by such Selling Stockholder
with all the provisions hereof and thereof and the consummation of the
transactions contemplated hereby and thereby will not (i) require any consent,
approval, authorization or other order of, or qualification with, any court or
governmental body or agency (except such as may be required under the securities
or Blue Sky laws of the various states), (ii) conflict with or constitute a
breach of any of the terms or provisions of, or a default under, the
organizational documents of such Selling Stockholder, or any indenture, loan
agreement, mortgage, lease or other agreement or instrument to which such
Selling Stockholder is a party or by which such Selling Stockholder or any
property of such Selling Stockholder is bound or (iii) violate or conflict with
any applicable law or any rule, regulation, judgment, order or decree of any
court or any governmental body or agency having jurisdiction over such Selling
Stockholder or any property of such Selling Stockholder.
(i) The Registration Statement (other than any Rule 462(b) Registration
Statement to be filed by the Company after the effectiveness of this Agreement),
when it became effective, did not contain and, as amended, if applicable, will
not on the Optional Closing Date, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, not misleading.
(j) Each certificate signed by or on behalf of such Selling Stockholder
and delivered to the Underwriters or counsel for the Underwriters shall be
deemed to be a representation and warranty by such Selling Stockholder to the
Underwriters as to the matters covered thereby.
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SECTION 8. Indemnification of QIU.
(a) The Sellers agree, jointly and severally, to indemnify and hold
harmless the QIU, its directors, its officers and each person, if any, who
controls the QIU within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act, from and against any and all losses, claims, damages,
liabilities and judgments (including, without limitation, any legal or other
expenses incurred in connection with investigating or defending any matter,
including any action, that could give rise to any such losses, claims, damages,
liabilities or judgments) related to, based upon or arising out of (i) any
untrue statement or alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), the Prospectus (or any
amendment or supplement thereto) or any preliminary prospectus, or any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading or (ii) the
QIU's activities as QIU under its engagement pursuant to Section 2 hereof,
except in the case of this clause (ii) insofar as any such losses, claims,
damages, liabilities or judgments are found in a final judgment by a court of
competent jurisdiction, not subject to further appeal, to have resulted solely
from the willful misconduct or gross negligence of the QIU.
(b) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 8(a) (the "QIU
INDEMNIFIED PARTY"), the QIU Indemnified Party shall promptly notify the Sellers
in writing and the Sellers shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the QIU Indemnified Party
and the payment of all fees and expenses of such counsel, as incurred. Any QIU
Indemnified Party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of the QIU Indemnified Party unless (i) the
employment of such counsel shall have been specifically authorized in writing by
the Sellers, (ii) the Sellers shall have failed to assume the defense of such
action or employ counsel reasonably satisfactory to the QIU Indemnified Party or
(iii) the named parties to any such action (including any impleaded parties)
include both the QIU Indemnified Party and the Sellers, and the QIU Indemnified
Party shall have been advised by such counsel that there may be one or more
legal defenses available to it which are different from or additional to those
available to the Sellers (in which case the Sellers shall not have the right to
assume the defense of such action on behalf of the QIU Indemnified Party). In
any such case, the Sellers shall not, in connection with any one action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
fees and expenses of more than one separate firm of attorneys (in addition to
any local counsel) for all QIU Indemnified Parties, which firm shall be
designated by the QIU, and all such fees and expenses shall be reimbursed as
they are incurred. The Sellers shall indemnify and hold harmless the QIU
Indemnified Party from and against any and all losses, claims, damages,
liabilities and judgments by reason of any settlement of any action (i) effected
with its written consent or (ii) effected without its written consent if the
settlement is entered into more than twenty business days after the Sellers
shall have received a request from the QIU Indemnified Party for reimbursement
for the fees and expenses of counsel (in any case where such fees and expenses
are at the expense of the Sellers) and, prior to the date of such settlement,
the Sellers shall have failed to comply with such reimbursement request. The
Sellers shall not, without the prior written consent of the QIU Indemnified
Party, effect any settlement or compromise of, or consent to the entry of
judgment with respect to, any pending or threatened
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action in respect of which the QIU Indemnified Party is or could have been a
party and indemnity or contribution may be or could have been sought hereunder
by the QIU Indemnified Party, unless such settlement, compromise or judgment (i)
includes an unconditional release of the QIU Indemnified Party from all
liability on claims that are or could have been the subject matter of such
action and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of the QIU Indemnified Party.
(c) To the extent the indemnification provided for in this Section 8 is
unavailable to a QIU Indemnified Party or insufficient in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then the Sellers,
in lieu of indemnifying such QIU Indemnified Party, shall contribute to the
amount paid or payable by such QIU Indemnified Party as a result of such losses,
claims, damages, liabilities and judgments (i) in such proportion as is
appropriate to reflect the relative benefits received by the Sellers on the one
hand and the QIU on the other hand from the offering of the Shares or (ii) if
the allocation provided by clause 8(c)(i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause 8(c)(i) above but also the relative fault of the
Sellers on the one hand and the QIU on the other hand in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or judgments, as well as any other relevant equitable
considerations. The relative benefits received by the Sellers on the one hand
and the QIU on the other hand shall be deemed to be in the same proportion as
the total net proceeds from the offering (before deducting expenses) received by
the Sellers as set forth in the table on the cover page of the Prospectus, and
the fee received by the QIU pursuant to Section 2 hereof, bear to the sum of
such total net proceeds and such fee. The relative fault of the Sellers on the
one hand and the QIU on the other hand shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Sellers or the QIU and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission and whether the QIU's activities as QIU under its
engagement pursuant to Section 2 hereof involved any willful misconduct or gross
negligence on the part of the QIU.
(d) The Sellers and the QIU agree that it would not be just and
equitable if contribution pursuant to this Section 8(c) were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by a QIU Indemnified Party as a result of
the losses, claims, damages, liabilities or judgments referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses incurred by such QIU
Indemnified Party in connection with investigating or defending any matter,
including any action, that could have given rise to such losses, claims,
damages, liabilities or judgments. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
(e) The remedies provided for in this Section 8 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to any
QIU Indemnified Party at law or in equity.
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SECTION 9. Indemnification.
(a) The Sellers, jointly and severally, agree to indemnify and hold
harmless each Underwriter, its directors, its officers and each person, if any,
who controls any Underwriter within the meaning of Section 15 of the Act or
Section 20 of the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT"), from and against any and all losses, claims, damages, liabilities and
judgments (including, without limitation, any legal or other expenses incurred
in connection with investigating or defending any matter, including any action,
that could give rise to any such losses, claims, damages, liabilities or
judgments) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement (or any amendment
thereto), the Prospectus (or any amendment or supplement thereto) or any
preliminary prospectus, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or judgments are caused by any such untrue statement or
omission or alleged untrue statement or omission based upon information relating
to any Underwriter furnished in writing to the Company by such Underwriter
through you expressly for use therein provided, however, that the foregoing
indemnity agreement with respect to any preliminary prospectus shall not inure
to the benefit of any Underwriter who failed to deliver a Prospectus (as then
amended or supplemented, provided by the Company to the several Underwriters in
the requisite quantity and on a timely basis to permit proper delivery on or
prior to the Closing Date) to the person asserting any losses, claims, damages
and liabilities and judgments caused by any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus, or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading, if
such material misstatement or omission or alleged material misstatement or
omission was cured in such Prospectus and such Prospectus was required by law to
be delivered at or prior to the written confirmation of sale to such person.
(b) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement, each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, the Selling
Stockholder and each person, if any, who controls such Selling Stockholder
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act to
the same extent as the foregoing indemnity from the Sellers to such Underwriter
but only with reference to information relating to such Underwriter furnished in
writing to the Company by such Underwriter through you expressly for use in the
Registration Statement (or any amendment thereto), the Prospectus (or any
amendment or supplement thereto) or any preliminary prospectus.
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 9(a) or 9(b) (the
"INDEMNIFIED PARTY"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in writing
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 9(a) and 9(b), the Underwriter shall not be required to assume
the defense of such action pursuant to
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this Section 9(c), but may employ separate counsel and participate in the
defense thereof, but the fees and expenses of such counsel, except as provided
below, shall be at the expense of such Underwriter). Any indemnified party shall
have the right to employ separate counsel in any such action and participate in
the defense thereof, but the fees and expenses of such counsel shall be at the
expense of the indemnified party unless (i) the employment of such counsel shall
have been specifically authorized in writing by the indemnifying party, (ii) the
indemnifying party shall have failed to assume the defense of such action or
employ counsel reasonably satisfactory to the indemnified party or (iii) the
named parties to any such action (including any impleaded parties) include both
the indemnified party and the indemnifying party, and the indemnified party
shall have been advised by such counsel that there may be one or more legal
defenses available to it which are different from or additional to those
available to the indemnifying party (in which case the indemnifying party shall
not have the right to assume the defense of such action on behalf of the
indemnified party). In any such case, the indemnifying party shall not, in
connection with any one action or separate but substantially similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for (i) the fees and expenses of more than one separate
firm of attorneys (in addition to any local counsel) for all Underwriters, their
officers and directors and all persons, if any, who control any Underwriter
within the meaning of either Section 15 of the Act or Section 20 of the Exchange
Act, (ii) the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) for the Company, its directors, its officers who
sign the Registration Statement and all persons, if any, who control the Company
within the meaning of either such Section and (iii) the fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) for
all Selling Stockholder and all persons, if any, who control any Selling
Stockholder within the meaning of either such Section, and all such fees and
expenses shall be reimbursed as they are incurred. In the case of any such
separate firm for the Underwriters, their officers and directors and such
control persons of any Underwriters, such firm shall be designated in writing by
Donaldson, Lufkin & Jenrette Securities Corporation. In the case of any such
separate firm for the Company and such directors, officers and control persons
of the Company, such firm shall be designated in writing by the Company. In the
case of any such separate firm for the Selling Stockholder and such control
persons of any Selling Stockholder, such firm shall be designated in writing by
the Attorneys. The indemnifying party shall indemnify and hold harmless the
indemnified party from and against any and all losses, claims, damages,
liabilities and judgments by reason of any settlement of any action (i) effected
with its written consent or (ii) effected without its written consent if the
settlement is entered into more than twenty business days after the indemnifying
party shall have received a request from the indemnified party for reimbursement
for the fees and expenses of counsel (in any case where such fees and expenses
are at the expense of the indemnifying party) and, prior to the date of such
settlement, the indemnifying party shall have failed to comply with such
reimbursement request. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement or compromise of, or
consent to the entry of judgment with respect to, any pending or threatened
action in respect of which the indemnified party is or could have been a party
and indemnity or contribution may be or could have been sought hereunder by the
indemnified party, unless such settlement, compromise or judgment (i) includes
an unconditional release of the indemnified party from all liability on claims
that are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the indemnified party.
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(d) To the extent the indemnification provided for in this Section 9 is
unavailable to an indemnified party or insufficient in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Sellers on the one hand and the Underwriters on the other hand from the offering
of the Shares or (ii) if the allocation provided by clause 9(d)(i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause 9(d)(i) above but also the
relative fault of the Sellers on the one hand and the Underwriters on the other
hand in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative benefits received by the Sellers on the
one hand and the Underwriters on the other hand shall be deemed to be in the
same proportion as the total net proceeds from the offering (after deducting
underwriting discounts and commissions, but before deducting expenses) received
by the Sellers, and the total underwriting discounts and commissions received by
the Underwriters, bear to the total price to the public of the Shares, in each
case as set forth in the table on the cover page of the Prospectus. The relative
fault of the Sellers on the one hand and the Underwriters on the other hand
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or the
Selling Stockholder on the one hand or the Underwriters on the other hand and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
The Sellers and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 9(d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses incurred by such indemnified party in
connection with investigating or defending any matter, including any action,
that could have given rise to such losses, claims, damages, liabilities or
judgments. Notwithstanding the provisions of this Section 9, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Shares underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 9(d) are several in proportion to the respective number
of Shares purchased by each of the Underwriters hereunder and not joint.
(e) The remedies provided for in this Section 9 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
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(f) The Selling Stockholder hereby designates Xpedior Incorporated, One
North Franklin, Suite 1500, Chicago, Illinois 60606, as its authorized agent,
upon which process may be served in any action which may be instituted in any
state or federal court in the State of New York by any Underwriter, any director
or officer of any Underwriter or any person controlling any Underwriter
asserting a claim for indemnification or contribution under or pursuant to this
Section 9, and the Selling Stockholder will accept the jurisdiction of such
court in such action, and waives, to the fullest extent permitted by applicable
law, any defense based upon lack of personal jurisdiction or venue. A copy of
any such process shall be sent or given to such Selling Stockholder, at the
address for notices specified in Section 13 hereof.
SECTION 10. Conditions of Underwriters' Obligations. The several
obligations of the Underwriters to purchase the Firm Shares under this Agreement
are subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company contained in
this Agreement shall be true and correct on the Closing Date with the same force
and effect as if made on and as of the Closing Date.
(b) If the Company is required to file a Rule 462(b) Registration
Statement after the effectiveness of this Agreement, such Rule 462(b)
Registration Statement shall have become effective by 10:00 P.M., New York City
time, on the date of this Agreement; and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been commenced or shall be pending
before or contemplated by the Commission.
(c) You shall have received on the Closing Date a certificate dated the
Closing Date, signed by David N. Campbell and Steven M. Isaacson, in their
capacities as the Chief Executive Officer and Chief Financial Officer of the
Company, confirming the matters set forth in Sections 6(t), 10(a) and 10(b) and
that the Company has complied with all of the agreements and satisfied all of
the conditions herein contained and required to be complied with or satisfied by
the Company on or prior to the Closing Date.
(d) Since the respective dates as of which information is given in the
Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), (i)
there shall not have occurred any change or any development involving a
prospective change in the condition, financial or otherwise, or the earnings,
business, management or operations of the Company and its subsidiaries, taken as
a whole, (ii) there shall not have been any change or any development involving
a prospective change in the capital stock or in the long-term debt of the
Company or any of its subsidiaries and (iii) neither the Company nor any of its
subsidiaries shall have incurred any liability or obligation, direct or
contingent, the effect of which, in any such case described in clause 10(d)(i),
10(d)(ii) or 10(d)(iii), in your judgment, is material and adverse and, in your
judgment, makes it impracticable to market the Shares on the terms and in the
manner contemplated in the Prospectus.
(e) All the representations and warranties of the Selling Stockholder
contained in this Agreement shall be true and correct on the Closing Date with
the same force and effect as if
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made on and as of the Closing Date and you shall have received on the Closing
Date a certificate dated the Closing Date from the Selling Stockholder to such
effect and to the effect that such Selling Stockholder has complied with all of
the agreements and satisfied all of the conditions herein contained and required
to be complied with or satisfied by such Selling Stockholder on or prior to the
Closing Date.
(f) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing Date,
of Vinson & Elkins LLP, for the Company and the Selling Stockholder, to the
effect that:
(i) each of the Company and its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation and has the
corporate power and authority to carry on its business as described
in the Prospectus and to own, lease and operate its properties;
(ii) each of the Company and its subsidiaries is duly qualified and
is in good standing as a foreign corporation authorized to do
business in each jurisdiction in which the nature of its business
or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified would
not have a material adverse effect on the business, prospects,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole;
(iii) all the outstanding shares of capital stock of the Company
(including the Shares to be sold by the Selling Stockholder) have
been duly authorized and validly issued and are fully paid,
non-assessable and not subject to any preemptive or similar rights;
(iv) the Shares to be issued and sold by the Company hereunder have
been duly authorized and, when issued and delivered to the
Underwriters against payment therefor as provided by this
Agreement, will be validly issued, fully paid and non-assessable,
and the issuance of such Shares will not be subject to any
preemptive or similar rights;
(v) all of the outstanding shares of capital stock of each of the
Company's subsidiaries have been duly authorized and validly issued
and are fully paid and non-assessable, and are owned by the
Company, directly or indirectly through one or more subsidiaries,
free and clear of any security interest, claim, lien, encumbrance
or adverse interest of any nature;
(vi) this Agreement has been duly authorized, executed and
delivered by the Company and by or on behalf of the Selling
Stockholder;
(vii) the authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the
Prospectus;
(viii) the Registration Statement has become effective under the
Act, no stop order suspending its effectiveness has been issued and
no proceedings for that
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purpose are, to the best of such counsel's knowledge after due
inquiry, pending before or contemplated by the Commission;
(ix) the statements under the captions "Risk Factors," "Business,"
"Shares Eligible for Future Sale," "Management," "Certain
Transactions," "Description of Capital Stock" and "Underwriting" in
the Prospectus and Items 14 and 15 of Part II of the Registration
Statement, insofar as such statements constitute a summary of the
legal matters, documents or proceedings referred to therein, fairly
present the information called for with respect to such legal
matters, documents and proceedings;
(x) neither the Company nor any of its subsidiaries is in violation
of its respective charter or by-laws and, to the best of such
counsel's knowledge after due inquiry, neither the Company nor any
of its subsidiaries is in default in the performance of any
obligation, agreement, covenant or condition contained in any
indenture, loan agreement, mortgage, lease or other agreement or
instrument that is material to the Company and its subsidiaries,
taken as a whole, to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries or
their respective property is bound;
(xi) the execution, delivery and performance of this Agreement by
the Company, the compliance by the Company with all the provisions
hereof and the consummation of the transactions contemplated hereby
will not (A) require any consent, approval, authorization or other
order of, or qualification with, any court or governmental body or
agency (except such as may be required under the securities or Blue
Sky laws of the various states), (B) conflict with or constitute a
breach of any of the terms or provisions of, or a default under,
the charter or by-laws of the Company or any of its subsidiaries or
any indenture, loan agreement, mortgage, lease or other agreement
or instrument that is material to the Company and its subsidiaries,
taken as a whole, to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries or
their respective property is bound, (C) violate or conflict with
any applicable law or any rule, regulation, judgment, order or
decree of any court or any governmental body or agency having
jurisdiction over the Company, any of its subsidiaries or their
respective property or (D) result in the suspension, termination or
revocation of any Authorization of the Company or any of its
subsidiaries or any other impairment of the rights of the holder of
any such Authorization;
(xii) after due inquiry, such counsel does not know of any legal or
governmental proceedings pending or threatened to which the Company
or any of its subsidiaries is or could be a party or to which any
of their respective property is or could be subject that are
required to be described in the Registration Statement or the
Prospectus and are not so described, or of any statutes,
regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be
filed as exhibits to the Registration Statement that are not so
described or filed as required;
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(xiii) neither the Company nor any of its subsidiaries has violated
any Environmental Law, any provisions of the Employee Retirement
Income Security Act of 1974, as amended, or any provisions of the
Foreign Corrupt Practices Act or the rules and regulations
promulgated thereunder, except for such violations which, singly or
in the aggregate, would not have a material adverse effect on the
business, prospects, financial condition or results of operation of
the Company and its subsidiaries, taken as a whole;
(xiv) each of the Company and its subsidiaries has such
Authorizations of, and has made all filings with and notices to,
all governmental or regulatory authorities and self-regulatory
organizations and all courts and other tribunals, including,
without limitation, under any applicable Environmental Laws, as are
necessary to own, lease, license and operate its respective
properties and to conduct its business, except where the failure to
have any such Authorization or to make any such filing or notice
would not, singly or in the aggregate, have a material adverse
effect on the business, prospects, financial condition or results
of operations of the Company and its subsidiaries, taken as a
whole; each such Authorization is valid and in full force and
effect and each of the Company and its subsidiaries is in
compliance with all the terms and conditions thereof and with the
rules and regulations of the authorities and governing bodies
having jurisdiction with respect thereto; and no event has occurred
(including, without limitation, the receipt of any notice from any
authority or governing body) which allows or, after notice or lapse
of time or both, would allow, revocation, suspension or termination
of any such Authorization or results or, after notice or lapse of
time or both, would result in any other impairment of the rights of
the holder of any such Authorization; and such Authorizations
contain no restrictions that are burdensome to the Company or any
of its subsidiaries; except where such failure to be valid and in
full force and effect or to be in compliance, the occurrence of any
such event or the presence of any such restriction would not,
singly or in the aggregate, have a material adverse effect on the
business, prospects, financial condition or results of operations
of the Company and its subsidiaries, taken as a whole;
(xv) the Company is not and, after giving effect to the offering
and sale of the Shares and the application of the proceeds thereof
as described in the Prospectus, will not be, an "investment
company" as such term is defined in the Investment Company Act of
1940, as amended;
(xvi) The Company and its subsidiaries own or possess, or can
acquire on reasonable terms, all patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), trademarks, service marks and
trade names ("INTELLECTUAL PROPERTY") currently employed by them in
connection with the business now operated by them except where the
failure to own or possess or otherwise be able to acquire such
intellectual property would not, singly or in the aggregate, have a
material adverse effect on the business, prospects, financial
condition or results of operation of the Company and its
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subsidiaries, taken as a whole; and, to the best of such counsel's
knowledge after due inquiry, neither the Company nor any of its
subsidiaries has received any notice of infringement of or conflict
with asserted rights of others with respect to any of such
intellectual property which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would have a
material adverse effect on the business, prospects, financial
condition or results of operations of the Company and its
subsidiaries, taken as a whole.
(xvii) to the best of such counsel's knowledge after due inquiry,
there are no contracts, agreements or understandings between the
Company and any person granting such person the right to require
the Company to file a registration statement under the Act with
respect to any securities of the Company or to require the Company
to include such securities with the Shares registered pursuant to
the Registration Statement;
(xviii) (A) the Registration Statement and the Prospectus and any
supplement or amendment thereto (except for the financial
statements and other financial data included therein as to which no
opinion need be expressed) comply as to form with the Act, (B) such
counsel has no reason to believe that at the time the Registration
Statement became effective or on the date of this Agreement, the
Registration Statement and the prospectus included therein (except
for the financial statements and other financial data as to which
such counsel need not express any belief) contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading and (C) such counsel has no reason to
believe that the Prospectus, as amended or supplemented, if
applicable (except for the financial statements and other financial
data, as aforesaid) contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under
which they were made, not misleading;
(xix) the Selling Stockholder is the lawful owner of the Shares to
be sold by such Selling Stockholder pursuant to this Agreement and
has good and clear title to such Shares, free of all restrictions
on transfer, liens, encumbrances, security interests, equities and
claims whatsoever;
(xx) the Selling Stockholder has full legal right, power and
authority, and all authorization and approval required by law, to
enter into this Agreement and the Custody Agreement and the Power
of Attorney of such Selling Stockholder and to sell, assign,
transfer and deliver the Shares to be sold by such Selling
Stockholder in the manner provided herein and therein;
(xxi) the Custody Agreement of the Selling Stockholder has been
duly authorized, executed and delivered by such Selling Stockholder
and is a valid and binding agreement of such Selling Stockholder,
enforceable in accordance with its terms;
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(xxii) the Power of Attorney of the Selling Stockholder has been
duly authorized, executed and delivered by such Selling Stockholder
and is a valid and binding instrument of such Selling Stockholder,
enforceable in accordance with its terms, and, pursuant to such
Power of Attorney, such Selling Stockholder has, among other
things, authorized the Attorneys, or any one of them, to execute
and deliver on such Selling Stockholder's behalf this Agreement and
any other document they, or any one of them, may deem necessary or
desirable in connection with the transactions contemplated hereby
and thereby and to deliver the Shares to be sold by such Selling
Stockholder pursuant to this Agreement;
(xxiii) upon delivery of and payment for the Shares to be sold by
the Selling Stockholder pursuant to this Agreement, good and clear
title to such Shares will pass to the Underwriters, free of all
restrictions on transfer, liens, encumbrances, security interests,
equities and claims whatsoever; and
(xxiv) the execution, delivery and performance of this Agreement
and the Custody Agreement and Power of Attorney of the Selling
Stockholder by such Selling Stockholder, the compliance by such
Selling Stockholder with all the provisions hereof and thereof and
the consummation of the transactions contemplated hereby and
thereby will not (A) require any consent, approval, authorization
or other order of, or qualification with, any court or governmental
body or agency (except such as may be required under the securities
or Blue Sky laws of the various states), (B) conflict with or
constitute a breach of any of the terms or provisions of, or a
default under, the organizational documents of such Selling
Stockholder, or any indenture, loan agreement, mortgage, lease or
other agreement or instrument to which such Selling Stockholder is
a party or by which any property of such Selling Stockholder is
bound or (C) violate or conflict with any applicable law or any
rule, regulation, judgment, order or decree of any court or any
governmental body or agency having jurisdiction over such Selling
Stockholder or any property of such Selling Stockholder.
The opinion of Vinson & Elkins LLP described in Section 10(f) above
shall be rendered to you at the request of the Company and the Selling
Stockholder and shall so state therein.
(g) You shall have received on the Closing Date an opinion, dated the
Closing Date, of Akin, Gump, Strauss, Hauer & Feld, L.L.P., counsel for the
Underwriters, as to the matters referred to in Sections 10(f)(iv), 10(f)(vii)
(but only with respect to the Company), 10(f)(ix) (but only with respect to the
statements under the caption "Description of Capital Stock" and "Underwriting")
and 10(f)(xviii).
In giving such opinions with respect to the matters covered by Section
10(f)(xviii), counsel for the Company and the Selling Stockholder and counsel
for the Underwriters may state that their opinion and belief are based upon
their participation in the preparation of the Registration Statement and
Prospectus and any amendments or supplements thereto and review and discussion
of the contents thereof, but are without independent check or verification
except as specified.
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(h) You shall have received, on each of the date hereof and the Closing
Date, a letter dated the date hereof or the Closing Date, as the case may be, in
form and substance satisfactory to you, from Ernst & Young LLP, independent
public accountants, containing the information and statements of the type
ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial information contained
in the Registration Statement and the Prospectus.
(i) The Company shall have delivered to you the agreements specified in
Section 2 hereof which agreements shall be in full force and effect on the
Closing Date.
(j) The Shares shall have been duly listed for quotation on the Nasdaq
National Market.
(k) The Company and the Selling Stockholder shall not have failed on or
prior to the Closing Date to perform or comply with any of the agreements herein
contained and required to be performed or complied with by the Company or the
Selling Stockholder, as the case may be, on or prior to the Closing Date.
(l) You shall have received on the Closing Date, a certificate of the
Selling Stockholder who is not a U.S. Person (as defined under applicable U.S.
federal tax legislation) to the effect that such Selling Stockholder is not a
U.S. Person, which certificate may be in the form of a properly completed and
executed United States Treasury Department Form W-8 (or other applicable form or
statement specified by Treasury Department regulations in lieu thereof).
The several obligations of the Underwriters to purchase any Additional
Shares hereunder are subject to the delivery to you on the applicable Option
Closing Date of such documents as you may reasonably request with respect to the
good standing of the Company, the due authorization and issuance of such
Additional Shares and other matters related to the issuance of such Additional
Shares.
SECTION 11. Effectiveness of Agreement and Termination. This Agreement
shall become effective upon the execution and delivery of this Agreement by the
parties hereto.
This Agreement may be terminated at any time on or prior to the Closing
Date by you by written notice to the Sellers if any of the following has
occurred: (i) any outbreak or escalation of hostilities or other national or
international calamity or crisis or change in economic conditions or in the
financial markets of the United States or elsewhere that, in your judgment, is
material and adverse and, in your judgment, makes it impracticable to market the
Shares on the terms and in the manner contemplated in the Prospectus, (ii) the
suspension or material limitation of trading in securities or other instruments
on the New York Stock Exchange, the American Stock Exchange, the Chicago Board
of Options Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade
or the Nasdaq National Market or limitation on prices for securities or other
instruments on any such exchange or the Nasdaq National Market, (iii) the
suspension of trading of any securities of the Company on any exchange or in the
over-the-counter market, (iv) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of any
court or other governmental authority which in your opinion materially and
adversely affects, or will materially and adversely affect, the business,
prospects,
24
<PAGE> 25
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole, (v) the declaration of a banking moratorium by
either federal or New York State authorities or (vi) the taking of any action by
any federal, state or local government or agency in respect of its monetary or
fiscal affairs which in your opinion has a material adverse effect on the
financial markets in the United States.
If on the Closing Date or on an Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase the
Firm Shares or Additional Shares, as the case may be, which it has or they have
agreed to purchase hereunder on such date and the aggregate number of Firm
Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase is not more
than one-tenth of the total number of Firm Shares or Additional Shares, as the
case may be, to be purchased on such date by all Underwriters, each
non-defaulting Underwriter shall be obligated severally, in the proportion which
the number of Firm Shares set forth opposite its name in Schedule I bears to the
total number of Firm Shares which all the non-defaulting Underwriters have
agreed to purchase, or in such other proportion as you may specify, to purchase
the Firm Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase on such
date; provided that in no event shall the number of Firm Shares or Additional
Shares, as the case may be, which any Underwriter has agreed to purchase
pursuant to Section 2 hereof be increased pursuant to this Section 11 by an
amount in excess of one-ninth of such number of Firm Shares or Additional
Shares, as the case may be, without the written consent of such Underwriter. If
on the Closing Date any Underwriter or Underwriters shall fail or refuse to
purchase Firm Shares and the aggregate number of Firm Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of Firm
Shares to be purchased by all Underwriters and arrangements satisfactory to you,
the Company and the Selling Stockholder for purchase of such Firm Shares are not
made within 48 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter, the Company or the
Selling Stockholder. In any such case which does not result in termination of
this Agreement, either you or the Sellers shall have the right to postpone the
Closing Date, but in no event for longer than seven days, in order that the
required changes, if any, in the Registration Statement and the Prospectus or
any other documents or arrangements may be effected. If, on an Option Closing
Date, any Underwriter or Underwriters shall fail or refuse to purchase
Additional Shares and the aggregate number of Additional Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of
Additional Shares to be purchased on such date, the non-defaulting Underwriters
shall have the option to (i) terminate their obligation hereunder to purchase
such Additional Shares or (ii) purchase not less than the number of Additional
Shares that such non-defaulting Underwriters would have been obligated to
purchase on such date in the absence of such default. Any action taken under
this paragraph shall not relieve any defaulting Underwriter from liability in
respect of any default of any such Underwriter under this Agreement.
SECTION 12. Agreements of the Selling Stockholder. The Selling
Stockholder agrees with you and the Company:
(a) To pay or to cause to be paid all transfer taxes payable in
connection with the transfer of the Shares to be sold by such Selling
Stockholder to the Underwriters.
25
<PAGE> 26
(b) To do and perform all things to be done and performed by such
Selling Stockholder under this Agreement prior to the Closing Date and to
satisfy all conditions precedent to the delivery of the Shares to be sold by
such Selling Stockholder pursuant to this Agreement.
SECTION 13. Miscellaneous. Notices given pursuant to any provision of
this Agreement shall be addressed as follows: (i) if to the Company, to Xpedior
Incorporated, One North Franklin, Suite 1500, Chicago, Illinois 60606, (ii) if
to the Selling Stockholder, to Margaret G. Reed, c/o Metamor Worldwide, Inc.,
4400 Post Oak Parkway, Suite 1100, Houston, Texas 77027, and (iii) if to any
Underwriter or to you, to you c/o Donaldson, Lufkin & Jenrette Securities
Corporation, 277 Park Avenue, New York, New York 10172, Attention: Syndicate
Department, or in any case to such other address as the person to be notified
may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Company, the Selling Stockholder and the
several Underwriters set forth in or made pursuant to this Agreement shall
remain operative and in full force and effect, and will survive delivery of and
payment for the Shares, regardless of (i) any investigation, or statement as to
the results thereof, made by or on behalf of any Underwriter, the officers or
directors of any Underwriter, any person controlling any Underwriter, any QIU
Indemnified Party, the Company, the officers or directors of the Company, any
person controlling the Company, any Selling Stockholder or any person
controlling such Selling Stockholder, (ii) acceptance of the Shares and payment
for them hereunder and (iii) termination of this Agreement.
If for any reason the Shares are not delivered by or on behalf of any
Seller as provided herein (other than as a result of any termination of this
Agreement pursuant to Section 11), the Sellers agree, jointly and severally, to
reimburse the several Underwriters for all out-of-pocket expenses (including the
fees and disbursements of counsel) incurred by them. Notwithstanding any
termination of this Agreement, the Company shall be liable for all expenses
which it has agreed to pay pursuant to Section 5(i) hereof. The Sellers also
agree, jointly and severally, to reimburse the several Underwriters, their
directors and officers, any persons controlling any of the Underwriters and the
QIU Indemnified Parties for any and all fees and expenses (including, without
limitation, the fees disbursements of counsel) incurred by them in connection
with enforcing their rights hereunder (including, without limitation, pursuant
to Section 9 hereof).
Except as otherwise provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the Company, the Selling
Stockholder, the Underwriters, the Underwriters' directors and officers, any
controlling persons referred to herein, the QIU Indemnified Parties, the
Company's directors and the Company's officers who sign the Registration
Statement and their respective successors and assigns, all as and to the extent
provided in this Agreement, and no other person shall acquire or have any right
under or by virtue of this Agreement. The term "successors and assigns" shall
not include a purchaser of any of the Shares from any of the several
Underwriters merely because of such purchase.
This Agreement shall be governed and construed in accordance with the
laws of the State of New York.
26
<PAGE> 27
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Selling Stockholder and the several Underwriters.
Very truly yours,
XPEDIOR INCORPORATED
By:
---------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
METAMOR WORLDWIDE, INC.
By:
---------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
FIRST UNION SECURITIES, INC.
J.P. MORGAN SECURITIES INC.
THE ROBINSON-HUMPHREY COMPANY
DLJdirect INC.
Acting severally on behalf of
themselves and the several
Underwriters named in
Schedule I hereto
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:
-----------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
27
<PAGE> 28
SCHEDULE I
UNDERWRITERS
Number of Firm Shares
to be Purchased
Donaldson, Lufkin & Jenrette Securities
Corporation.................................
First Union Securities, Inc..........................
J.P. Morgan Securities Inc...........................
The Robinson-Humphrey Company........................
DLJ direct Inc.......................................
---------
Total 8,535,000
=========
28
<PAGE> 29
Annex I
Metamor Worldwide Inc.
David N. Campbell
J. Brian Farrar
Eugene Rooney
Steven M. Isaacson
James W. Crownover
Peter T. Dameris
John M. Whiteside
29
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
XPEDIOR INCORPORATED
(Pursuant to Sections 242 and 245 of the General Corporation
Law of the State of Delaware)
Xpedior Incorporated, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify as follows:
1. The name of the Corporation is Xpedior Incorporated, and the name
under which the Corporation was originally incorporated was Metamor Solutions
Holdings, Inc. The Corporation's original Certificate of Incorporation was filed
on December 30, 1997 and amended on November 4, 1998, August 16, 1999, August
26, 1999 and October 20, 1999.
2. This Amended and Restated Certificate of Incorporation (the "Amended
and Restated Certificate of Incorporation") restates and integrates and further
amends the Certificate of Incorporation of the Corporation as follows.
FIRST: The name of the Corporation is Xpedior Incorporated.
SECOND: The registered office of the Corporation in the State of
Delaware is located at Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle. The name of the registered agent of the
Corporation at such address is The Corporation Trust Company.
THIRD: The nature of the business to be conducted by the Corporation is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is 105,000,000 shares, consisting of 5,000,000 shares of
preferred stock, par value $0.01 per share (the "Preferred Stock"), and
100,000,000 shares of common stock, par value $0.01 per share (the "Common
Stock").
The following is a statement fixing certain of the designations and
powers, voting powers, preferences, and relative, participating, optional or
other rights of the Preferred Stock and the Common Stock of the Corporation, and
the qualifications, limitations or restrictions thereof, and the authority with
respect thereto expressly granted to the Board of Directors of the Corporation
to fix any such provisions not fixed by this Amended and Restated Certificate of
Incorporation:
XPEDIOR INCORPORATED
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
-1-
<PAGE> 2
1. The Board of Directors is hereby expressly vested with the authority
to adopt a resolution or resolutions providing for the issuance of authorized
but unissued shares of Preferred Stock, which shares may be issued from time to
time in one or more series and in such amounts as may be determined by the Board
of Directors in such resolution or resolutions. The powers, voting powers,
designations, preferences, and relative, participating, optional or other
rights, if any, of each series of Preferred Stock and the qualifications,
limitations or restrictions, if any, of such preferences and/or rights
(collectively the "Series Terms"), shall be such as are stated and expressed in
a resolution or resolutions providing for the creation or revision of such
Series Terms (a "Preferred Stock Series Resolution") adopted by the Board of
Directors (or a committee of the Board of Directors to which such responsibility
is specifically and lawfully delegated). The powers of the Board with respect to
the Series Terms of a particular series shall include, but not be limited to,
determination of the following:
(a) The number of shares constituting that series and the
distinctive designation of that series, or any
increase or decrease (but not below the number of
shares thereof then outstanding) in such number;
(b) The dividend rate or method of determining dividends
on the shares of that series, any conditions upon
which such dividends shall be payable, and the date
or dates or the method for determining the date or
dates upon which such dividends shall be payable,
whether such dividends, if any, shall be cumulative,
and, if so, the date or dates from which dividends
payable on such shares shall accumulate, and the
relative rights of priority, if any, of payment of
dividends on shares of that series;
(c) Whether that series shall have voting rights, in
addition to the voting rights provided by law, and,
if so, the terms of such voting rights;
(d) Whether that series shall have conversion or exchange
privileges with respect to shares of any other class
or classes of stock or of any other series of any
class of stock, and, if so, the terms and conditions
of such conversion or exchange, including provision
for adjustment of the conversion or exchange rate
upon occurrence of such events as the Board of
Directors shall determine;
(e) Whether the shares of that series shall be
redeemable, and, if so, the price or prices and the
terms and conditions of such redemption, including
their relative rights of priority, if any, of
redemption, the date or dates upon or after which
they shall be redeemable, provisions regarding
redemption notices, and the amount per share payable
in case of redemption, which amount may vary under
different conditions and at different redemption
dates;
XPEDIOR INCORPORATED
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
-2-
<PAGE> 3
(f) Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and,
if so, the terms, conditions and amount of such
sinking fund;
(g) The rights of the shares of that series in the event
of voluntary or involuntary liquidation, dissolution,
or winding up of the Corporation, and the relative
rights of priority, if any, of payment of shares of
that series;
(h) The conditions or restrictions upon the creation of
indebtedness of the Corporation or upon the issuance
of additional Preferred Stock or other capital stock
ranking on a parity therewith, or prior thereto, with
respect to dividends or distribution of assets upon
liquidation;
(i) The conditions or restrictions with respect to the
issuance of, payment of dividends upon, or the making
of other distributions to, or the acquisition or
redemption of, shares ranking junior to the Preferred
Stock or to any series thereof with respect to
dividends or distribution of assets upon liquidation;
and
(j) Any other designations, powers, preferences, and
rights, including, without limitation, any
qualifications, limitations, or restrictions thereof.
Any of the Series Terms, including voting rights, of any series may be
made dependent upon facts ascertainable outside the Amended and Restated
Certificate of Incorporation, as it may be amended and/or restated from time to
time and the Preferred Stock Series Resolution, provided that the manner in
which such facts shall operate upon such Series Terms is clearly and expressly
set forth in the Amended and Restated Certificate of Incorporation or in the
Preferred Stock Series Resolution.
Subject to the provisions of this Article FOURTH, shares of one or more
series of Preferred Stock may be authorized or issued from time to time as shall
be determined by and for such consideration as shall be fixed by the Board of
Directors (or a designated committee thereof), in an aggregate amount not
exceeding the total number of shares of Preferred Stock authorized by this
Amended and Restated Certificate of Incorporation. The number of authorized
shares of Preferred Stock may be increased or decreased (but not below the
number of shares thereof then outstanding) by the affirmative vote of the
holders of a majority of the outstanding shares of Common Stock, without a vote
of the holders of the Preferred Stock, or of any series thereof, unless a vote
of any such holder is required pursuant to any Preferred Stock Series
Resolution. Except in respect of series particulars fixed by the Board of
Directors as permitted hereby, all shares of Preferred Stock shall be of equal
rank and shall be identical. All shares of any one series of Preferred Stock so
designated by the Board of Directors shall be alike in every particular, except
that shares of any one series issued at different times may differ as to the
dates from which dividends thereon shall be cumulative.
XPEDIOR INCORPORATED
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
-3-
<PAGE> 4
2. Subject to the provisions of any Preferred Stock Series Resolution,
the Board of Directors may, in its discretion, out of funds legally available
for the payment of dividends and at such times and in such manner as determined
by the Board of Directors, declare and pay dividends on the Common Stock of the
Corporation. No dividend shall be declared or paid on any share or shares of any
class of stock or series thereof ranking on a parity with the Common Stock in
respect of payment of dividends for any dividend period unless there shall have
been declared, for the same dividend period, like proportionate dividends on all
shares of Common Stock then outstanding.
In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after payment or provision for
payment of the debts and other liabilities of the Corporation and payment or
setting aside for payment of any preferential amount due to the holders of any
other class or series of stock, the holders of the Common Stock shall be
entitled to receive ratably any or all assets remaining to be paid or
distributed.
Subject to any special voting rights set forth in any Preferred Stock
Series Resolution, the holders of the Common Stock of the Corporation shall be
entitled at all meetings of stockholders to one vote for each share of such
stock held by them. Except as may be provided in a Preferred Stock Series
Resolution, the Common Stock shall have the exclusive right to vote for the
election of directors and for all other purposes, and holders of Preferred Stock
shall not be entitled to receive notice of any meeting of stockholders at which
they are not entitled to vote.
3. Whenever reference is made in this Article FOURTH to shares "ranking
prior to" another class of stock or "on a parity with" another class of stock,
such reference shall mean and include all other shares of the Corporation in
respect of which the rights of the holders thereof as to the payment of
dividends or as to distributions in the event of a voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation are
given preference over, or rank on an equality with, respectively, the rights of
the holders of such other class of stock. Whenever reference is made to shares
"ranking junior to" another class of stock, such reference shall mean and
include all shares of the Corporation in respect of which the rights of the
holders thereof as to the payment of dividends and as to distributions in the
event of a voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Corporation are junior and subordinate to the rights of the
holders of such other class of stock.
Except as otherwise provided herein or in any Preferred Stock Series
Resolution, each series of Preferred Stock ranks on a parity with each other and
each ranks prior to Common Stock. Common Stock ranks junior to Preferred Stock.
4. Written notice of any voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Corporation, stating payment
date and the place where the distributable amounts shall be payable, shall be
given by mail, postage prepaid, not less than thirty (30) days prior to the
payment date stated therein, to the holders of record of the Preferred Stock, if
any, at their respective addresses as the same shall appear on the books of the
Corporation.
XPEDIOR INCORPORATED
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
-4-
<PAGE> 5
5. The Corporation shall at all times reserve and keep available, out
of its authorized but unissued shares of Common Stock or out of shares of Common
Stock held in its treasury, the full number of shares of Common Stock into which
any series of Preferred Stock having conversion privileges from time to time
outstanding are convertible.
Unless otherwise provided in a Preferred Stock Series Resolution with
respect to a particular series of Preferred Stock, all shares of Preferred Stock
redeemed or acquired by the Corporation (as a result of conversion or otherwise)
shall be retired and restored to the status of authorized but unissued shares.
6. No holder of shares of stock of the Corporation shall have any
preemptive or other rights, except as such rights are expressly provided by
contract, to purchase or subscribe for or receive any shares of any class, or
series thereof, of stock of the Corporation, whether now or hereafter
authorized, or any warrants, options, bonds, debentures or other securities
convertible into, exchangeable for or carrying any right to purchase any shares
of any class, or series thereof, of stock; but such additional shares of stock
and such warrants, options, bonds, debentures or other securities convertible
into, exchangeable for or carrying any right to purchase any shares of any
class, or series thereof, of stock may be issued or disposed of by the Board of
Directors to such persons, and on such terms and for such lawful consideration,
as in its discretion it shall deem advisable or as to which the Corporation
shall have by binding contract agreed.
7. The Corporation shall be entitled to treat the person in whose name
any share of its stock is registered as the owner thereof for all purposes and
shall not be bound to recognize any equitable or other claim to, or interest in,
such share on the part of any other person, whether or not the Corporation shall
have notice thereof, except as expressly provided by applicable law.
FIFTH: The Corporation shall have perpetual existence.
SIXTH: No holder of any shares of the Corporation, whether now or
hereinafter authorized, shall have any right to cumulate his votes for the
election of directors. Except as otherwise provided in this Amended and Restated
Certificate of Incorporation or the Bylaws or as otherwise required by law, at
all meetings of the stockholders of the Corporation, a quorum being present, all
matters shall be decided by a majority of the votes cast. The private property
of the stockholders shall not be subject to the payment of corporate debts to
any extent whatever, but shall be exempt from corporate liability.
SEVENTH: The number, classification, and terms of the Board of
Directors of the Corporation and the procedures to elect directors, to remove
directors, and to fill vacancies in the Board of Directors shall be as follows:
1. Prior to the first date (the "Trigger Date") upon which Metamor
Worldwide, Inc., a Delaware corporation (together with its subsidiaries), is not
the holder of record of a majority of the outstanding voting stock of the
Corporation entitled to vote generally in the election of directors
XPEDIOR INCORPORATED
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
-5-
<PAGE> 6
calculated on a per vote basis, the number of directors that shall constitute
the whole Board of Directors shall from time to time be fixed exclusively by the
affirmative vote of the holders of a majority of the outstanding shares of the
classes or series of stock then entitled to vote at an election of directors
(the "voting stock"), voting together as a single class. On and after the
Trigger Date, subject to the rights of any particular class or series of the
capital stock of the Corporation, to elect additional directors under specific
circumstances, the number of directors that shall constitute the whole Board of
Directors shall from time to time be fixed exclusively by the Board of Directors
by a resolution adopted by a majority of the whole Board of Directors serving at
the time of that vote. In no event shall the number of directors that constitute
the whole Board of Directors be fewer than three. No decrease in the number of
directors shall have the effect of shortening the term of any incumbent
director. Directors of the Corporation need not be elected by written ballot
unless the Bylaws of the Corporation otherwise provide.
2. The Board of Directors of the Corporation shall be divided into
three classes designated Class I, Class II, and Class III, respectively, all as
nearly equal in number as possible, with each director then in office receiving
the classification that at least a majority of the Board of Directors
designates. The initial term of office of directors of Class I shall expire at
the annual meeting of stockholders of the Corporation in 2000, of Class II shall
expire at the annual meeting of stockholders of the Corporation in 2001, and of
Class III shall expire at the annual meeting of stockholders of the Corporation
in 2002, and in all cases as to each director until his successor is elected and
qualified or until his earlier death, resignation or removal. At each annual
meeting of stockholders beginning with the annual meeting of stockholders in
2000, each director elected to succeed a director whose term is then expiring
shall hold his office until the third annual meeting of stockholders after his
election and until his successor is elected and qualified or until his earlier
death, resignation or removal. If the number of directors that constitutes the
whole Board of Directors is changed as permitted by this Article SEVENTH, the
holders of a majority of the outstanding voting stock of the Corporation, or the
majority of the whole Board of Directors, as the case may be, that adopts the
change shall also fix and determine the number of directors comprising each
class; provided, however, that any increase or decrease in the number of
directors shall be apportioned among the classes as equally as possible.
3. Prior to the Trigger Date, a director of any class of directors of
the Corporation may be removed before the expiration date of that director's
term of office, with or without cause, by the affirmative vote of the holders of
a majority of the outstanding voting stock of the Corporation, voting together
as a single class. On and after the Trigger Date, a director of any class of
directors of the Corporation may be removed before the expiration date of that
director's term of office, only for cause, by an affirmative vote of the holders
of not less than sixty-six and two-thirds percent (66-2/3%) of the outstanding
voting stock of the Corporation, voting together as a single class, cast at the
annual meeting of stockholders or at any special meeting of stockholders called
by a majority of the whole Board of Directors for this purpose.
4. Prior to the Trigger Date, vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office, or other cause and newly-created
XPEDIOR INCORPORATED
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
-6-
<PAGE> 7
directorships resulting from any increase in the authorized number of directors,
may be filled by the affirmative vote of the holders of a majority of the
outstanding voting stock of the Corporation, voting together as a single class,
and each director so chosen shall receive the classification of the vacant
directorship to which he has been appointed or, if it is a newly-created
directorship, shall receive the classification that the holders of a majority of
the outstanding voting stock of the Corporation designates and shall hold office
until the first meeting of stockholders held after his election for the purpose
of electing directors of that classification and until his successor is elected
and qualified or until his earlier death, resignation, or removal from office.
On and after the Trigger Date, vacancies in the Board of Directors resulting
from death, resignation, retirement, disqualification, removal from office, or
other cause and newly-created directorships resulting from any increase in the
authorized number of directors, may be filled by no less than a majority vote of
the remaining directors then in office, though less than a quorum, who are
designated to represent the same class or classes of stockholders that the
vacant position, when filled, is to represent or by the sole remaining director
(but not by the stockholders except as required by law), and each director so
chosen shall receive the classification of the vacant directorship to which he
has been appointed or, if it is a newly-created directorship, shall receive the
classification that at least a majority of the Board of Directors designates and
shall hold office until the first meeting of stockholders held after his
election for the purpose of electing directors of that classification and until
his successor is elected and qualified or until his earlier death, resignation,
or removal from office.
5. Prior to the Trigger Date, nominations of persons to stand for
election to the Board of Directors may be made by the affirmative vote of the
holders of a majority of the voting stock of the Corporation, voting together as
a single class. On and after the Trigger Date, nominations of persons to stand
for election to the Board of Directors shall be made in the manner set forth in
the Bylaws of the Corporation.
6. Notwithstanding any other provisions of this Amended and Restated
Certificate of Incorporation or any provision of law that might otherwise permit
a lesser or no vote, but in addition to any affirmative vote of the holders of
any particular class or series of the capital stock of the Corporation required
by law or by this Amended and Restated Certificate of Incorporation, the
affirmative vote of the holders of not less than sixty-six and two-thirds
percent (66-2/3%) of the outstanding voting stock of the Corporation, voting
together as a single class, shall be required on and after the Trigger Date to
amend or repeal, or to adopt any provision inconsistent with, this Article
SEVENTH.
EIGHTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors of the Corporation is expressly authorized:
1. To make, alter, amend and rescind the Bylaws of the Corporation.
2. To set apart out of any of the available funds of the Corporation
such reserves for proper purposes as the Board of Directors of the Corporation
may deem expedient, and to abolish any such reserves.
XPEDIOR INCORPORATED
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
-7-
<PAGE> 8
3. To determine the use and distribution of any surplus and net
profits.
4. To authorize and cause to be executed and delivered, without limit
as to amount, mortgages and instruments of pledge of, and other instruments
creating liens upon, the real and personal property of the Corporation.
5. From time to time, to determine whether and to what extent and at
what times and places and under what conditions and regulations the accounts and
books of the Corporation (other than the stock ledger) or any of them, shall be
open to the inspection of the stockholders, and no stockholder shall have any
right to inspect any account or book or document of the Corporation, except as
conferred by statute, or authorized by the Board of Directors or by a resolution
of the stockholders.
6. By resolution or resolutions, passed by a majority of the whole
Board of Directors, to designate one or more committees to consist of one or
more of the directors of the Corporation, which, to the extent provided in said
resolution or resolutions or in the Bylaws of the Corporation, shall have and
may exercise the powers of the Board of Directors in the management of the
business and affairs of the Corporation, and may have power to authorize the
seal of the Corporation to be affixed to all papers which may require it. Such
committee or committees shall have such name or names as may be stated in the
Bylaws of the Corporation or as may be determined from time to time by
resolution adopted by the Board of Directors.
This Corporation may in its Bylaws confer powers and authority upon its
Board of Directors in addition to the foregoing and in addition to the powers
and authorities expressly conferred upon it by statute.
NINTH: Prior to the Trigger Date, any action required or permitted to
be taken by the stockholders of the Corporation may be taken without a meeting
if a consent in writing, setting forth the action so taken, is signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. On and after the
Trigger Date, any action required or permitted to be taken by the stockholders
of the Corporation must be taken at a duly held annual or special meeting of
stockholders and may not be taken by any consent in writing of such
stockholders.
TENTH: Special meetings of the stockholders of the Corporation, and any
proposals to be considered at such meetings, may be called and proposed
exclusively by the Board of Directors, pursuant to a resolution approved by a
majority of the members of the Board of Directors at the time in office, and no
stockholder of the Corporation shall require the Board of Directors to call a
special meeting of common stockholders or to propose business at a special
meeting of stockholders. Notwithstanding any other provisions of this Amended
and Restated Certificate of Incorporation or any provision of law that might
otherwise permit a lesser or no vote, but in addition to any
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affirmative vote of the holders of any particular class or series of the capital
stock of the Corporation required by law or by this Amended and Restated
Certificate of Incorporation, the affirmative vote of the holders of not less
than sixty-six and two-thirds percent (66-2/3%) of the outstanding voting stock
of the Corporation, voting together as a single class, shall be required on and
after the Trigger Date to amend or repeal, or to adopt any provision
inconsistent with, this Article TENTH.
ELEVENTH: Each person who was or is made a party or is threatened to be
made a party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the Corporation or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than said law permitted
the Corporation to provide prior to such amendment), against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that except as provided in
paragraph 2 of this Article ELEVENTH, the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Article ELEVENTH shall be a contract right and
shall include the right to be paid by the Corporation the expenses incurred by
defending any such proceeding in advance of its final disposition; provided,
however, that, if the Delaware General Corporation Law requires, the payment of
such expenses incurred by a director or officer in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the Corporation
of an undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such director or
officer is not entitled to be indemnified under this Article ELEVENTH or
otherwise. The Corporation may, by action of its Board of Directors, provide
indemnification to employees and agents of the Corporation with the same scope
and effect as the foregoing indemnification of directors and officers.
2. If a claim under paragraph 1 of this Article ELEVENTH is not paid in
full by the Corporation within thirty days after a written claim has been
received by the Corporation, the claimant may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the
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expense of prosecuting such claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Corporation) that the
claimant has not met the standards of conduct which make it permissible under
the Delaware General Corporation Law for the Corporation to indemnify the
claimant for the amount claimed, but the burden of proving such defense shall be
on the Corporation. Neither the failure of the Corporation (including its Board
of Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct.
3. The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
Article ELEVENTH shall not be exclusive of any other right which any person may
have or hereafter acquire under any statute, provision of the Amended and
Restated Certificate of Incorporation, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
4. The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation, or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law.
TWELFTH: A director of the Corporation shall not be personally liable
to the Corporation 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 Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit. Any appeal or amendment of this Article TWELFTH by
the stockholders of the Corporation shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director of the
Corporation arising from an act or omission occurring prior to the time of such
repeal or amendment. In addition to the circumstances in which a director of the
Corporation is not personally liable as set forth in the foregoing provisions of
this Article TWELFTH, a director shall not be liable to the Corporation or its
stockholders to such further extent as permitted by any law hereafter enacted,
including, without limitation, any subsequent amendment to the Delaware General
Corporation Law.
THIRTEENTH: Prior to the Trigger Date, the Corporation may not issue or
sell any capital stock of the Corporation other than pursuant to the
Corporation's Stock Incentive Plan as of the date hereof without the consent of
the holders of a majority of the voting stock of the Corporation.
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FOURTEENTH: The provisions of Section 203 of the Delaware General
Corporation Law shall not be applicable to the Corporation.
FIFTEENTH: The stockholders and Board of Directors of the Corporation
shall have the power, if the Bylaws so provide, to hold their meetings and to
keep the books of the Corporation (except such as are required by the laws of
Delaware to be kept in Delaware) and documents and papers of the Corporation
outside the State of Delaware and have one or more offices within or without the
State of Delaware at such places as may be designated from time to time by the
Board of Directors.
SIXTEENTH: The Corporation reserves the right to amend, alter, change
or repeal any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation; provided that prior to the Trigger Date, the Corporation may not
amend, alter, change or repeal any provision contained in this Amended and
Restated Certificate of Incorporation without the consent of a majority of the
voting stock of the Corporation.
This Amended and Restated Certificate of Incorporation was duly adopted
by vote of the stockholders in accordance with Sections 228, 242 and 245 of the
General Corporation Law of the state of Delaware.
IN WITNESS WHEREOF, said Xpedior Incorporated has caused this Amended
and Restated Certificate of Incorporation to be signed by ____________, this ___
day of _________, 1999.
XPEDIOR INCORPORATED
By:
----------------------------
Name:
Title:
ATTEST:
- -------------------------
Secretary
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EXHIBIT 3.2
RESTATED BYLAWS
OF
XPEDIOR INCORPORATED
ARTICLE I
OFFICES
SECTION 1. PRINCIPAL OFFICE. -- The registered office of Xpedior
Incorporated ("the Corporation"), required by the General Corporation Law of the
State of Delaware (the "DGCL") to be maintained in the State of Delaware, shall
be the registered office named in the original Certificate of Incorporation of
the Corporation, or such other office as may be designated from time to time by
the Board of Directors in the manner provided by law. Should the Corporation
maintain a principal office within the State of Delaware such registered office
need not be identical to such principal office of the Corporation.
SECTION 2. OTHER OFFICES. -- The Corporation may have other offices,
either within or outside of the State of Delaware, at such place or places as
the Board of Directors may from time to time designate or the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. -- The annual meeting and all other
meetings of the stockholders shall be held at such place within or without the
State of Delaware as shall be fixed by resolution of the Board of Directors and
stated in the notice of such meeting or waiver thereof.
SECTION 2. ANNUAL MEETING. -- The annual meeting of stockholders for
the election of directors and the transaction of other business as may properly
come before the meeting shall be held in each year commencing after December 31,
1999, on such date, and at such time as the Board of Directors shall fix and set
forth in the notice of the meeting, which date shall be within thirteen (13)
months subsequent to the last annual meeting of stockholders.
SECTION 3. VOTING. -- All elections of directors shall be decided by
plurality votes. All other questions submitted to the stockholders shall be
decided by the affirmative vote of a majority of the votes cast with respect
thereto, except as otherwise provided by the Certificate of Incorporation, these
Bylaws or the DGCL.
SECTION 4. QUORUM. -- Except as otherwise required by law, by the
Certificate of Incorporation or by these Bylaws, the presence, in person or by
proxy, of stockholders holding a majority of the stock of the Corporation
entitled to vote shall constitute a quorum at all meetings of the stockholders.
In case a quorum shall not be present at any meeting, a majority in interest of
the stockholders entitled to vote thereat, present in person or by proxy, shall
have power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until the requisite amount of stock entitled to
vote shall be present. At any such adjourned meeting at which the requisite
<PAGE> 2
amount of stock entitled to vote shall be represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed, but only those stockholders entitled to vote at the meeting as
originally noticed shall be entitled to vote at any adjournment or adjournments
thereof.
SECTION 5. SPECIAL MEETINGS. -- Special meetings of the stockholders
for any purpose or purposes shall be called only upon a request in writing
therefor, stating the purpose or purposes thereof, delivered to the Chairman of
the Board, the President, or the Secretary, signed by a majority of the
directors, or by resolution of the Board of Directors. No business other than
that stated in the notice shall be transacted at any special meeting.
SECTION 6. NOTICE OF MEETINGS. -- Written or printed notice, stating
the place and time of any meeting of the stockholders of the Corporation and the
general nature of the business to be considered, shall be given by the Secretary
to each stockholder entitled to vote thereat, at such stockholder's address as
it appears on the stock transfer books of the Corporation, at least ten (10)
days but not more than sixty (60) days before the meeting. Such notice is given
when deposited in the United States mail, postage prepaid, directed to the
stockholder at such stockholder's address as it appears on the records of the
Corporation.
SECTION 7. STOCKHOLDER LIST. -- A complete list of stockholders
entitled to vote at any meeting of stockholders, arranged in alphabetical order
for each class of stock and showing the address of each such stockholder and the
number of shares registered in the name of such stockholder, shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or if not so
specified, at the place where the meeting is to be held. The stockholder list
shall also be produced and kept at the time and place of the meeting during the
duration thereof, and may be inspected by any stockholder who is present.
SECTION 8. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.
(A) Annual Meetings of Stockholders. (1) Nominations of persons for
election to the Board of Directors of the Corporation and the proposal of
business to be considered by the stockholders may be made at an annual meeting
of stockholders (a) pursuant to the Corporation's notice of meeting, (b) by or
at the direction of the Board of Directors or (c) by any stockholder of the
Corporation who was a stockholder of record at the time of giving of notice
provided for in this Bylaw, who is entitled to vote at such meeting and who
complies with the notice procedures set forth in this Bylaw.
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (c) of paragraph
(A)(1) of Section 7 of this Bylaw, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation and such other business
must otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on the
90th day, nor earlier than the close of business on the 120th day, prior to the
first anniversary of the preceding year's annual meeting; provided,
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however, that in the event that the date of the annual meeting is more than 30
days before or more than 60 days after such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the close of
business on the 120th day prior to such annual meeting and not later than the
close of business on the later of the 90th day prior to such annual meeting or
the 10th day following the day on which public announcement of the date of such
meeting is first made by the Corporation. In no event shall the public
announcement of an adjournment of an annual meeting commence a new time period
for the giving of a stockholder's notice as described above. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or reelection as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors in an election contest, or is otherwise required, in each
case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and Rule 14a-11 thereunder (including such
person's written consent to being named in the proxy statement as a nominee and
to serving as a director if elected); (b) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (i) the name and
address of such stockholder, as they appear on the Corporation's books, and of
such beneficial owner and (ii) the class or series and number of shares of the
Corporation which are owned beneficially and of record by such stockholder and
such beneficial owner.
(3) Notwithstanding anything in the second sentence of
paragraph (A)(2) of Section 7 of this Bylaw to the contrary, in the event that
the number of directors to be elected to the Board of Directors of the
Corporation is increased and there is no public announcement by the Corporation
naming all of the nominees for director or specifying the size of the increased
Board of Directors at least 100 days prior to the first anniversary of the
preceding year's annual meeting, a stockholder's notice required by this Bylaw
shall also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary at
the principal executive offices of the Corporation not later than the close of
business on the 10th day following the day on which such public announcement of
the increased Board is first made by the Corporation.
(B) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting. Nominations of
persons for election to the Board of Directors may be made at a special meeting
of stockholders at which directors are to be elected pursuant to the
Corporation's notice of meeting (1) by or at the direction of the Board of
Directors or (2) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice
provided for in this Bylaw, who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this Bylaw. In the event the
Corporation calls a special meeting of stockholders for the purpose of electing
one or more directors to the Board of Directors, any such stockholder may
nominate a person or persons (as the case may be), for election to such
position(s) as specified in the Corporation's notice of meeting, if the
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stockholder's notice required by paragraph (A)(2) of this Bylaw shall be
delivered to the Secretary at the principal executive offices of the Corporation
not earlier than the close of business on the 120th day prior to such special
meeting and not later than the close of business on the later of the 90th day
prior to such special meeting or the 10th day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting. In no
event shall the public announcement of an adjournment of a special meeting
commence a new time period for the giving of a stockholder's notice as described
above.
(C) General. (1) Only such persons who are nominated in accordance with
the procedures set forth in this Bylaw shall be eligible to serve as directors,
and only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this Bylaw. Except as otherwise provided by law, the Certificate of
Incorporation or these Bylaws, the chairman of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made or proposed, as the case may be, in
accordance with the procedures set forth in this Bylaw and, if any proposed
nomination or business is not in compliance with this Bylaw, to declare that
such defective proposal or nomination shall be disregarded.
(2) For purposes of this Bylaw, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Bylaw, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Bylaw. Nothing in this Bylaw shall be deemed to affect any rights
(a) of stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act or (b) of the holders of
any series of Preferred Stock to elect directors under specified circumstances.
SECTION 9. NO STOCKHOLDER ACTION BY WRITTEN CONSENT. -- Except as
otherwise provided by the Certificate of Incorporation, any action required or
permitted to be taken by the stockholders of the Corporation after the date of
the closing of the first public offering of Common Stock of the Corporation
registered under the Securities Act of 1933, as amended, must be taken at an
annual or special meeting of such stockholders and may not be taken by any
consent in writing of such stockholders.
SECTION 10. INSPECTORS OF ELECTIONS; OPENING AND CLOSING THE POLLS. --
The Board of Directors by resolution shall appoint, or authorize an officer of
the Corporation to appoint, one or more inspectors, which inspector or
inspectors may include individuals who serve the Corporation in other
capacities, including, without limitation, as officers, employees, agents, or
representatives of the Corporation, to act at any meeting of the stockholders
and make a written report thereof. One or more persons may be designated as
alternate inspector(s) to replace any inspector who fails to act. If no
inspector or alternate has been appointed to act, or if all inspectors or
alternates who have been appointed are unable to act, at a meeting of
stockholders, the chairman of the meeting shall
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appoint one or more inspectors to act at the meeting. Each inspector, before
discharging his or her duties, shall take and sign an oath to faithfully execute
the duties of inspector with strict impartiality and according to the best of
his or her ability. The inspector(s) shall have the duties prescribed by the
DGCL.
The chairman or the secretary of the meeting shall fix and announce at
the meeting the date and time of the opening and the closing of the polls for
each matter upon which the stockholders will vote at the meeting.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND TERM. -- Unless otherwise provided in the
Certificate of Incorporation and subject to the rights of any particular class
or series of capital stock of the Corporation to elect directors under specific
circumstances, the number of directors of the Corporation shall be fixed from
time to time exclusively by the Board of Directors pursuant to a resolution
adopted by a majority of the total number of directors then serving on the Board
of Directors, but in no event shall the number of directors be fixed at less
than three.
The directors, other than those who may be elected by the holders of
any series of Preferred Stock or any other series or class of stock, shall be
divided into three classes, as nearly equal in number as possible. One class of
directors (which shall be designated Class I) shall be initially elected for a
term expiring at the annual meeting of stockholders to be held in 2000, another
class (which shall be designated Class II) shall be initially elected for a term
expiring at the annual meeting of stockholders to be held in 2001, and another
class (which shall be designated Class III) shall be initially elected for a
term expiring at the annual meeting of stockholders to be held in 2002. Members
of each class shall hold office until their successors are elected and
qualified. At each succeeding annual meeting of the stockholders of the
Corporation, the successor or successors of the class of directors whose term
expires at that meeting shall be elected by a plurality vote of all votes cast
of each class or series of stock entitled to vote in the election of directors,
if any such class or series is entitled to vote separately as a class, at such
meeting to hold office for a term expiring at the annual meeting of stockholders
held in the third year following the year of their election.
SECTION 2. RESIGNATION. -- Any member of the Board of Directors or of
any committee thereof may resign at any time. Such resignation shall be made in
writing and shall take effect at the time specified therein, and if no time be
specified, at the time of its receipt by the Chairman of the Board or the
Secretary. The acceptance of a resignation shall not be necessary to make it
effective.
SECTION 3. VACANCIES. --Unless otherwise provided in the Certificate of
Incorporation and subject to the rights of any particular class or series of
capital stock of the Corporation to elect directors under specific
circumstances, and unless the Board of Directors otherwise determines, vacancies
resulting from death, resignation, retirement, disqualification, removal from
office or other cause, and newly created directorships resulting from any
increase in the authorized number of directors, may be filled only by the
affirmative vote of a majority of the remaining directors, even if less than a
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quorum of the Board of Directors. Directors so chosen shall hold office for a
term expiring at the annual meeting of stockholders at which the term of office
of the class to which they have been elected expires and until such directors'
successors shall have been duly elected and qualified. No decrease in the number
of authorized directors shall shorten the term of any incumbent director.
SECTION 4. REMOVAL. -- Unless otherwise provided in the Certificate of
Incorporation and subject to the rights of any particular class or series of
capital stock of the Corporation to elect directors under specific
circumstances, any director may be removed from office at any time, but only for
cause and only by the affirmative vote of the holders of at least 66 2/3 percent
of the voting power of the then outstanding capital stock of the Corporation
entitled to vote generally in the election of directors (the "Voting Stock"),
voting together as a single class.
SECTION 5. POWERS. -- The Board of Directors shall exercise all of the
powers of the Corporation except such as are by law, by the Certificate of
Incorporation of the Corporation, or by these Bylaws conferred upon or reserved
to the stockholders.
SECTION 6. COMMITTEES. -- The Board of Directors may by resolution or
resolutions, passed by a majority of the whole Board, designate one or more
committees, each committee to consist of two or more of the directors of the
Corporation which, to the extent provided in said resolution or resolutions or
in these Bylaws, shall have and may exercise the powers of the Board of
Directors in the management of the business and affairs of the Corporation and
may have power to authorize the seal of the Corporation to be affixed to all
papers which may require it. In addition to the regular members of each
committee, the Board may designate one or more alternate members who may replace
any absent or disqualified member at any meeting of the committee. In the event
of the absence or disqualification of any member of such committee, or
committees, at a time when the Board is not in session, the members of the
committee present at any meeting and not disqualified from voting, whether or
not he, she or they constitute a quorum, may unanimously appoint another member
of the Board of Directors to act at the meeting in the place of any such absent
or disqualified member. Such committee or committees shall have such name or
names as may be stated in these Bylaws or as may be determined from time to time
by resolution adopted by the Board of Directors. The chairman of each such
committee, unless otherwise provided by the Board of Directors in such
resolution or resolutions designating such committee, shall be elected by a
majority of the members of each such committee and whenever any change shall be
made in the membership of any such committee, a new chairman shall be elected in
the same manner. The committees shall keep regular minutes of their proceedings
and report the same to the Board when required.
SECTION 7. MEETINGS. -- After each annual meeting of stockholders, the
newly elected directors may hold their first meeting for the purpose of
organization and the transaction of business, if a quorum be present,
immediately after such annual meeting of the stockholders, or the time and place
of such meeting may be fixed by consent in writing of all the directors.
Regular meetings of the directors may be held without notice at such
places and times as shall be determined from time to time by the Board of
Directors.
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Special meetings of the Board may be called (1) by the Chairman of the
Board, (2) by the President, or (3) by the Secretary on the written request of
the Chairman of the Board or directors constituting a majority of the Board upon
notice to each director and shall be held at such places and time as shall be
determined by the directors, or as shall be stated in the call of the meeting.
Members of the Board of Directors or any committee designated by such
Board may, with the consent of the Chairman of the Board or the President,
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation shall
constitute presence in person at such meeting.
Any action required or permitted to be taken at any meeting of the
Board of Directors or any committee thereof may be taken without a meeting if
all the members of the Board or committee, as the case may be, consent thereto
in writing, and the writings are filed with the minutes of proceedings of the
Board or committee.
SECTION 8. QUORUM. -- A majority of the whole Board of Directors shall
constitute a quorum for the transaction of business. If at any meeting of the
Board there shall be less than a quorum present, a majority of those present may
adjourn the meeting from time to time until a quorum is obtained, and no further
notice thereof need be given other than by announcement at the meeting which
shall be so adjourned.
SECTION 9. COMPENSATION. -- Directors shall not receive any stated
salary for their services as directors or as members of committees, but by
resolution of the Board a fixed annual fee and a fixed fee for attendance at
each meeting of the Board or any committee thereof shall be established. In
addition, a fixed annual or other fee may be paid for specified services to the
Board, including service as chairman of a committee of the Board. Expenses of
attendance at any such meeting may be reimbursed. Nothing herein contained shall
be construed to preclude any director from serving the Corporation in any other
capacity, whether as an officer, agent or otherwise, and receiving compensation
therefor.
SECTION 10. ADVISORY DIRECTORS. -- The Board of Directors may elect one
or more advisory directors who shall have such powers and shall perform such
duties as the directors shall assign to them. Advisory directors shall, upon
election, serve until the next annual meeting of stockholders.
Advisory directors shall receive notices of all meetings of the Board
of Directors in the same manner and at the same time as the directors. They
shall attend said meetings referred to in said notices in an advisory capacity,
but will not cast a vote or be counted to determine a quorum. Any advisory
directors may be removed either with or without cause, by a majority of the
directors at the time in office, at any regular or special meeting of the Board
of Directors.
Advisory directors shall not receive any stated salary for their
services as advisory directors, but by resolution of the Board of Directors a
fixed annual fee and a fixed fee for attendance at each meeting of the Board or
any committee thereof shall be established. Expenses of attendance at any such
meeting
XPEDIOR INCORPORATED
BYLAWS
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<PAGE> 8
may be reimbursed. Nothing herein contained shall be construed to preclude any
advisory director from serving the Corporation in any other capacity, whether as
an officer, agent or otherwise, and receiving compensation therefor.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS. -- The officers of the Corporation shall consist
of a Chief Executive Officer, a Secretary and, if deemed necessary, expedient,
or desirable by the Board of Directors, a President, one or more Chief Operating
Officers, one or more Vice Presidents (one or more of whom may be designated
Executive or Senior Vice President), one or more Assistant Secretaries, a
Treasurer, and one or more Assistant Treasurers. Except as may otherwise be
provided in the resolution of the Board of Directors choosing him or her, no
officer need be a director. Except as may be limited by law, any number of
offices may be held by the same person, as the directors may determine.
Unless otherwise provided for in the resolution choosing him or her,
each officer shall be chosen for a term that shall continue until the meeting of
the Board of Directors following the next annual meeting of stockholders and
until his or her successor shall have been chosen and qualified.
All officers of the Corporation shall have authority and perform such
duties as shall be prescribed in the Bylaws or in the resolutions of the Board
of Directors designating and choosing such officers and shall have such
additional authority and duties as are incident to their office except to the
extent that the Bylaws or such resolutions may be inconsistent therewith. Any
officer may be removed, with or without cause, by the Board of Directors. Any
vacancy in any office may be filled by the Board of Directors.
SECTION 2. OTHER OFFICERS AND AGENTS. -- The Board of Directors may
appoint such other officers and agents as it may deem advisable, who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as shall be determined from time to time by the Board of Directors.
ARTICLE V
MISCELLANEOUS
SECTION 1. CERTIFICATES OF STOCK. -- Certificates of stock, numbered
and with the seal of the Corporation affixed, signed by the Chairman of the
Board of Directors, the President or any Vice President, and the Treasurer or
any Assistant Treasurer, or Secretary or an Assistant Secretary, shall be issued
to each stockholder certifying the number of shares owned by such stockholder in
the Corporation. When such certificates are signed by either (1) a transfer
agent other than the Corporation or its employee or (2) a registrar other than
the Corporation or its employee, the signatures of such officers of the
Corporation may be facsimiles.
XPEDIOR INCORPORATED
BYLAWS
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<PAGE> 9
SECTION 2. LOST CERTIFICATES. -- A new certificate of stock may be
issued in the place of any certificate theretofore issued by the Corporation,
alleged to have been lost or destroyed, and the directors may, in their
discretion, require the owner of the lost or destroyed certificate, or such
owner's legal representative, to give the Corporation a bond, in such sum as
they may direct to indemnify the Corporation against any claim that may be made
against it on account of the alleged loss of any such certificate or the
issuance of any such new certificate.
SECTION 3. TRANSFER OF SHARES. -- Upon surrender to the Corporation of
a certificate for shares, properly endorsed, the Corporation shall, subject to
applicable law, issue a new certificate to the transferee, cancel the old
certificate, and record the transaction on its books. The person in whose name
shares of stock stand on the books of the Corporation shall be deemed by the
Corporation to be the owner thereof for all purposes, and the Corporation shall
not be bound to recognize any equitable or other claim thereto on the part of
any other person.
SECTION 4. REGULATIONS. -- The Board of Directors may make such rules
and regulations as it may deem expedient concerning the issue, transfer, and
registration of certificates of stock of the Corporation.
SECTION 5. RECORD DATE. -- The Board of Directors may fix in advance a
date, not more than 60 days nor less than 10 preceding any action, including,
without limitation, the date of the payment of any dividend or the date of the
allotment of rights or the date when any change or conversion or exchange of
capital stock shall go into effect, as a record date for the determination of
the stockholders entitled to notice of, or to vote at, any meeting of
stockholders with respect thereto, or entitled to receive payment of any such
dividend or to any such allotment of rights or to exercise the rights in respect
of any such change, conversion or exchange of capital stock, or for the purpose
of any lawful action, and in such case such stockholders only as shall be
stockholders of record on the date so fixed shall be entitled to such notice of,
or to vote at, such meeting, or to receive payment of such dividend or to
receive such allotment of rights or to exercise such rights as the case may be,
notwithstanding any transfer of any stock on the books of the Corporation after
any such record date fixed as aforesaid.
SECTION 6. DIVIDENDS. -- Subject to the provisions of the Certificate
of Incorporation, the Board of Directors may, in its discretion, out of funds
legally available for the payment of dividends and at such times and in such
manner as determined by the Board of Directors, declare and pay dividends upon
the capital stock of the Corporation. Before declaring any dividend there may be
set apart out of any funds of the Corporation available for dividends, such sum
or sums as the directors from time to time in their discretion deem proper for
working capital or as a reserve fund for meeting contingencies or for equalizing
dividends or for such other purposes as the directors shall deem conducive to
the interests of the Corporation.
SECTION 7. SEAL. -- The corporation seal shall be circular in form and
shall contain the name of the Corporation, the year of its creation and the
words "CORPORATE SEAL DELAWARE." Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
XPEDIOR INCORPORATED
BYLAWS
-9-
<PAGE> 10
SECTION 8. NOTICE AND WAIVER OF NOTICE. -- Whenever any notice is
required by these Bylaws to be given, personal notice is not required unless
expressly so stated, and unless so stated such notice so required shall be
deemed to be sufficient if given by depositing the same in a post office box in
a sealed post-paid wrapper or by transmittal by telex or facsimile, addressed to
the person entitled thereto at his or her last known post office address or
telex or facsimile number, and such notice shall be deemed to have been given on
the day and at the time of such mailing or transmission. Stockholders not
entitled to vote shall not be entitled to receive notice of any meetings except
as otherwise provided by law.
Whenever any notice is required to be given under the provisions of any
law, or under the provisions of the Certificate of Incorporation of the
Corporation or these Bylaws, waiver thereof in writing, signed by the person or
persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto. Attendance of a person at a meeting
shall constitute a waiver of notice of such meeting, except when the person
attends a meeting for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened.
ARTICLE VI
AMENDMENTS
These Bylaws may be altered or repealed and new Bylaws may be adopted
(1) at any annual or special meeting of stockholders if notice of the proposed
alteration, repeal or adoption of the new Bylaw or Bylaws be contained in the
notice of such annual or special meeting by the affirmative vote of a majority
of the stock issued and outstanding and entitled to vote thereat, voting
together as a single class, provided, however, that any proposed alteration or
repeal of, or the adoption of any Bylaw inconsistent with, Section 1, 3 or 4 of
Article III hereof by the stockholders shall require the affirmative vote of at
least 80% of the stock issued and outstanding and entitled to vote thereat,
voting together as a single class, or (2) by the affirmative vote of a majority
of the members present at any regular meeting of the Board of Directors, or at
any special meeting of the Board of Directors, without any action on the part of
the stockholders, if notice of the proposed alteration, repeal or adoption of
the new Bylaw or Bylaws be contained in the notice of such regular or special
meeting.
XPEDIOR INCORPORATED
BYLAWS
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<PAGE> 1
EXHIBIT 4.1
<TABLE>
<S> <C> <C>
NUMBER SHARES
[XPEDIOR INCORPORATED LOGO]
XPEDIOR INCORPORATED
Incorporated Under the Laws of the State of Delaware
TR CUSIP: 98413B 10 0
SEE REVERSE FOR
CERTAIN DEFINITIONS
THIS CERTIFIES THAT [SPECIMEN]
Is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.01 EACH OF
XPEDIOR INCORPORATED
transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney, upon surrender of this
Certificate properly endorsed. This certificate is not valid unless countersigned and registered by the Transfer Agent and
Registrar.
IN WITNESS WHEREOF, the Corporation has caused the facsimile signatures of its duly authorized officers and its facsimile seal to be
affixed hereto.
Dated:
Countersigned and Registered: [XPEDIOR INCORPORATED CORPORATE SEAL] Margaret G. Reed David N. Campbell
The Bank of New York /s/ MARGARET G. REED /s/ DAVID N. CAMPBELL
Transfer Agent and Registrar
Secretary President
By
Authorized Officer
</TABLE>
<PAGE> 2
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- _____________ Custodian ___________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act __________________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, __________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
_______________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE
_______________________________________________________________________________
_______________________________________________________________________________
________________________________________________________________________ Shares
of the Capital Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint ____________________________________________
_______________________________________________________________________________
Attorney to transfer the said stock on the books of the within named
Corporation with full power of substitution in the premises.
Dated:
------------------------------
X
---------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS
ASSIGNMENT MUST CORRESPOND WITH
THE NAME(S) AS WRITTEN UPON THE FACE
OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
X
---------------------------------------
-----------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIPS IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 174Ad 15.
-----------------------------------------
<PAGE> 1
EXHIBIT 5.1
[VINSON & ELKINS L.L.P. LETTERHEAD]
December 7, 1999
Xpedior Incorporated
One North Franklin, Suite 1500
Chicago, Illinois 60606
Ladies and Gentlemen:
We are acting as counsel for Xpedior Incorporated, a Delaware
corporation (the "Company"), in connection with the proposed offer and sale (the
"Offering") by the Company and Metamor Worldwide, Inc. (the "Selling
Stockholder") as set forth in the Registration Statement (as defined below) to
the several underwriters (the "Underwriters") set forth in the underwriting
agreement (the "Underwriting Agreement") to be executed in connection with the
Offering among the Company and the representatives of the Underwriters, pursuant
to the prospectus forming a part of a Registration Statement on Form S-1, File
No. 333-89239, originally filed with the Securities and Exchange Commission on
October 18, 1999 (such Registration Statement, as amended at the effective date
thereof, being referred to herein as the "Registration Statement"), of an
aggregate of 8,535,000 shares of Common Stock, par value $.01 per share, of the
Company ("Common Stock"), together with a maximum of 1,280,250 shares of Common
Stock which may be sold to the Underwriters pursuant to the over-allotment
option provided in the Underwriting Agreement. Capitalized terms used but not
defined herein have the meanings set forth in the Registration Statement.
We are rendering this opinion as of the time the Registration Statement
becomes effective in accordance with Section 8(a) of the Securities Act of 1933,
as amended.
In connection with this opinion, we have assumed that the Registration
Statement, and any amendments thereto (including post-effective amendments),
will have become effective and the shares of Common Stock will be issued and
sold in compliance with applicable federal and state securities laws and in the
manner described in the Registration Statement and the applicable prospectus.
In connection with the opinion expressed herein, we have examined,
among other things, the Amended and Restated Certificate of Incorporation and
the Restated Bylaws of the Company, the records of corporate proceedings that
have occurred prior to the date hereof with respect to the Offering, the
Registration Statement and the form of Underwriting Agreement to be executed
among the Company, Donaldson, Lufkin & Jenrette Securities Corporation, First
Union Securities, Inc., J.P. Morgan Securities, Inc., The Robinson-Humphrey
Company LLC and DLJdirect Inc., as representatives of the several Underwriters.
We have also reviewed such questions of law as we have deemed necessary or
appropriate.
<PAGE> 2
Xpedior Incorporated
Page 2
December 7, 1999
Based upon the foregoing, we are of the opinion that (i) the shares of
Common Stock proposed to be issued and sold by the Company to the Underwriters
have been validly authorized for issuance and, upon the issuance and delivery
thereof as set forth in the Registration Statement, will be validly issued,
fully paid and nonassessable and (ii) the shares of Common Stock proposed to be
sold by the Selling Stockholder to the Underwriters in connection with the
over-allotment option have been validly authorized for issuance and, upon the
issuance and delivery thereof as set forth in the Registration Statement, will
be validly issued, fully paid and nonassessable.
This opinion is limited in all respects to the Constitution of the
State of Delaware and the Delaware General Corporation Law, as interpreted by
the courts of the State of Delaware.
We hereby consent to the statements with respect to us under the
heading "Legal Matters" in the prospectus forming a part of the Registration
Statement and to the filing of this opinion as an exhibit to the Registration
Statement, but we do not thereby admit that we are within the class of persons
whose consent is required under the provisions of the Securities Act of 1933, as
amended, or the rules and regulations of the Securities and Exchange Commission
issued thereunder.
Very truly yours,
VINSON & ELKINS L.L.P.
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This Agreement is made and entered into as of September 9, 1999, by
and between XPEDIOR INCORPORATED hereinafter referred to as "XPEDIOR," and
David N. Campbell, hereinafter referred to as "Employee".
In consideration of the mutual covenants and agreements hereinafter
set forth, the parties agree as follows:
1. OFFER AND ACCEPTANCE OF EMPLOYMENT. Employee's officer title shall
be President and Chief Executive Officer of XPEDIOR as of September 9, 1999
(the "Effective Date"). Employee agrees to accept such employment and to
perform the services specified herein, all upon the terms and conditions
hereinafter stated. Employee shall also serve on the XPEDIOR Board of
Directors ("the Board").
2. DUTIES. Employee agrees to discharge faithfully, diligently and to
the best of his ability during the term hereof the duties normally incidental
to the position of President and Chief Executive Officer of XPEDIOR. Employee
agrees to serve in such other capacity and perform such other executive duties
as the Board may reasonably direct from time to time and which are consistent
with Employee's position and status. Employee agrees that, during the term of
this Agreement, Employee will devote Employee's entire business time, skill,
energy, knowledge and best efforts to the business and affairs of XPEDIOR and
that Employee will not engage, directly or indirectly, in any other business
interest or activities, whether or not similar to that of XPEDIOR, except with
the written consent of the XPEDIOR Board. Notwithstanding the foregoing,
Employee shall not be restricted from (a) serving on the board of directors of
not more than four (4) organizations or entities which do not compete with
XPEDIOR; or (b) engaging in any capacity for a not for profit organization.
Employee agrees not to unreasonably reject a relocation to another geographic
location.
Employee shall be expected to commit whatever time is necessary for
the normal responsibilities of XPEDIOR management.
3. COMPENSATION. During the term of this Agreement, XPEDIOR agrees to
compensate the Employee and Employee agrees to accept the following amounts and
benefits:
3.1 Base Compensation. Employee shall receive a base cash
salary at the rate of Thirty-One Thousand Two Hundred Fifty Dollars and No
Cents ($31,250.00) per month--which would be equivalent to Three Hundred
Seventy-Five Thousand Dollars and No Cents ($375,000.00) over the course of a
twelve (12) month period--through the term of this Agreement, provided however,
that the parties are free to increase this salary by mutual agreement in a
writing executed by each of them. Such Base Compensation will be reviewed from
time to time by the Board's Compensation Committee (the "Compensation
Committee"), and the Compensation Committee, in its sole discretion, may make
appropriate adjustments. The compensation received by Employee from time to
time pursuant to this Section 3.1 shall be hereinafter referred to as "Base
Compensation." The Base Compensation constitutes a gross
<PAGE> 2
amount and shall be paid in substantially equal semi-monthly installments
subject to such withholding and deductions as may from time to time be legally
required.
3.2 Bonus. Employee shall be eligible to receive an annual
bonus (an "Incentive Bonus") of up to one hundred fifty percent (150%) of the
Base Compensation paid to Employee under this Agreement the previous year based
on Employee's meeting or exceeding certain performance objectives. The
performance objectives for the Incentive Bonus for the period of employment
through December 31, 1999 shall be mutually-agreed upon within sixty (60) days
of the Effective Date. The performance objectives for the Incentive Bonus for
each subsequent calendar year shall be mutually-agreed upon no later than March
31 of such subsequent calendar year. Incentive Bonuses will be paid on or
before March 31 of the year following the calendar year during which the bonus
criteria was achieved (the "Payout Date"); if Employee's employment terminates
prior to that date for any reason, XPEDIOR will pro-rate the amount of the
Incentive Bonus.
3.3 Benefits. Employee shall be entitled to participate in
any plan established by XPEDIOR, excluding any severance benefit plan that
would otherwise be applicable to Employee, to provide benefits to employees at
the time Employee meets the eligibility criteria established for each plan.
Employee shall be entitled to participate in the same benefits plans available
to other senior XPEDIOR executives after XPEDIOR is spun-off from Metamor
Worldwide, Inc.
3.4 Vacation. XPEDIOR's standard vacation policies shall
apply to Employee, provided however, that Employee shall be entitled to accrue
six and two-thirds hours vacation per semi-monthly pay period, which would
equal four (4) weeks of compensated vacation each year, to be taken at times
mutually agreed upon between Employee and the Board. No more than four (4)
weeks accrued, unused vacation may be carried over from one calendar year to
the next.
3.5. Stock Options. - Subject to the approval of the
Compensation Committee of the Board, Employee shall be granted options on the
Effective Date to purchase one million (1,000,000) shares of XPEDIOR common
stock pursuant to an option agreement, and provided further that, depending on
the capitalization and independent valuation of XPEDIOR, such number may be
adjusted. The terms of any stock options that may be granted are subject to the
terms of the Xpedior Incorporated 1999 Stock Incentive Plan ("the Stock
Incentive Plan") and the Xpedior Incorporated 1999 Stock Incentive Plan
Nonstatutory Stock Option Agreement ("the Option Agreement") which must be
executed as a condition of eligibility to receive such options. In the event of
any conflict between the terms of this Agreement, the Option Agreement or any
other oral or written representation about stock options, on the one hand, and
the terms of the Stock Incentive Plan, on the other hand, the terms of the
latter document shall govern.
3.6. Restricted Stock. - In addition to the options
referenced in Section 3.5 of this Agreement, Employee shall be granted on the
Effective Date fifty thousand (50,000) shares of restricted Common Stock of
XPEDIOR (the "Restricted Stock") pursuant to a restricted stock agreement. The
restricted stock agreement shall provide that (a) twenty-five thousand (25,000)
shares of such Restricted Stock shall become unrestricted upon the completion
of twenty-four
-2-
<PAGE> 3
(24) full months of employment from the Effective Date; (b) twelve thousand
five hundred (12,500) shares of such Restricted Stock shall become unrestricted
upon the completion of thirty-six (36) full months of employment from the
Effective Date; and (c) the remaining twelve thousand five hundred (12,500)
shares of such Restricted Stock shall become unrestricted upon the completion
of forty-eight (48) full months of employment from the Effective Date. Subject
to compliance with Securities and Exchange Commission regulations, Employee
shall be permitted to sell any shares of the Restricted Stock on the earlier of
(a) the second anniversary of XPEDIOR's initial public offering or (b) the
spin-off to the stockholders of Metamor Worldwide, Inc. of its remaining
interest in XPEDIOR.
3.7. Offer to Purchase XPEDIOR Unregistered Stock. Employee
shall be entitled, within five (5) days of the Effective Date, to purchase One
Million Dollars ($1,000,000.00) of unregistered stock at fair value as of the
date of issuance as established by Arthur Anderson. In the event that XPEDIOR's
initial public offering does not occur within one (1) year of the Effective
Date, Employee and XPEDIOR shall each have the right to cause XPEDIOR to
purchase all of the unregistered stock referenced in this section 3.7 for the
actual cost plus twelve percent (12%).
3.8. Right of Repurchase of XPEDIOR Unregistered Stock. At
the sole election of XPEDIOR, in the event that Employee terminates Employee's
employment with XPEDIOR on or before the second anniversary of the Effective
Date, Employee shall be obligated to sell to XPEDIOR all of the unregistered
stock referenced in Section 3.7 for an amount equal to actual cost plus four
hundred thousand dollars ($400,000.00).
3.9. Withholding. The amounts payable to Employee pursuant to
this Section 3 constitute gross amounts and shall be subject to such
withholding and deductions as may be legally required.
4. TERM AND TERMINATION OF EMPLOYMENT. Subject to earlier termination
as provided herein, XPEDIOR and Employee agree that the term of this Agreement
shall commence on the Effective Date and continue until two years from the
Effective Date (the "Term"), after which time this Agreement shall
automatically renew for an additional one (1)year term unless notice of
non-renewal is provided by either party to the other in writing thirty (30)
days prior to the end of the Term. XPEDIOR or Employee, as the case may be,
shall have the right to terminate employment under this Agreement at any time
for any of the following reasons:
(a) Termination Upon Death or Total Disability. In the event
of Employee's death during the Term of this Agreement, this Agreement will
terminate upon the first day of the month following Employee's date of death.
XPEDIOR may terminate this Agreement by reason of "Total Disability" upon at
least thirty (30) days' notice to Employee. As used herein, "Total Disability"
means illness or other physical or mental disability of Employee which shall
continue for a period of at least six (6) months in the aggregate during any
twelve (12) month period during the term of this Agreement, which such illness
or disability shall make it impossible or impracticable for Employee to perform
any of Employee's duties and responsibilities hereunder with whatever
reasonable accommodation may be required by applicable law. If a disagreement
-3-
<PAGE> 4
arises between Employee and XPEDIOR as to whether Employee is suffering from
"Total Disability," as defined herein, the question of Employee's disability
shall be determined by a physician designated by a majority of the XPEDIOR
Board. In the event of Employee's death, XPEDIOR shall pay Employee's heirs, in
one lump sum, twelve (12) months' of Base Compensation plus an amount equal to
the most recent incentive bonus paid to Employee in return for Employee's heirs
executing a full release of all claims against they or Employee's estate may
have against XPEDIOR and its affiliates, predecessors, parents, subsidiaries,
and their directors, officers, employees, agents and attorneys. In the event of
Employee's Total Disability, XPEDIOR shall pay Employee, in one lump sum,
twelve (12) months' of Base Compensation in return for Employee's executing a
full release of all claims against XPEDIOR and its affiliates, predecessors,
parents, subsidiaries, and their directors, officers, employees, agents and
attorneys.
(b) Termination For Cause. Prior to the end of the Term of
this Agreement, XPEDIOR, upon ten (10) days prior written notice to Employee,
may discharge Employee for Cause and terminate this Agreement without any
further liability hereunder to Employee or his estate, other than the
obligation to pay to Employee his base salary accrued to the date of
termination and accrued vacation. For purposes of this Agreement, a discharge
for "Cause" shall mean a discharge resulting from a determination by the Board
that Employee:
(i) has failed to diligently perform the material
duties assigned to Employee under this Agreement or to have abandoned
Employee's assigned job duties and not to have remedied the situation
within a reasonable period of time after receipt of written notice
from XPEDIOR specifying the failure;
(ii) has failed to abide by XPEDIOR's policies,
rules, procedures or directives and not to have remedied the situation
within a reasonable period of time after receipt of written notice
specifying the failure;
(iii) has acted in a grossly negligent manner, or
has engaged in reckless or willful misconduct with respect to XPEDIOR
which results or could have resulted in material harm to XPEDIOR's
standing among customers, suppliers, employees and other business
relationships;
(iv) has been found guilty by a court of law of
fraud, dishonesty and/or a felony crime, or any other crime involving
moral turpitude;
(v) has engaged in employee misconduct, including
but not limited to, breach of fiduciary duty, theft, fraud,
dishonesty, embezzlement, violation of securities laws, violation of
employment-related laws (including but not limited to laws prohibiting
discrimination in employment), violation of non-competition,
non-solicitation or confidentiality obligations or this Agreement,
falsification of employment applications or other business records,
insubordination, habitual absenteeism or tardiness, or unethical
activity or has failed to immediately disclose a Conflict of Interest
as defined in Section 7.
(vi) fails to agree to and execute any written
amendment to any part or
-4-
<PAGE> 5
all of Sections 6-13 of this Agreement, within thirty (30) days of
receipt of the XPEDIOR COMPANIES' (as defined herein) written
request, provided said requested amendment revises said Sections to
conform with applicable law, and provided further, that said
requested amendment does not expand the time or geographic limits set
forth herein.
In making any determination described above, the Board must act in good faith.
Notwithstanding the foregoing, Employee shall in no event be deemed to have
been discharged for Cause unless and until there shall have been delivered to
Employee a termination notice in the form of a copy of a resolution duly
adopted by the affirmative vote of not less than a majority of the entire
membership of the Board (excluding Employee, if applicable).
(c) Termination Without Cause; Constructive Termination;
Non-Renewal. Prior to the end of the Term of this Agreement, XPEDIOR, upon
written notice to Employee, may discharge Employee without Cause and terminate
this Agreement, such termination to be effective upon the date as specified in
said notice. In the event XPEDIOR terminates Employee without Cause or Employee
is Constructively Terminated, XPEDIOR shall pay Employee an amount equal to
twenty-four times (24) times Employee's then monthly base compensation (less
legally-required withholdings) and an amount sufficient to provide for one (1)
year of COBRA coverage, in return for Employee executing a termination of
employment agreement which contains a full release of all claims against
XPEDIOR and its affiliates, predecessors, parents, subsidiaries, and their
directors, officers, employees, agents and attorneys. In the event XPEDIOR
declines to renew this Agreement, XPEDIOR shall pay Employee an amount equal to
twelve (12) times Employee's then monthly base compensation (less
legally-required withholdings) and an amount sufficient to provide for one (1)
year of COBRA coverage in return for Employee executing a termination of
employment agreement which contains a full release of all claims against
XPEDIOR and its affiliates, predecessors, parents, subsidiaries, and their
directors, officers, employees, agents and attorneys. For purposes of this
Agreement, "Constructively Terminated" or "Constructive Termination" shall mean
the occurrence of any of the following events without Employee's express
written consent:
(i) A substantial and adverse change in the
Employee's duties, control, authority, status or position with
XPEDIOR, or the assignment to the Employee of any duties or
responsibilities which are materially inconsistent with such status or
position, or a material reduction in the duties and responsibilities
previously exercised by the Employee, or a loss of title, loss of
office, loss of significant authority, power or control, or any
removal of him from or any failure to reappoint or reelect him to such
positions, except in connection with the termination of his employment
for Cause or Total Disability, or as a result of Employee's death;
(ii) Any reduction by XPEDIOR in Employee's Base
Compensation unless such reduction shall also apply to similarly
situated executives of XPEDIOR and does not exceed ten percent (10%)
per year (unless otherwise agreed to in writing by Employee);
(iii) Any material breach by XPEDIOR of any
provision of this Agreement;
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(iv) A material increase in the amount of travel
required by XPEDIOR of Employee to perform Employee's duties; or
(v) Ownership by Metamor Worldwide, Inc., and/or its
parents, affiliates or subsidiaries of the majority of XPEDIOR common
stock on the second anniversary of the Effective Date, provided that
Employee notifies XPEDIOR of his intention to resign within ninety
(90) days following such anniversary.
(d) Resignation. Should Employee, at any time during the term
of this Agreement, desire to resign his employment, Employee shall submit
notice of his proposed resignation to the Board at least ninety (90) days prior
to the intended effective date thereof. This notice period may be waived by the
Board in its sole discretion. XPEDIOR will have no further obligation if
Employee resigns other than to pay Employee for compensation already earned
including any obligation under any applicable benefit plan, including accrued
vacation pay, to make the pro-rated bonus payment referenced in Section 3.2 of
this Agreement, and to make COBRA coverage available. Employee understands that
Employee will still be subject to the Sections 6, 8, 9 and 10 of this
Agreement.
All amounts described in this Section shall be subject to
legally-required withholdings.
5. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing, and if sent, postage prepaid, by
certified or registered mail, return-receipt requested (a) to Employee at
__________________ and (b) to XPEDIOR at 4400 Post Oak Parkway, Suite 1100,
Houston, Texas 77027, Attention: General Counsel, or (c) to other such address
as either party shall designate by written notice to the other party.
6. CONFIDENTIAL INFORMATION. Employee acknowledges that in the course
of his employment by XPEDIOR, XPEDIOR will provide him with certain
confidential information and knowledge concerning the operations of XPEDIOR and
Metamor Worldwide, Inc. and their affiliates and subsidiaries (hereinafter
individually and collectively referred to as "the XPEDIOR COMPANIES") which the
XPEDIOR COMPANIES desire to protect. This confidential information shall
include, but not be limited to:
(i) terms and conditions of and the identity of the
parties to the XPEDIOR COMPANIES' agreements with
their clients and suppliers, including but not
limited to price information;
(ii) management systems, policies or procedures,
including the contents of related forms and manuals;
(iii) professional advice rendered or taken by the XPEDIOR
COMPANIES;
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(iv) the XPEDIOR COMPANIES' own financial data, business
and management information, strategies and plans and
internal practices and procedures, including but not
limited to internal financial records, statements
and information, cost reports or other financial
information;
(v) proprietary software, systems and technology-related
methodologies of the XPEDIOR COMPANIES and their
clients;
(vi) salary, bonus and other personnel information
relating to the XPEDIOR COMPANIES' personnel;
(vii) the XPEDIOR COMPANIES' business and management
development plans, including but not limited to
proposed or actual plans regarding acquisitions
(including the identity of any acquisition
contacts), divestitures, asset sales, and mergers;
(viii) decisions and deliberations of the XPEDIOR
COMPANIES' committees or boards;
(ix) litigation, disputes, or investigations to which the
XPEDIOR COMPANIES may be party and legal advice
provided to Employee on behalf of the XPEDIOR
COMPANIES in the course of Employee's employment;
and
(x) the particular information technology needs and
concerns of the XPEDIOR COMPANIES' customers,
clients and active prospects.
Employee understands that such information is confidential, and he agrees not
to reveal such information to anyone outside the XPEDIOR COMPANIES so long as
the confidential or secret nature of such information shall continue. Employee
further agrees that he will at no time use such information in competing with
the XPEDIOR COMPANIES. At such time as Employee shall cease to be employed by
XPEDIOR, he will surrender to XPEDIOR all papers, documents, writings and other
property produced by him or coming into his possession by or through his
employment and relating to the information referred to in this paragraph, and
Employee agrees that all such materials will at all times remain the property
of the XPEDIOR COMPANIES.
7. CONFLICTS OF INTEREST. Subject to the provisions of Section 2
above, in keeping with Employee's fiduciary duties to the XPEDIOR COMPANIES,
Employee agrees that he shall not, acting alone or in conjunction with others,
directly or indirectly, become involved in a conflict of interest, or upon
discovery thereof, allow such a conflict to continue. Moreover, Employee agrees
that he shall disclose to the Board any facts which might involve any
reasonable possibility of a conflict of interest.
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<PAGE> 8
It is agreed that a direct or indirect interest in, connection with,
or benefit from any outside activities, particularly commercial activities,
which interest might in any way adversely affect the XPEDIOR COMPANIES involves
a possible conflict of interest. Circumstances in which a conflict of interest
on the part of Employee would or might arise, and which should be reported
immediately by Employee to the Board, include, but are not limited to the
following:
(i) Ownership of a material interest in any supplier,
contractor, subcontractor, or other entity with
which the XPEDIOR COMPANIES do business;
(ii) Acting in any capacity including director, officer,
partner, consultant, employee, distributor, agent or
the like, for suppliers, contractors,
subcontractors, or other entities with which the
XPEDIOR COMPANIES do business;
(iii) Acceptance, directly or indirectly, of payments,
services or loans from a supplier, contractor,
subcontractor, or other entity with which the entity
does business, including but not limited to, gifts,
trips, entertainment, or other favors, of more than
a nominal interest;
(iv) Misuse of information or facilities of the XPEDIOR
COMPANIES to which Employee has access in a manner
which will be detrimental to the XPEDIOR COMPANIES'
interest, such as, utilization for Employee's own
benefit of know-how or information developed through
the XPEDIOR COMPANIES' business or research
activities;
(v) Disclosure or other misuse of information of any
kind obtained through Employee's connection with the
XPEDIOR COMPANIES;
(vi) Acquiring or trading in, directly or indirectly,
other properties or interests connected with the
services provided by the XPEDIOR COMPANIES;
(vii) The appropriation by Employee or diversion to
others, directly or indirectly, of any business
opportunity in which it is known or could reasonably
be anticipated that the XPEDIOR COMPANIES would be
interested; and
(viii) The ownership, directly or indirectly, of a material
interest in an enterprise in competition with the
XPEDIOR COMPANIES or acting as a director, officer,
partner, consultant, employee or agent of any
enterprise which is in competition with the XPEDIOR
COMPANIES.
Nothing contained in this Agreement shall prohibit Employee from owing
no more than one percent (1%) of the publicly traded capital stock or
possessing greater than a one percent (1%) ownership interest in any company.
8. NON-COMPETITION. In return for the consideration stated in this
Agreement,
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<PAGE> 9
including the promise of XPEDIOR to provide Employee with confidential
information, Employee agrees that, during Employee's employment and for two (2)
years after the termination of Employee's employment, Employee shall not
directly or indirectly possess an ownership interest in, manage, control,
participate in, consult with, or render services for any other person, firm,
association or corporation, engaged the XPEDIOR COMPANIES' business in at the
time of Employee's terminationin the United States of America.
Employee agrees that Employee shall not, either directly or
indirectly, during Employee's employment and for two (2) years after
termination of employment, in any capacity whatsoever (either as an employee,
officer, director, stockholder, proprietor, partner, joint venturer, consultant
or otherwise) (a) solicit, contact, call upon, communicate with, or attempt to
communicate with any of the XPEDIOR COMPANIES' clients for the purpose of
providing services to such client, or (b) sell any services to any client of
the XPEDIOR COMPANIES. For the purposes of this paragraph, "services" shall
mean activities performed by the XPEDIOR COMPANIES at any time within the one
(1) year period preceding termination of Employee's employment. For the
purposes of this Agreement, "client" shall be defined as those entities with
which the XPEDIOR COMPANIES have conducted any business during the twelve (12)
month period prior to termination of the employment relationship.
Employee agrees that during Employee's employment, Employee shall not
directly or indirectly, on behalf of anyone other than the XPEDIOR COMPANIES,
either alone or in conjunction with any other person or entity, employ,
solicit, induce, or recruit, any person then employed by the XPEDIOR COMPANIES
or employed at any time during the immediately preceding one (1) year period.
Employee agrees that for a period of two (2) years after termination of
employment, Employee shall not directly or indirectly, either alone or in
conjunction with any other person or entity, employ, solicit, induce, or
recruit, any person who is employed by the XPEDIOR COMPANIES as of the date
Employee's employment is terminated or at any time during the one (1) period
immediately preceding Employee's termination.
Employee agrees that it is his intention that any restriction
contained in this section that is determined to be unenforceable be modified by
any court having jurisdiction to be reasonable and enforceable, and, as
modified, to be fully enforced.
9. SPECIFIC PERFORMANCE. Employee acknowledges that a remedy at law
for any breach or attempted breach of Sections 6, 7 and 8 of this Agreement
will be inadequate, agrees that the XPEDIOR COMPANIES may be entitled to
specific performance and injunctive and other equitable relief in case of any
such breach or attempted breach, and further agrees to waive any requirement
for the securing or purchasing of any bond in connection with the obtaining of
any such injunctive or any other equitable relief.
10. ARBITRATION. Any controversy or claim arising out of or relating
to this Agreement, the breach thereof, Employee's employment with XPEDIOR, or
the termination thereof, whether arising during or after the period of
employment or under statute, common law or otherwise, except for the injunctive
relief described in Section 9 of this Agreement, shall be settled by
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association (AAA), and judgment upon the award rendered by the
arbitrator may be
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<PAGE> 10
entered in any court having jurisdiction thereof. The location of such
arbitration shall be Boston, Massachusetts. To select an arbitrator, each party
shall strike a name from the list submitted by AAA with the grieving party
striking first. The arbitrator shall not have the power to add to or ignore any
of the terms and conditions of this Agreement. His decision shall not go beyond
what is necessary for the interpretation and application of this Agreement and
obligations of the parties under this Agreement. Cost of such arbitration, but
not attorney's fees, will be paid by the losing party.
11. BINDING EFFECT. This Agreement shall be binding upon all
successors and assigns of XPEDIOR. The obligations of Employee under this
Agreement are personal and may not be assigned.
12. GOVERNING LAW. This Agreement shall be construed in accordance
with and governed for all purposes by the laws of the Commonwealth of
Massachusetts.
13. SEVERABILITY. In case any term, phrase, clause, paragraph,
section, restriction, covenant or agreement contained in this Agreement shall
be held to be invalid or unenforceable, the same shall be deemed, and it is
hereby agreed that same is meant to be, severable, and such invalidity or
unenforceability shall not defeat or impair the remaining provisions hereof.
14. WAIVER OF BREACH. The waiver by either party hereto of a breach of
any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach of such breaching party.
15. ENTIRE AGREEMENT; SURVIVAL. This Agreement supersedes, replaces
and merges all previous agreements and discussions relating to the same or
similar subject matters between Employee and XPEDIOR and constitutes the entire
Agreement between Employee and XPEDIOR with respect to the subject matter of
this Agreement. Employee acknowledges and agrees that he has not relied on any
representations not contained herein, which may have been made to Employee by
any representative of the XPEDIOR COMPANIES, including but not limited to
representations about the XPEDIOR COMPANIES or terms of employment.
Notwithstanding anything else contained in this Agreement, the provisions of
Sections 5-16 of this Agreement shall survive termination of this Agreement.
16. MODIFICATION. This Agreement may not be changed or terminated
orally, and no change, termination, or waiver of this Agreement or of any of
the provisions herein contained shall be binding unless made in writing and
signed by both parties, and in the case of XPEDIOR, by a duly-authorized
representative of the Board's Compensation Committee.
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<PAGE> 11
In witness whereof, the parties hereto have affixed their signatures
to this Agreement on the dates stated below, this Agreement to be effective as
of the Effective Date.
XPEDIOR INCORPORATED
/s/ David N. Campbell By: /s/ Michael T. Willis
- --------------------------- -------------------------------
David N. Campbell Michael T. Willis
Chief Executive Officer
Date: September 9, 1999 Date: September 9, 1999
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<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
This Agreement is made and entered into as of October 13, 1999, by and
between XPEDIOR INCORPORATED hereinafter referred to as "XPEDIOR," and J. Brian
Farrar, hereinafter referred to as "Employee".
In consideration of the mutual covenants and agreements hereinafter
set forth, the parties agree as follows:
1. OFFER AND ACCEPTANCE OF EMPLOYMENT. Employee's officer title shall
be Executive Vice President and Chief Operating Officer of XPEDIOR as of
October __, 1999 (the "Effective Date"). Employee agrees to accept such
employment and to perform the services specified herein, all upon the terms and
conditions hereinafter stated. Employee shall also serve on the XPEDIOR Board
of Directors ("the Board") and a key executive member of the XPEDIOR corporate
strategy council.
2. DUTIES. Employee agrees to discharge faithfully, diligently and to
the best of his ability during the term hereof the duties normally incidental
to the position of Executive Vice President and Chief Operating Officer of
XPEDIOR. Employee shall report to the Chief Executive Officer of XPEDIOR.
Employee's duties shall include, but not be limited to, oversight of XPEDIOR
operations and strategy development, with executive responsibility for meeting
XPEDIOR's overall operating expectations and direct operational responsibility
for North American revenues, profit, and operational quality. In this capacity,
Employee's direct reports will include North American regional executives and
practice executives, and his functional areas of responsibility will include
human resources, information technology, sales, and marketing. Employee agrees
to serve in such other capacity and perform such other executive duties as the
Chief Executive Officer or the Board may reasonably direct from time to time
and which are consistent with Employee's position and status. Employee agrees
that, during the term of this Agreement, Employee will devote Employee's entire
business time, skill, energy, knowledge and best efforts to the business and
affairs of XPEDIOR and that Employee will not engage, directly or indirectly,
in any other business interest or activities, whether or not similar to that of
XPEDIOR, except with the written consent of the XPEDIOR Board. Notwithstanding
the foregoing, Employee shall not be restricted from (a) serving on the board
of directors of not more than four (4) organizations or entities which do not
compete with XPEDIOR; or (b) engaging in any capacity for a not for profit
organization.
Employee shall be expected to commit whatever time is necessary for
the normal responsibilities of XPEDIOR management.
3. COMPENSATION. During the term of this Agreement, XPEDIOR agrees to
compensate the Employee and Employee agrees to accept the following amounts and
benefits:
3.1 Base Compensation. Employee shall receive a base cash
salary at the rate of Twenty Thousand Eight Hundred Thirty-Three Dollars and
Thirty-Three Cents ($20,833.33) per month--which would be equivalent to Two
Hundred Fifty Thousand Dollars and No Cents
<PAGE> 2
($250,000.00) over the course of a twelve (12) month period--through the term
of this Agreement, provided however, that the parties are free to increase this
salary by mutual agreement in a writing executed by each of them. Such Base
Compensation will be reviewed from time to time by the Board's Compensation
Committee (the "Compensation Committee"), and the Compensation Committee, in
its sole discretion, may make appropriate adjustments. The compensation
received by Employee from time to time pursuant to this Section 3.1 shall be
hereinafter referred to as "Base Compensation." The Base Compensation
constitutes a gross amount and shall be paid in substantially equal
semi-monthly installments subject to such withholding and deductions as may
from time to time be legally required.
3.2 Bonus. Any incentive compensation plan in effect
immediately prior to the Effective Date of this Agreement shall be deemed
terminated as of the Effective Date, and payment of any compensation thereunder
shall be pro-rated to reflect the date of termination of such plan. Employee
shall also be eligible to receive a bonus for work performed from the Effective
Date through December 31, 1999 of up to Ninety-Three Thousand Seven Hundred
Fifty Dollars ($93,750.00) (less withholdings) based on the determination by
the Chief Executive Officer and Board that Employee has met or exceeded the
performance objectives set forth in Schedule A attached hereto and incorporated
herein by this reference. Thereafter, commencing with the year 2000, Employee
shall be eligible to receive an annual bonus (the "Incentive Bonus") of up to
one hundred fifty percent (150%) of the Base Compensation paid to Employee
under this Agreement the previous year based on Employee's meeting or exceeding
certain performance objectives. The performance objectives for the Incentive
Bonus for the year 2000 and for each subsequent calendar year shall be
mutually-agreed upon no later than March 31 of each calendar year. (In each of
these years, unless otherwise mutually agreed in writing, two thirds of the
Incentive Bonus will be based on meeting budgeted revenue expectations for the
budget year, and the remainder for meeting an additional target goal.) The
Chief Executive Officer and the Board shall determine whether Employee has met
or exceeded the performance objectives for each year. Incentive Bonuses will be
paid on or before March 31 of the year following the calendar year during which
the bonus criteria was achieved (the "Payout Date"), provided, however, that up
to 75% of the total Incentive Compensation will be advanced over one or more
quarterly payments if the Chief Executive Officer and the Board determine that
year-to-date performance is on track for meeting the established performance
objectives for that year. If Employee's employment terminates prior to the
Payout Date for any reason, XPEDIOR will pro-rate and pay Employee the amount
of unpaid portions of the Incentive Bonus. If Employee is advanced any part of
an Incentive Bonus in any year during the which the Chief Executive Officer and
Board ultimately determine that performance objectives were not met or
exceeded, then the amounts thus paid will be credited against the first dollars
otherwise to be paid in Incentive Bonus in subsequent years or credited against
any first dollars that may be owed to Employee by XPEDIOR, including payments
owed in consequence of a termination of this Agreement.
3.3 Benefits. Employee shall be entitled to participate in
any plan established by XPEDIOR, excluding any severance benefit plan that
would otherwise be applicable to Employee, to provide benefits to employees at
the time Employee meets the eligibility criteria established for each plan.
Employee shall be entitled to participate in the same benefits plans available
to other senior XPEDIOR executives after XPEDIOR is spun-off from Metamor
Worldwide, Inc.
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<PAGE> 3
3.4 Vacation. XPEDIOR's standard vacation policies shall
apply to Employee, provided however, that Employee shall be entitled to accrue
six and two-thirds hours vacation per semi-monthly pay period, which would
equal four (4) weeks of compensated vacation each year, to be taken at times
mutually agreed upon between Employee and the Chief Executive Officer. XPEDIOR
acknowledges that Employee currently has six (6) weeks of accrued, unused
vacation, and Employee agrees that Employee will not utilize more than two (2)
weeks of such accrued vacation at any one time, and further agrees to be
available by phone or e-mail during use of any such period of vacation. No more
than ten (10) weeks accrued, unused vacation may be carried over from one
calendar year to the next.
3.5. Stock Options. - Pursuant to a grant made on August 12,
1999, Employee shall receive options to purchase three hundred thousand
(300,000) shares of XPEDIOR common stock pursuant to an option agreement, and
provided further that, depending on the capitalization and independent
valuation of XPEDIOR, such number may be adjusted. In addition, subject to the
approval of the Compensation Committee of the Board, Employee shall be granted
options on the Effective Date to purchase one hundred thousand (100,000) shares
of XPEDIOR common stock pursuant to an option agreement, and provided further
that, depending on the capitalization and independent valuation of XPEDIOR,
such number may be adjusted. The terms of any stock options that may be granted
are subject to the terms of the Xpedior Stock Incentive Plan ("the Stock
Incentive Plan") and the Xpedior Incorporated 1999 Stock Incentive Plan
Nonstatutory Stock Option Agreement ("the Option Agreement") which must be
executed as a condition of eligibility to receive such options. In the event of
any conflict between the terms of this Agreement, the Option Agreement or any
other oral or written representation about stock options, on the one hand, and
the terms of the Stock Incentive Plan, on the other hand, the terms of the
latter document shall govern.
3.6. Withholding. The amounts payable to Employee pursuant to
this Section 3 constitute gross amounts and shall be subject to such
withholding and deductions as may be legally required.
3.7 Royalties. Nothing in this Agreement shall be interpreted
to prohibit Employee from receiving royalties or other payments or compensation
on the sales of any books that he has authored, co-authored, edited or
contributed to.
3.8 Attorneys' Fees. XPEDIOR shall pay the attorneys' fees
and costs billed by Employee's counsel in negotiating and documenting this
Agreement, up to a maximum of three thousand dollars ($3,000.00).
4. TERM AND TERMINATION OF EMPLOYMENT. Subject to earlier termination
as provided herein, XPEDIOR and Employee agree that the term of this Agreement
shall commence on the Effective Date and continue until two years from the
Effective Date (the "Term"), after which time this Agreement shall
automatically renew for an additional one (1) year term unless notice of
non-renewal is provided by either party to the other in writing thirty (30)
days prior to the end of the Term. XPEDIOR or Employee, as the case may be,
shall have the right to terminate employment under this Agreement at any time
for any of the following reasons:
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<PAGE> 4
(a) Termination Upon Death or Total Disability. In the event
of Employee's death during the Term of this Agreement, this Agreement will
terminate upon the first day of the month following Employee's date of death.
XPEDIOR may terminate this Agreement by reason of "Total Disability" upon at
least thirty (30) days' notice to Employee. As used herein, "Total Disability"
means illness or other physical or mental disability of Employee which shall
continue for a period of at least six (6) months in the aggregate during any
twelve (12) month period during the term of this Agreement, which such illness
or disability shall make it impossible or impracticable for Employee to perform
any of Employee's duties and responsibilities hereunder with whatever
reasonable accommodation may be required by applicable law. If a disagreement
arises between Employee and XPEDIOR as to whether Employee is suffering from
"Total Disability," as defined herein, the question of Employee's disability
shall be determined by a physician designated by a majority of the XPEDIOR
Board. In the event of Employee's death, XPEDIOR shall pay Employee's heirs, in
one lump sum, twelve (12) months' of Base Compensation plus an amount equal to
the most recent incentive bonus paid to Employee in return for Employee's heirs
executing a full release of all claims against they or Employee's estate may
have against XPEDIOR and its affiliates, predecessors, parents, subsidiaries,
and their directors, officers, employees, agents and attorneys. In the event of
Employee's Total Disability, XPEDIOR shall pay Employee, in one lump sum,
twelve (12) months' of Base Compensation in return for Employee's executing a
full release of all claims against XPEDIOR and its affiliates, predecessors,
parents, subsidiaries, and their directors, officers, employees, agents and
attorneys.
(b) Termination For Cause. Prior to the end of the Term of
this Agreement, XPEDIOR, upon ten (10) days' prior written notice to Employee,
may discharge Employee for Cause and terminate this Agreement without any
further liability hereunder to Employee or his estate, other than the
obligation to pay to Employee his base salary accrued to the date of
termination and accrued vacation. For purposes of this Agreement, a discharge
for "Cause" shall mean a discharge resulting from a determination by the Board
that Employee:
(i) has failed to diligently perform the material
duties assigned to Employee under this Agreement or to have abandoned
Employee's assigned job duties and not to have remedied the situation
within a reasonable period of time after receipt of written notice
from XPEDIOR specifying the failure;
(ii) has failed to abide by XPEDIOR's policies,
rules, procedures or directives and not to have remedied the situation
within a reasonable period of time after receipt of written notice
specifying the failure;
(iii) has acted in a grossly negligent manner, or
has engaged in reckless or willful misconduct with respect to XPEDIOR
which results or could have resulted in material harm to XPEDIOR's
standing among customers, suppliers, employees and other business
relationships;
(iv) has been found guilty by a court of law of
fraud, dishonesty and/or a felony crime, or any other crime involving
moral turpitude;
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<PAGE> 5
(v) has engaged in employee misconduct, including
but not limited to, breach of fiduciary duty, theft, fraud,
dishonesty, embezzlement, violation of securities laws, violation of
employment-related laws (including but not limited to laws prohibiting
discrimination in employment), violation of non-competition,
non-solicitation or confidentiality obligations or this Agreement,
falsification of employment applications or other business records,
insubordination, habitual absenteeism or tardiness, or unethical
activity or has failed to immediately disclose a Conflict of Interest
as defined in Section 7.
(vi) fails to agree to and execute any written
amendment to any part or all of Sections 6-13 of this Agreement,
within thirty (30) days of receipt of the XPEDIOR COMPANIES' (as
defined herein) written request, provided said requested amendment
revises said Sections to conform with applicable law, and provided
further, that said requested amendment does not expand the time or
geographic limits set forth herein.
In making any determination described above, the Board must act in good faith.
Notwithstanding the foregoing, Employee shall in no event be deemed to have
been discharged for Cause unless and until there shall have been delivered to
Employee a termination notice in the form of a copy of a resolution duly
adopted by the affirmative vote of not less than a majority of the entire
membership of the Board (excluding Employee, if applicable).
(c) Termination Without Cause; Constructive Termination;
Non-Renewal. Prior to the end of the Term of this Agreement, XPEDIOR, upon
written notice to Employee, may discharge Employee without Cause and terminate
this Agreement, such termination to be effective upon the date as specified in
said notice. In the event XPEDIOR terminates Employee without Cause or Employee
is Constructively Terminated, XPEDIOR shall pay Employee an amount equal to
twenty-four times (24) times Employee's then monthly base compensation (less
legally-required withholdings) and an amount sufficient to provide for one (1)
year of COBRA coverage, in return for Employee executing a termination of
employment agreement which contains a full release of all claims against
XPEDIOR and its affiliates, predecessors, parents, subsidiaries, and their
directors, officers, employees, agents and attorneys. In the event XPEDIOR
declines to renew this Agreement, XPEDIOR shall pay Employee an amount equal to
twelve (12) times Employee's then monthly base compensation (less
legally-required withholdings) and an amount sufficient to provide for one (1)
year of COBRA coverage in return for Employee executing a termination of
employment agreement which contains a full release of all claims against
XPEDIOR and its affiliates, predecessors, parents, subsidiaries, and their
directors, officers, employees, agents and attorneys. For purposes of this
Agreement, "Constructively Terminated" or "Constructive Termination" shall mean
the occurrence of any of the following events without Employee's express
written consent:
(i) A substantial and adverse change in the
Employee's duties, control, authority, status or position with
XPEDIOR, or the assignment to the Employee of any duties or
responsibilities which are materially inconsistent with such status or
position, or a material reduction in the duties and responsibilities
previously exercised by the Employee, or a loss of title, loss of
office, loss of
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<PAGE> 6
significant authority, power or control, or any removal of him from
or any failure to reappoint or reelect him to such positions, except
in connection with the termination of his employment for Cause or
Total Disability, or as a result of Employee's death;
(ii) Any reduction by XPEDIOR in Employee's Base
Compensation unless such reduction shall also apply to similarly
situated executives of XPEDIOR and does not exceed ten percent (10%)
per year (unless otherwise agreed to in writing by Employee);
(iii) Any material breach by XPEDIOR of any
provision of this Agreement;
(iv) A material increase in the amount of travel
required by XPEDIOR of Employee to perform Employee's duties; or
(v) Ownership by Metamor Worldwide, Inc., and/or its
parents, affiliates or subsidiaries of the majority of XPEDIOR common
stock on the second anniversary of the Effective Date, provided that
Employee notifies XPEDIOR of his intention to resign within ninety
(90) days following such anniversary.
(d) Resignation. Should Employee, at any time during the term
of this Agreement, desire to resign his employment, Employee shall submit
notice of his proposed resignation to the Board at least thirty (30) days prior
to the intended effective date thereof. This notice period may be waived by the
Board in its sole discretion. XPEDIOR will have no further obligation if
Employee resigns other than to pay Employee for compensation already earned
including any obligation under any applicable benefit plan, including accrued
vacation pay, to make the pro-rated bonus payment referenced in Section 3.2 of
this Agreement, and to make COBRA coverage available. Employee understands that
Employee will still be subject to the Sections 6, 8, 9 and 10 of this
Agreement.
All amounts described in this Section shall be subject to
legally-required withholdings.
5. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing, and if sent, postage prepaid, by
certified or registered mail, return-receipt requested (a) to Employee at 216
N. Forest Ave., Oak Park, IL 60302 and (b) to XPEDIOR at 4400 Post Oak Parkway,
Suite 1100, Houston, Texas 77027, Attention: General Counsel, or (c) to other
such address as either party shall designate by written notice to the other
party.
6. CONFIDENTIAL INFORMATION. Employee acknowledges that in the course
of his employment by XPEDIOR, XPEDIOR will provide him with certain
confidential information and knowledge concerning the operations of XPEDIOR and
Metamor Worldwide, Inc. and their affiliates and subsidiaries (hereinafter
individually and collectively referred to as
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<PAGE> 7
"the XPEDIOR COMPANIES") which the XPEDIOR COMPANIES desire to protect. This
confidential information shall include, but not be limited to:
(i) terms and conditions of and the identity of the
parties to the XPEDIOR COMPANIES' agreements with
their clients and suppliers, including but not
limited to price information;
(ii) management systems, policies or procedures,
including the contents of related forms and manuals;
(iii) professional advice rendered or taken by the XPEDIOR
COMPANIES;
(iv) the XPEDIOR COMPANIES' own financial data, business
and management information, strategies and plans and
internal practices and procedures, including but not
limited to internal financial records, statements
and information, cost reports or other financial
information;
(v) proprietary software, systems and technology-related
methodologies of the XPEDIOR COMPANIES and their
clients;
(vi) salary, bonus and other personnel information
relating to the XPEDIOR COMPANIES' personnel;
(vii) the XPEDIOR COMPANIES' business and management
development plans, including but not limited to
proposed or actual plans regarding acquisitions
(including the identity of any acquisition
contacts), divestitures, asset sales, and mergers;
(viii) decisions and deliberations of the XPEDIOR
COMPANIES' committees or boards;
(ix) litigation, disputes, or investigations to which the
XPEDIOR COMPANIES may be party and legal advice
provided to Employee on behalf of the XPEDIOR
COMPANIES in the course of Employee's employment;
and
(x) the particular information technology needs and
concerns of the XPEDIOR COMPANIES' customers,
clients and active prospects.
Employee understands that such information is confidential, and he agrees not
to reveal such information to anyone outside the XPEDIOR COMPANIES so long as
the confidential or secret nature of such information shall continue. Employee
further agrees that he will at no time use such information in competing with
the XPEDIOR COMPANIES. At such time as Employee shall cease to be employed by
XPEDIOR, he will surrender to XPEDIOR all papers, documents, writings and other
property produced by him or coming into his possession by or through his
employment and relating to the information referred to in this paragraph, and
Employee agrees
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<PAGE> 8
that all such materials will at all times remain the property of the XPEDIOR
COMPANIES.
7. CONFLICTS OF INTEREST. Subject to the provisions of Section 2
above, in keeping with Employee's fiduciary duties to the XPEDIOR COMPANIES,
Employee agrees that he shall not, acting alone or in conjunction with others,
directly or indirectly, become involved in a conflict of interest, or upon
discovery thereof, allow such a conflict to continue. Moreover, Employee agrees
that he shall disclose to the Board any facts which might involve any
reasonable possibility of a conflict of interest.
It is agreed that a direct or indirect interest in, connection with,
or benefit from any outside activities, particularly commercial activities,
which interest might in any way adversely affect the XPEDIOR COMPANIES involves
a possible conflict of interest. Circumstances in which a conflict of interest
on the part of Employee would or might arise, and which should be reported
immediately by Employee to the Board, include, but are not limited to the
following:
(i) Ownership of a material interest in any supplier,
contractor, subcontractor, or other entity with
which the XPEDIOR COMPANIES do business;
(ii) Acting in any capacity including director, officer,
partner, consultant, employee, distributor, agent or
the like, for suppliers, contractors,
subcontractors, or other entities with which the
XPEDIOR COMPANIES do business;
(iii) Acceptance, directly or indirectly, of payments,
services or loans from a supplier, contractor,
subcontractor, or other entity with which the entity
does business, including but not limited to, gifts,
trips, entertainment, or other favors, of more than
a nominal interest;
(iv) Misuse of information or facilities of the XPEDIOR
COMPANIES to which Employee has access in a manner
which will be detrimental to the XPEDIOR COMPANIES'
interest, such as, utilization for Employee's own
benefit of know-how or information developed through
the XPEDIOR COMPANIES' business or research
activities;
(v) Disclosure or other misuse of information of any
kind obtained through Employee's connection with the
XPEDIOR COMPANIES;
(vi) Acquiring or trading in, directly or indirectly,
other properties or interests connected with the
services provided by the XPEDIOR COMPANIES;
(vii) The appropriation by Employee or diversion to
others, directly or indirectly, of any business
opportunity in which it is known or could reasonably
be anticipated that the XPEDIOR COMPANIES would be
interested; and
(viii) The ownership, directly or indirectly, of a material
interest in an enterprise
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<PAGE> 9
in competition with the XPEDIOR COMPANIES or acting
as a director, officer, partner, consultant,
employee or agent of any enterprise which is in
competition with the XPEDIOR COMPANIES.
Nothing contained in this Agreement shall prohibit Employee from owing
no more than one percent (1%) of the publicly traded capital stock or
possessing greater than a one percent (1%) ownership interest in any company.
8. NON-COMPETITION. In return for the consideration stated in this
Agreement, including the promise of XPEDIOR to provide Employee with
confidential information, Employee agrees that, during Employee's employment
and for one (1) year after the termination of Employee's employment, Employee
shall not directly or indirectly possess an ownership interest in, manage,
control, participate in, consult with, or render services for any other person,
firm, association or corporation, engaged the XPEDIOR COMPANIES' business in
any geographic area where the XPEDIOR COMPANIES are conducting business without
the prior written consent of XPEDIOR. The term "conducting business" is defined
to mean the geographic area within a twenty-five (25) mile radius of any client
of the XPEDIOR COMPANIES as of the date of the termination of Employee's
employment and the six (6) month period preceding that date.
Employee agrees that Employee shall not, either directly or
indirectly, during Employee's employment and for one (1) year after termination
of employment, in any capacity whatsoever (either as an employee, officer,
director, stockholder, proprietor, partner, joint venturer, consultant or
otherwise) (a) solicit, contact, call upon, communicate with, or attempt to
communicate with any of the XPEDIOR COMPANIES' clients for the purpose of
providing services to such client, or (b) sell any services to any client of
the XPEDIOR COMPANIES. For the purposes of this paragraph, "services" shall
mean activities performed by the XPEDIOR COMPANIES at any time within the one
(1) year period preceding termination of Employee's employment. For the
purposes of this Agreement, "client" shall be defined as those entities with
which the XPEDIOR COMPANIES have conducted any business during the twelve (12)
month period prior to termination of the employment relationship.
Employee agrees that during Employee's employment, Employee shall not
directly or indirectly, on behalf of anyone other than the XPEDIOR COMPANIES,
either alone or in conjunction with any other person or entity, employ,
solicit, induce, or recruit, any person then employed by the XPEDIOR COMPANIES
or employed at any time during the immediately preceding one (1) year period.
Employee agrees that for a period of two (2) years after termination of
employment, Employee shall not directly or indirectly, either alone or in
conjunction with any other person or entity, employ, solicit, induce, or
recruit, any person who is employed by the XPEDIOR COMPANIES as of the date
Employee's employment is terminated or at any time during the one (1) period
immediately preceding Employee's termination.
Employee agrees that it is his intention that any restriction
contained in this section that is determined to be unenforceable be modified by
any court having jurisdiction to be reasonable and enforceable, and, as
modified, to be fully enforced.
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<PAGE> 10
9. SPECIFIC PERFORMANCE. Employee acknowledges that a remedy at law
for any breach or attempted breach of Sections 6, 7 and 8 of this Agreement
will be inadequate, agrees that the XPEDIOR COMPANIES may be entitled to
specific performance and injunctive and other equitable relief in case of any
such breach or attempted breach, and further agrees to waive any requirement
for the securing or purchasing of any bond in connection with the obtaining of
any such injunctive or any other equitable relief.
10. ARBITRATION. Any controversy or claim arising out of or relating
to this Agreement, the breach thereof, Employee's employment with XPEDIOR, or
the termination thereof, whether arising during or after the period of
employment or under statute, common law or otherwise, except for the injunctive
relief described in Section 9 of this Agreement, shall be settled by
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association (AAA), and judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof. The
location of such arbitration shall be Chicago, Illinois. To select an
arbitrator, each party shall strike a name from the list submitted by AAA with
the grieving party striking first. The arbitrator shall not have the power to
add to or ignore any of the terms and conditions of this Agreement. His
decision shall not go beyond what is necessary for the interpretation and
application of this Agreement and obligations of the parties under this
Agreement. Cost of such arbitration, but not attorney's fees, will be paid by
the losing party.
11. BINDING EFFECT. This Agreement shall be binding upon all
successors and assigns of XPEDIOR. The obligations of Employee under this
Agreement are personal and may not be assigned.
12. GOVERNING LAW. This Agreement shall be construed in accordance
with and governed for all purposes by the laws of the State of Illinois.
13. SEVERABILITY. In case any term, phrase, clause, paragraph,
section, restriction, covenant or agreement contained in this Agreement shall
be held to be invalid or unenforceable, the same shall be deemed, and it is
hereby agreed that same is meant to be, severable, and such invalidity or
unenforceability shall not defeat or impair the remaining provisions hereof.
14. WAIVER OF BREACH. The waiver by either party hereto of a breach of
any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach of such breaching party.
15. ENTIRE AGREEMENT; SURVIVAL. This Agreement supersedes, replaces
and merges all previous agreements and discussions relating to the same or
similar subject matters between Employee and XPEDIOR and constitutes the entire
Agreement between Employee and XPEDIOR with respect to the subject matter of
this Agreement. Employee acknowledges and agrees that he has not relied on any
representations not contained herein, which may have been made to Employee by
any representative of the XPEDIOR COMPANIES, including but not limited to
representations about the XPEDIOR COMPANIES or terms of employment.
Notwithstanding anything else contained in this Agreement, the provisions of
Sections 5-16 of this Agreement shall survive termination of this Agreement.
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<PAGE> 11
16. MODIFICATION. This Agreement may not be changed or terminated
orally, and no change, termination, or waiver of this Agreement or of any of
the provisions herein contained shall be binding unless made in writing and
signed by both parties, and in the case of XPEDIOR, by the Chief Executive
Officer of XPEDIOR.
In witness whereof, the parties hereto have affixed their signatures
to this Agreement on the dates stated below, this Agreement to be effective as
of the Effective Date.
XPEDIOR INCORPORATED
/s/ J. Brian Farrar By: /s/ David N. Campbell
- ---------------------------- ---------------------------------
J. Brian Farrar David N. Campbell
Chief Executive Officer
Date: October 13, 1999 Date: October 13, 1999
<PAGE> 12
SCHEDULE A TO J. BRIAN FARRAR EMPLOYMENT AGREEMENT
SCHEDULE A
For the final quarter of 1999 (Q4 1999), J. Brian Farrar (hereinafter,
"Employee") and XPEDIOR have agreed to the following performance goals in
connection with the terms of the Q4 1999 Incentive Bonus, as set forth in the
Agreement to which this document is Schedule A:
I. One third of the Incentive Bonus (50% of pro-rated base compensation
for Q4 1999) will be earned if XPEDIOR recognizes, in accordance with
its standard accounting practices, net revenue for Q4 1999 of
$40,702,000 or better.
II. One third of the Incentive Bonus (50% of pro-rated base compensation
for Q4 1999) will be earned if XPEDIOR recognizes, in accordance with
its standard accounting practices, Q4 1999 earnings before interest,
taxes, depreciation, and amortization (EBITDA) of ($2,387,000) or
better.
III. One third of the Incentive Bonus (50% of pro-rated base compensation
for Q4 1999) will be earned if all of the following conditions are
satisfied during Q4 1999:
1. Employee has earned two thirds of the Incentive Bonus by meeting
the net revenue and EBITDA goals set forth above in paragraphs I
and II.
2. An employment agreement between XPEDIOR and Eugene Rooney is
fully executed by November 15, 1999.
3. An employment agreement between XPEDIOR and David Stanton is
fully executed by November 15, 1999.
4. In connection with the public offering of shares of common
stock of XPEDIOR (the "IPO"), a registration statement is
properly filed by January 1, 2000, with the Securities and
Exchange Commission.
5. Following the IPO but before January 1, 2000, Employee
participates and assists in the creation of a high quality
roadshow. Whether the roadshow is "high quality" is to be
determined solely by, and in the complete discretion of, the
Chief Executive Officer and the Board.
6. The following executive positions have been filled by January 1,
2000: Human Resources, Chief Information Officer, National
Service Line Manager, and Strategy Practice Leader.
IV. In the event the conditions of paragraph III above are not wholly
satisfied, the Chief Executive Officer and the XPEDIOR Compensation
Committee may elect in their complete discretion to pay Employee none
or some part of the remaining unearned amount of the Incentive Bonus,
commensurate with Employee's efforts in reaching these goals, and the
degree of success attained, during Q4 1999; provided, however, that
all conditions of paragraphs I and II must be satisfied, and two
thirds of the Incentive Bonus thus earned, before any partial payments
may be made under this paragraph IV.
<PAGE> 1
EXHIBIT 10.3
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (the "AGREEMENT") dated this _____ day
of ___________, ____ is between XPEDIOR INCORPORATED, a Delaware corporation,
("CORPORATION") and ___________ ("INDEMNITEE").
BACKGROUND
The Corporation has requested that Indemnitee serve as an officer
and/or director of the Corporation and/or one or more of its subsidiaries or
affiliates and, as partial consideration for the agreement by Indemnitee to
serve and to continue to serve as an officer and/or an director of the
Corporation and/or one or more of its subsidiaries or affiliates, the
Corporation has agreed to enter into this Agreement providing for
indemnification by Corporation of Indemnitee for matters contained herein to the
fullest extent allowed by applicable law.
AGREEMENT
Accordingly, in consideration of the premises, the Corporation and
Indemnitee agree as follows:
Section 1. Third Party Actions. The Corporation shall indemnify the
Indemnitee in the event Indemnitee is made a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the Corporation) by reason of the fact that he is or was a
director, officer, employee, fiduciary or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee,
fiduciary or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by Indemnitee in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the Corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement or conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that Indemnitee did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 2. Actions by or in the Right of the Corporation. The
Corporation shall indemnify the Indemnitee in the event Indemnitee is made a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee, fiduciary or agent of the Corporation, or is or was serving
at the request of the Corporation as a director, officer, employee, fiduciary or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him in
<PAGE> 2
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, Indemnitee is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
Section 3. Successful Defense. To the extent that the Indemnitee has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Sections 1 and 2, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by such person in connection therewith.
Section 4. Determination of Conduct. The determination that the
Indemnitee has met the applicable standard of conduct set forth in Sections 1
and 2 (unless indemnification is ordered by a court) shall be made (1) by a
majority vote of the directors of the Corporation who were not parties to such
action, suit or proceeding, even though less than a quorum or (2) if there are
no such directors, or if such directors so direct, by independent legal counsel
in a written opinion, or (3) by the stockholders.
Section 5. Payment of Expenses in Advance. Expenses (including
attorneys' fees) incurred by Indemnitee in defending any civil, criminal,
administrative or investigative action, suit or proceeding shall be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding in the specific case upon receipt of an undertaking by or on behalf
of the Indemnitee to repay such amount if it shall ultimately be determined that
he is not entitled to be indemnified by the Corporation as authorized in this
Agreement.
Section 6. Non-Exclusivity. The indemnification provided hereunder
shall not be deemed exclusive of any other rights to which Indemnitee may be
entitled under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to
Indemnitee if he has ceased to be a director, officer, employee, fiduciary or
agent and shall inure to the benefit of the heirs, executors and administrators
of such a person. The Corporation shall also make advances with respect to
indemnifying Indemnitee and making payments on behalf of or to reimburse
Indemnitee for, any costs or expenses (including attorneys' fees), judgments or
fines or amounts paid in settlement, in connection with any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative as set forth in Sections 1 and 2 to the extent not inconsistent
with law as evidenced by an opinion of counsel.
Section 7. Insurance. The Corporation may purchase and maintain
insurance on behalf of Indemnitee against any liability asserted against him and
incurred by him in his capacity as director, officer, employee, fiduciary or
agent of the Corporation or as director, officer, employee, fiduciary
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<PAGE> 3
or agent of another corporation, partnership, joint venture, trust or other
enterprise if he is serving in such capacity at the request of the Corporation,
or arising out of his status as such, whether or not the Corporation would have
the power to indemnify him against such liability under the provisions of this
Agreement or its bylaws.
Section 8. Meanings of Certain Terms. For purposes of this Agreement,
reference to the "CORPORATION" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers and employees, fiduciaries or agents, so that Indemnitee, if
he is or was a director, officer, employee, fiduciary or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee, fiduciary or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
For purposes of this Agreement, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee, fiduciary or agent of the Corporation
which imposes duties on, or involves services by, such director, officer,
employee, fiduciary or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Agreement.
Section 9. Construction of Agreement. The Corporation shall indemnify
and advance expenses for Indemnitee who serves in any of the capacities referred
to in Sections 1 or 2 of this Agreement to the fullest extent that a corporation
may grant indemnification and advancement of expenses to a person serving in any
such capacity under applicable law as the same exists or may be hereafter
amended. This Agreement shall constitute authorization of indemnification and
advancement of expenses as required by applicable law and it is the intent of
this Agreement to make mandatory any indemnification and advancement of expenses
permitted under applicable law as the same may exist or may be hereafter
amended. To the extent applicable law is amended to permit or require
indemnification in additional cases, this Agreement shall automatically be
amended to require indemnification of Indemnitee in such additional cases.
Section 10. General. This agreement will be construed under and in
accordance with the laws of the State of Delaware and be enforceable to the
maximum extent permitted by applicable law. In the event that Indemnitee
institutes any legal action to enforce his rights under, or to recover damages
for breach of this Agreement, Indemnitee, if he prevails in whole or in part,
shall be entitled to recover from the Corporation all attorneys' fees and
disbursements incurred by him.
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<PAGE> 4
If any provision of this Agreement or the application of any provision
hereof to any person or circumstances is held invalid, the remainder of this
Agreement and the application of such provision to other persons or
circumstances shall not be affected. The Corporation hereby irrevocably consents
and agrees that any legal action or proceeding arising out of or in any way
connected with this Agreement may be instituted or brought in the courts of the
State of Texas or the United States of America for the Southern District of
Texas, Houston Division, as the party asserting rights to indemnify hereunder
may elect, and by execution and delivery of this Agreement, Corporation hereby
irrevocably accepts and submits to, for itself and in respect of its property,
generally and unconditionally the jurisdiction of any such court, and to all
proceedings in such courts with respect to all matters governed by this
Agreement.
The Corporation further agrees that final judgment against it in any
such legal action or proceeding shall be conclusive and may be enforced in any
other jurisdiction, within or outside the United States of America, by suit on
the judgment, a certified or exemplified copy of which shall be conclusive
evidence of the fact and the amount of the indebtedness.
This Agreement shall be binding upon and insure to the benefit of
Indemnitee and his respective heirs, executors, administrators, legal
representatives, successors and assigns.
IN WITNESS WHEREOF, the undersigned has executed this agreement in
multiple counterparts, each of which shall be deemed an original and all of
which shall constitute one instrument on this the ____ day of ____________,
____.
CORPORATION
XPEDIOR INCORPORATED
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
INDEMNITEE
---------------------------------
[NAME]
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<PAGE> 1
EXHIBIT 10.4
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement"), dated as of
_________________, 1999, but effective as set forth in Section 2 below is
between Xpedior Incorporated, a Delaware corporation (the "Company"), and
Metamor Worldwide, Inc., a Delaware corporation ("MMWW").
W I T N E S E T H :
WHEREAS, MMWW is the owner of all the issued and outstanding shares of
common stock, par value $.01 per share (the "Common Stock"), of the Company;
WHEREAS, following the initial public offering referred to below, the
Common Stock will be registered under Section 12 of the Securities Exchange Act
of 1934;
WHEREAS, under the provisions of the Securities Act of 1933 (the
"Securities Act") and the general rules and regulations promulgated by the
Securities and Exchange Commission thereunder, MMWW may be limited in the manner
of selling the shares of Common Stock owned by MMWW, absent registration under
the Securities Act of the sale of such Common Stock or the availability of
another exemption from the registration requirements of the Securities Act;
WHEREAS, the Company wishes to establish certain other restrictions on the
sale of Common Stock owned by MMWW, and the Company and MMWW desire to set forth
certain registration rights as to such shares;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
SECTION 1. CERTAIN DEFINITIONS AND TERMS.
The following terms have the meanings indicated:
"Directors" means the members of the Company's board of directors.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
XPEDIOR INCORPORATED
REGISTRATION RIGHTS AGREEMENT
-1-
<PAGE> 2
"Holder" means MMWW or any other Person holding Registrable Shares and
designated in writing by MMWW as a "Holder".
"Participation Notice" means a written or oral notice by a Holder of his
desire to sell Registrable Shares in a registration by the Company.
"Person" means any individual, firm, corporation, trust, association,
partnership, joint venture or other entity.
"Registrable Shares" means all shares of Common Stock owned by a Holder or
Common Stock or other securities issued or issuable upon any stock split, stock
dividends, recapitalization or similar event.
"Register", "registered" and "registration" refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act and the declaration or ordering of effectiveness of such
registration statement.
"Registration Notice" means a written or oral notice to the Holders by the
Company of its intent to file a registration statement with the SEC.
"Rights" means rights, remedies, powers, benefits, and privileges.
"SEC" means the Securities and Exchange Commission or any successor
thereof.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
SECTION 2. REGISTRATION RIGHTS.
(a) This Agreement shall become effective commencing on the date of the
closing of the initial public offering of Common Stock (the "IPO Closing Date")
pursuant to an effective registration statement. Beginning on the date six
months after the IPO Closing Date, MMWW or its designee shall have the right to
request, in writing specifying that such request is made pursuant to this
Section 2(a), that the Company file a registration statement under the
Securities Act. Upon receipt of such request, the Company shall use its best
efforts to cause all Registrable Shares subject to such request to be registered
under the Securities Act.
Notwithstanding the foregoing, the Company shall not be obligated to effect
a registration pursuant to this Section 2(a) during any period starting with a
date sixty (60) days prior to the
XPEDIOR INCORPORATED
REGISTRATION RIGHTS AGREEMENT
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<PAGE> 3
Company's estimated date of filing of, and ending on a date six (6) months
following the effective date of, a registration statement pertaining to an
underwritten public offering of securities for the account of the Company,
provided that the Company is actively employing in good faith all reasonable
efforts to cause such registration statement to become effective and that the
Company's estimate of the date of filing of such registration statement is made
in good faith.
The Company shall be obligated to effect only three (3) registrations
pursuant to this Section 2(a) with respect to all Holders.
Holders agree that they will refrain from requesting registration under
this Section 2(a) if all of the Directors of the Company reasonably believe in
the exercise of their good faith judgment that registration at such time would
be seriously detrimental to the Company, such judgment to be evidenced by a
statement signed by all of such Directors and delivered to MMWW. Deferral of a
Holder's registration rights as a result of the exercise of this provision by
the Directors, shall in no event defer registration for a period in excess of
ninety (90) days.
(b) If, at any time, the Company proposes to file a registration statement
in connection with the public offering of shares of Common Stock to be sold by
the Company for its own account under the Securities Act (other than a
registration on Forms S-4, S-8 or any successor forms), prior to such filing,
the Company shall give each Holder a Registration Notice. Within fifteen days
after receipt by any Holder of a Registration Notice, such Holder shall deliver
to the Company a Participation Notice of such Holder's desire to sell
Registrable Shares under such registration. The Participation Notice shall state
the number of Registrable Shares to be disposed in such registration; provided,
however, such holder's right to registration of such Registrable Shares shall be
subject to any limitations in the number thereof required by the underwriters
pursuant to Section 5.
(c) The Company shall use its best efforts to promptly cause all such
Registrable Shares to be registered along with the other shares of Common Stock
to be registered, if any.
(d) Any registration under Section 2(a) must be for a firmly or best
efforts underwritten public offering to be managed by an underwriter or
underwriters of recognized standing selected by the Company and reasonably
acceptable to the Holders participating in such registration.
(e) The Registrable Shares proposed to be registered under any registration
statement under Section 2(b) hereof will be offered for sale at the same public
offering price as the shares of Common Stock offered for sale by the Company.
(f) As soon as practicable after delivering a Participation Notice or
notice pursuant to Section 2(a) to the Company, each Holder so delivering a
Participation Notice will execute and
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deliver a custody agreement and power of attorney satisfactory to the Company
with respect to the Registrable Shares to be registered (a "Custody Agreement"
and "Power of Attorney," respectively). The Custody Agreement and Power of
Attorney will provide, among other things, that such Holder will deliver to and
deposit in custody with the custodian named therein a certificate or
certificates representing such Registrable Shares (duly endorsed in blank by the
registered owner or owners thereof or accompanied by duly executed stock powers
in blank) and irrevocably appoint said custodian and attorney-in-fact with full
power and authority to act under the Custody Agreement and Power of Attorney,
respectively, on the Holder's behalf with respect to matters specified therein,
including the execution and delivery of an underwriting agreement.
SECTION 3. OBLIGATIONS OF THE COMPANY.
Whenever required under Sections 2 or 6 to use its best efforts to effect
the registration of any Registrable Shares, the Company shall, as expeditiously
as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Shares and use its best efforts to cause such
registration statement to become and remain effective; provided, however,
that the Company shall have no obligation to maintain the effectiveness of
any registration statement filed hereunder or to cause the information
therein to remain current for more than 90 days following such registration
statement's effective date in the case of a best efforts underwritten
public offering or for longer than such period as is customary and is
required by the underwriter in the case of a firmly underwritten public
offering.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to keep such registration
statement effective in order to dispose of the shares registered thereunder
in the manner described in the underwriting agreement executed in
connection therewith and to comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
registration statement; provided, however, that the Company shall have no
obligation to maintain the effectiveness of any registration statement
filed hereunder or to cause the information therein to remain current for
more than 90 days following such registration statement's effective date in
the case of a best efforts underwritten public offering or for longer than
such period as is customary and is required by the underwriter in the case
of a firmly underwritten public offering.
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(c) Furnish to the Holders registering securities in such registration
such numbers of copies of a prospectus, including a preliminary prospectus,
in conformity with the requirements of the Securities Act, and such other
documents as they may reasonably request in order to facilitate the
disposition of Registrable Shares owned by the Holders.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or "Blue
Sky" laws of such jurisdictions as shall be reasonably appropriate for the
distribution of the securities covered by the registration statement;
provided that the Company shall not be required in connection therewith or
as a condition thereto to qualify to do business or to file a general
consent to service of process in any such jurisdictions.
(e) With respect to any registration initiated by the Company pursuant
to Section 2(b) hereof, the Company shall have the right to withdraw such
registration at any time at its sole discretion without the consent or
approval of any Holder including Registrable Shares in such registration.
SECTION 4. EXPENSES OF REGISTRATION.
All expenses incurred in connection with a registration pursuant to Section
2 and Section 6 or otherwise in which the Company permits a Holder to
participate (excluding underwriters' discounts and commissions applicable to
Registrable Shares), including all registration and qualification fees, printing
and accounting fees, and fees and disbursements of counsel for the Company and
the Holder, shall be borne by the Company; provided, however, that the Company
shall not be required to pay expenses of any registration proceeding begun
pursuant to Section 2(a) if the registration is subsequently withdrawn, unless
the Holder agrees to forfeit his right to a demand registration under Section
2(a). If such registration is withdrawn, the Holder shall have the option to pay
the expenses of such registration and preserve all of his rights to demand
registrations under Section 2(a).
Each Holder of Registrable Shares shall pay the underwriters' discounts and
commissions applicable to the securities sold by such Holder. In addition, each
selling Holder shall pay its own costs for experts or professionals (other than
counsel) employed by it or on its behalf in connection with the registration of
Registrable Shares. No Holder shall have the right to cause the Company to
employ any expert or professional to act on behalf of the Company.
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SECTION 5. UNDERWRITING REQUIREMENTS.
In connection with any offering involving an underwriting of shares being
issued by the Company, the Company shall not be required to include any of the
Holders' Registrable Shares in such underwriting unless the Holders accept the
terms of the underwriting as agreed upon between the Company and the
underwriters.
Additionally, the Company shall be required to include in such piggy-back
registration under Section 2(b) only such quantity of the Registrable Shares as
will not, in the written opinion of the underwriters, which opinion shall be
delivered to MMWW, jeopardize the success of the offering by the Company. If,
however, the underwriters have consented to inclusion in any such offering of
securities of any person other than the Company, then the Holders shall be
entitled to include such number of their Registrable Shares in such underwriting
pro rata to the total number of shares of Common Stock owned by all of such
persons who are entitled to sell securities in such offering (such apportionment
shall not include securities offered by the Company for its own account).
Notwithstanding the above, however, in all cases the Holders collectively shall
have the right to include Registrable Shares in any registration under Section
2(b) in an aggregate amount equal to at least twenty percent (20%) of the shares
of Common Stock being sold in public offerings subsequent to the initial public
offering of Common Stock.
SECTION 6. REGISTRATIONS ON FORM S-3.
If any Holder requests in writing pursuant to this Section 6 that the
Company file a registration statement on Form S-3 for a public offering of
Registrable Shares in a reasonably anticipated aggregate price to the public
which exceeds Five Million Dollars ($5,000,000), then the Company shall use its
best efforts to cause such Registrable Shares to be registered on Form S-3 if
the Company is and has been a reporting company for at least one (1) year and
otherwise is eligible to register its securities pursuant to Form S-3. The
Holders' right to registration under this Section 6 is in addition to their
rights of registration under Sections 2(a) and 2(b) above.
All expenses incurred in connection with the registration requested
pursuant to this Section 6, including, all registration, qualification,
printing, accounting fees and fees of Company counsel, shall be borne by the
Company and any other persons participating in such registration pro rata to the
amount of securities registered by each such person thereunder.
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SECTION 7. INDEMNIFICATION.
(a) In the event of registration of any of the Registrable Shares under the
Securities Act, the Company will indemnify and hold harmless the seller of such
Registrable Shares, each underwriter of such Registrable Shares, and each other
person, if any, who controls such seller or underwriter within the meaning of
the Securities Act or the Exchange Act, or otherwise against any losses, claims,
damages or liabilities, joint or several, to which such seller, underwriter or
controlling person may become subject under the Securities Act, the Exchange Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in any registration
statement under which such Registrable Shares were registered under the
Securities Act, any preliminary prospectus or final prospectus contained in the
registration statement, or any amendment or supplement to such registration
statement, or arise out of or are based upon the omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading; and the Company will reimburse such seller,
underwriter, and each such controlling person for any legal or any other
expenses reasonably incurred by such seller, underwriter, or controlling person
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage, or liability
arises out of or is based upon any untrue statement or omission made in such
registration statement, preliminary prospectus or prospectus, or any such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company through an instrument duly executed by or
on behalf of such seller or underwriter specifically for use in preparation
thereof.
(b) In the event of any registration of any of the Registrable Shares under
the Securities Act, each seller of the Registrable Shares, severally and not
jointly, will indemnify and hold harmless the Company, each of its directors and
officers and each underwriter (if any) and each person, if any, who controls the
Company or any such underwriter within the meaning of the Securities Act or the
Exchange Act, against losses, claims, damages or liabilities, joint or several,
to which the Company, such directors and officers, underwriter or controlling
person may become subject under the Securities Act, Exchange Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement of a material fact
contained in any registration statement under which such Registrable Shares were
registered under the Securities Act, any preliminary prospectus or final
prospectus contained in the registration statement, or any amendment or
supplement to the registration statement, or arise out of or are based upon any
omission to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, if the statement or omission was
made in reliance upon and in conformity with information furnished in writing to
the Company by or on behalf of
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such seller, specifically for use in connection with the preparation of such
registration statement, prospectus, amendment or supplement.
(c) Each party entitled to indemnification under this Section 7 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Section 7. After notice from the Indemnifying Party
to the Indemnified Party of its election to assume the defense of such claim or
litigation, the Indemnifying Party will not be liable to such Indemnified Party
for any legal or other expenses subsequently incurred by such Indemnified Party
in connection with the defense thereof other than reasonable costs of
investigation, unless the Indemnifying Party abandons the defense of such claim
or litigation. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
SECTION 8. LOCKUP AGREEMENT.
In connection with any such registration, upon the request of the
underwriters managing any underwritten offering of Common Stock of the Company,
each Holder agrees not to sell, make any short sale of, loan, grant any option
for the purchase of, or otherwise dispose of any Registrable Shares (other than
those included in the registration) without the prior written consent of such
underwriters, as the case may be, for such period of time (not to exceed 90
days) from the effective date of such registration as the underwriters may
specify.
SECTION 9. RESTRICTIONS ON TRANSFER.
(a) Each Holder agrees that he will not sell, dispose of or otherwise
transfer any of the Registrable Shares except (i) upon registration of such
shares under the Securities Act, (ii) pursuant to Rule 144 under the Securities
Act or such comparable rules as shall from time to time be in effect, or (iii)
in a transaction exempt from the registration requirements of the Securities
Act. Each Holder agrees that the Company may issue stop transfer instructions
with respect to the restrictions contained herein on the Registrable Shares.
XPEDIOR INCORPORATED
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(b) Each certificate representing the Registrable Shares shall bear a
legend substantially in the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, UNLESS AND UNTIL SUCH SHARES ARE
REGISTERED UNDER SUCH ACT, OR SUCH STATE LAWS, OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY IS OBTAINED TO THE EFFECT THAT SUCH
REGISTRATION IS NOT REQUIRED."
SECTION 10. TERMINATION OF COMPANY'S OBLIGATIONS.
The Company will have no obligations pursuant to this Agreement with
respect to any request or requests made by any Holder who holds 10% or less of
the Registrable Shares held by him on the date hereof.
SECTION 11. REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934.
With a view to making available to the Holders the benefits of Rule 144
promulgated under the Securities Act and any other rule or regulation of the SEC
that may at any time permit a Holder to sell securities of a company to the
public without registration, the Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144, at all times subsequent to ninety (90)
days after the effective date of the first registration statement covering
an underwritten public offering filed by the Company;
(b) File with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange
Act; and
(c) Furnish to the Holders, so long as the Holders own any Registrable
Shares, forthwith upon request, a written statement by the Company that it
has complied with the reporting requirements of Rule 144 (at any time after
ninety (90) days after the effective date of such first registration
statement filed by the Company)
XPEDIOR INCORPORATED
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and of the Securities Act and the Exchange Act (at any time after it has
become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and
documents so filed by the Company as may be reasonably requested in
availing Holders of any rule or regulation of the SEC permitting the
selling of any such securities without registration.
SECTION 12. COVENANTS IN CONNECTION WITH FUTURE GRANTS OF REGISTRATION RIGHTS.
From and after the date of this Agreement, the Company shall not enter into
any agreement with any holder or prospective holder of any securities of the
Company which provides for the granting to such holder of registration rights
unless such agreement is subject and subordinate to the rights of Holders
hereunder or unless the Company first obtains the Holders' of a majority of the
Registrable Shares consent to the terms thereof.
SECTION 13. TRANSFER OF REGISTRATION RIGHTS.
The registration rights of Holders under this Agreement may be assigned and
transferred to any transferee purchasing Registrable Shares, other than in a
public offering pursuant to a registration statement, in an amount equal to at
least 50,000 Registrable Shares; provided, however, that the Company is given
written notice by the Holder at the time of such transfer stating the name and
address of the transferee and identifying the Registrable Shares with respect to
which the rights under this Agreement are being assigned. This Agreement shall
also be binding upon and enforceable by the heirs, executors, or other personal
representatives of the Holders and the successors and assigns of the Company.
SECTION 14. MISCELLANEOUS.
(a) Relationships and Rights of the Holders. The Holders agree that,
notwithstanding that certain Rights of each Holder herein may be affected by
similar Rights of other Holders the Holders shall, in respect of the ownership
of the Registrable Shares, not be related as, or deemed to be, a partnership,
joint venture, or other "group" for the purpose of acquiring, holding, voting,
or disposing of capital stock of the Company.
(b) Headings. The headings, captions, and arrangements used herein are,
unless specified otherwise, for convenience only and shall not be deemed to
limit, amplify, or modify the terms hereof, nor affect the meaning thereof.
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(c) Notices. Unless otherwise specifically provided, whenever this
agreement requires or permits any consent, approval, notice, request or demand
from one party to another, such communication must be in writing, shall be sent
by registered or certified mail, postage prepaid, return receipt requested and
shall be deemed to have been duly received upon receipt by the person to whom it
is addressed. For purposes hereof, until changed by written notice pursuant
hereto, the address for the Company is as follows, and the address for each
Holder is set forth on Schedule One:
Xpedior Incorporated
One North Franklin, Suite 1500
Chicago, Illinois 60606
Attention: President
(d) Governing Law. THIS AGREEMENT IS BEING EXECUTED AND DELIVERED BY A
NUMBER OF THE PARTIES HERETO, AND IS INTENDED TO BE PERFORMED, IN THE STATE OF
DELAWARE, AND THE INTERNAL LAWS OF SUCH STATE AND OF THE UNITED STATES OF
AMERICA SHALL GOVERN THE RIGHTS AND DUTIES OF THE PARTIES HERETO AND THE
VALIDITY, CONSTRUCTION, ENFORCEMENT, AND INTERPRETATION HEREOF.
(e) Invalid Provisions. If any provision hereof is held to be illegal,
invalid, or unenforceable under present or future laws effective during the term
hereof, such provision shall be fully severable; this Agreement shall be
construed and enforced as if such illegal, invalid, or unenforceable provision
had never comprised a part hereof; and the remaining provisions hereof shall
remain in full force and effect and shall not be affected by the illegal,
invalid, or unenforceable provision by its severance here from. Furthermore, in
lieu of such illegal, invalid, or unenforceable provision, the parties hereto
agree to add as a part hereof a provision as similar in terms to such illegal,
invalid, or unenforceable provision as may be possible and be legal, valid, and
enforceable which preserves the same economic benefits to the parties hereto.
(f) Amendments and Consents. This Agreement may be amended, or any matter
may be consented to, only by an instrument in writing executed by authorized
officers of the Company and Holders of a majority of the Registrable Shares, and
supplemented only by documents delivered or to be delivered in accordance with
the express terms hereof except that no modification providing one or more
Holders priority in registering such Holder's or Holders' Registrable Shares or
providing for the elimination of registration rights shall be made without the
consent of all Holders.
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered to
be effective as of the date first above written.
XPEDIOR INCORPORATED
By:
-------------------------------------
Name:
Title:
METAMOR WORLDWIDE, INC.
By:
-------------------------------------
Name:
Title:
XPEDIOR INCORPORATED
REGISTRATION RIGHTS AGREEMENT
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EXHIBIT 10.5
SERVICES AGREEMENT
This Services Agreement (this "Agreement") is made and entered into as of
__________, 1999, by and between Metamor Worldwide, Inc., a Delaware corporation
("MMWW"), and Xpedior Incorporated, a Delaware corporation ("Xpedior"). MMWW and
Xpedior may hereinafter be referred to individually as a "Party" or collectively
as the "Parties."
RECITALS:
WHEREAS, MMWW and Xpedior desire by their execution of this Agreement to
evidence their understanding concerning the provision of certain services by
MMWW to Xpedior and its subsidiaries;
NOW, THEREFORE, for and in consideration of the mutual promises and
conditions contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Parties hereto
hereby agree as follows:
1. Services. In order to assist the continued and orderly conduct of
certain corporate functions currently performed by MMWW and its subsidiaries for
the benefit of the Referenced Subsidiaries (defined below), MMWW agrees to
provide and Xpedior agrees to purchase, subject to the terms and conditions set
forth herein, legal, tax, risk and cash management services and personnel
(collectively, the "Services"), in each case at prevailing market rates and if
and only to the extent requested by Xpedior.
"Referenced Subsidiaries" shall mean Xpedior and its subsidiaries from time
to time. Such subsidiaries shall initially include, without limitation, those
subsidiaries listed on Exhibit A.
2. Term. This Agreement shall become effective and MMWW shall make the
Services available to the Referenced Subsidiaries pursuant to the terms of this
Agreement for the period commencing on the initial public offering of Xpedior,
and terminating twelve months thereafter (or earlier by mutual written
agreement)(the "Termination Date"); provided, however, (i) the Referenced
Subsidiaries shall remain responsible for all out-of-pocket costs and expenses
incurred by MMWW (directly or through its other subsidiaries) pursuant to
agreements entered into for the benefit of the Referenced Subsidiaries that
could not be terminated prior to the date of termination of this Agreement, and
(ii) upon the mutual agreement of MMWW and Xpedior, services may be provided
beyond the Termination Date in order to allow the Referenced Subsidiaries the
opportunity to make alternative arrangements for such services. In the event any
of the Services being performed hereunder are no longer available, MMWW and its
subsidiaries shall be relieved of its obligations under this Agreement to
provide that particular Service to the Referenced Subsidiaries. The foregoing
shall include any cessation of or failure of Services due to Year 2000 problems.
MMWW will advise the Referenced Subsidiaries of any cessation of Services and
shall use commercially reasonable judgment in assisting the Referenced
Subsidiaries in securing alternative services for the Referenced Subsidiaries.
XPEDIOR INCORPORATED
SERVICES AGREEMENT
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<PAGE> 2
3. Nature and Quality of Services. The Parties understand and agree that
the Services shall be substantially identical in nature and quality to the
Services provided by MMWW to its wholly-owned subsidiaries.
4. Payment. Xpedior, as compensation for the performance of the Services,
agrees to reimburse MMWW at prevailing market rates for the Services provided.
If the compensation for the Services does not include sales, use, excise,
value-added or similar taxes, and if any such taxes are imposed on the Services
after the effective date of this Agreement, then such taxes shall be promptly
paid by Xpedior.
5. Invoicing. MMWW shall invoice Xpedior by the fifteenth (15th) working
day of each month for all Services provided in the preceding month. All invoices
shall reflect in reasonable detail a description of the Services performed
during the preceding month, and shall be due and payable on the last day of the
month of the invoice. In the event of a dispute as to the propriety of invoiced
amounts, Xpedior shall pay all undisputed amounts on each invoice, but shall be
entitled to withhold payment of any amount in dispute and shall promptly notify
MMWW of such dispute. MMWW shall provide Xpedior with records relating to the
disputed amount so as to enable the Parties to resolve the dispute. Xpedior
shall pay interest at an annual rate of ten percent (10%) on any disputed
amounts which it should have paid but withheld.
6. Confidentiality. Each party shall exert the same efforts and maintain
the same precautions that it exerts and maintains with respect to its own
confidential and proprietary information with respect to all information
received from the other party in connection with the performance of the
Services; provided, however, that a party may disclose such information (i) if
required to do so by applicable laws, rules, regulations, or orders (including
any laws, rules, regulations or orders to which either party voluntarily
subjects itself and any applicable securities exchange rules), or (ii) if such
information was or becomes generally available to such party on a
non-confidential basis, provided that the source of such information was not
known by such party to be bound by a confidentiality obligation.
7. Information from Xpedior. Any information necessary for MMWW or any
third party to perform any Services shall be submitted by Xpedior in a manner
consistent with the practices utilized by the Referenced Subsidiaries during the
period immediately prior to the effective date of this Agreement, which manner
shall not be altered except by mutual written agreement of the Parties. Should
Xpedior's failure to supply such input render MMWW's or any third party's
performance of any Services unreasonably difficult, MMWW or such third party,
upon reasonable notice to Xpedior, may refuse to perform such Services until
such input is supplied.
8. Sole Beneficiaries. Xpedior acknowledges that the Services shall be
provided only with respect to the business of Xpedior and its subsidiaries.
Xpedior will not request performance of any Services for the benefit of any
entity other than Xpedior and its subsidiaries. Xpedior represents and agrees
that it will use the Services only in accordance with all applicable federal,
state and local laws and regulations and communications and common carrier
tariffs, and in accordance with the reasonable conditions, rules, regulations
and specifications which may be set forth in any manuals, materials, documents
or instructions in existence on the effective date of this Agreement
XPEDIOR INCORPORATED
SERVICES AGREEMENT
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<PAGE> 3
and furnished by MMWW to Xpedior. MMWW reserves the right to take all actions,
including termination of any particular Services, that MMWW reasonably believes
to be necessary to assure compliance with applicable laws, regulations and
tariffs. Waiver by MMWW of any of the provisions of this Agreement shall not be
construed as a waiver of such provision generally or of the right of MMWW
thereafter to enforce each and every such provision.
9. LIMITED WARRANTY; LIMITATION OF LIABILITY. ALL PRODUCTS OBTAINED FOR
THE REFERENCED SUBSIDIARIES ARE AS IS, WHERE IS, AS TO MMWW, WITH ALL FAULTS,
OTHER THAN FAULTS DUE TO THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF MMWW.
NEITHER MMWW NOR ANY MMWW SUBSIDIARY PERFORMING ANY SERVICES HEREUNDER MAKE ANY
WARRANTIES OR REPRESENTATIONS WHATSOEVER, EXPRESS OR IMPLIED, INCLUDING THE
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO
THE SERVICES RENDERED FOR OR PRODUCTS OBTAINED FOR THE REFERENCED SUBSIDIARIES,
INCLUDING WITHOUT LIMITATION THOSE RENDERED BY OR OBTAINED FROM A THIRD PARTY.
NOTWITHSTANDING THE FOREGOING, TO THE EXTENT A WARRANTY PROVIDED BY A THIRD
PARTY MANUFACTURER OR PROVIDER OF GOODS OR SERVICES TO MMWW OR ITS SUBSIDIARIES
CAN BE PASSED-ON TO THE REFERENCED SUBSIDIARIES, NOTHING HEREIN IS INTENDED TO
LIMIT SAME AND THE REFERENCED SUBSIDIARIES SHALL HAVE THE RIGHT TO THE BENEFITS
(SUBJECT TO THE TERMS AND CONDITIONS THEREOF) OF ALL SUCH THIRD PARTY
WARRANTIES.
IN NO EVENT SHALL MMWW OR THE REFERENCED SUBSIDIARIES BE LIABLE TO THE
OTHER PARTY OR ANY OTHER PERSON FOR ANY INDIRECT, SPECIAL OR CONSEQUENTIAL
DAMAGES RESULTING FROM ANY ERROR IN THE PERFORMANCE OF SERVICES OR FROM THE
BREACH OF THIS AGREEMENT, REGARDLESS OF FAULT. TO THE EXTENT ANY THIRD PARTY HAS
LIMITED ITS LIABILITY TO MMWW FOR SERVICES UNDER AN OUTSOURCING OR OTHER
AGREEMENT, THE REFERENCED SUBSIDIARIES AGREE TO BE BOUND BY SUCH LIMITATION OF
LIABILITY FOR ANY PRODUCT OR SERVICE PROVIDED TO MMWW BY SUCH THIRD PARTY UNDER
SUCH AGREEMENT.
10. Indemnification. Xpedior hereby irrevocably and unconditionally agrees
to indemnify and hold harmless MMWW and its subsidiaries from and against any
and all losses, liabilities, damages, costs and expenses, including, without
limitation, attorneys' fees and expenses, incurred by MMWW and its subsidiaries,
directly or indirectly, resulting from or in connection with the rendition of
the Services, REGARDLESS OF WHETHER ANY CLAIM RESULTS SOLELY OR IN PART FROM THE
ACTIVE, PASSIVE OR CONCURRENT NEGLIGENCE OF MMWW OR ITS SUBSIDIARIES.
XPEDIOR INCORPORATED
SERVICES AGREEMENT
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<PAGE> 4
Xpedior hereby acknowledges and agrees that its obligation to indemnify and
hold harmless MMWW and its subsidiaries shall be absolute and unconditional
irrespective of any act or omission on the part of MMWW and its subsidiaries or
any other circumstance which might otherwise constitute a defense available to,
or a discharge of, its obligations hereunder.
11. Force Majeure. MMWW shall have no obligation to perform the Services if
its failure to do so is caused by or results from any act of God, governmental
action, natural disaster, strike, failure of essential equipment, Year 2000
problem, or any other cause or circumstance beyond the control of MMWW. MMWW
agrees that upon restoring service following any failure of any equipment
necessary for MMWW or its Subsidiaries to provide any Services, MMWW will allow
the Referenced Subsidiaries to have equal priority, in accordance with prior
practice, with respect to access to the restored service.
12. Severability. In the event any portion of this Agreement shall be found
by a court of competent jurisdiction to be unenforceable, that portion of the
Agreement will be null and void and the remainder of the Agreement will be
binding on the Parties as if the unreasonable provisions had never been
contained herein.
13. Assignment. This Agreement shall not be assignable by either of the
Parties hereto except by operation of law or with the written consent of the
non-assigning Party.
14. Entire Agreement; Amendment. This Agreement constitutes the entire
agreement of the Parties relating to the performance of the Services and all
prior or contemporaneous written or oral agreements are merged herein. This
Agreement may not be amended or otherwise modified except by a writing signed by
both Parties.
15. Choice of Law. This Agreement shall be governed by the laws of the
State of Texas, with regard to any conflict-of-law rule or principle that might
refer the construction or interpretation of this Agreement to the laws of
another state.
16. Notice. Any notice, request, instruction, correspondence or other
document to be given hereunder by either Party to the other (herein collectively
called "Notice") shall be in writing and delivered personally or by facsimile,
as follows:
If to MMWW: Metamor Worldwide, Inc.
4400 Post Oak Parkway, Suite 1100
Houston, Texas 77027-3413
Attention: General Counsel
(713) 627-1059 (fax)
If to Xpedior: Xpedior Incorporated
One North Franklin, Suite 1500
Chicago, Illinois 60606
Attention:
( ) _________________ (fax)
XPEDIOR INCORPORATED
SERVICES AGREEMENT
4
<PAGE> 5
Notice given by personal delivery shall be effective upon actual receipt by the
Party to whom addressed. Notice given by facsimile or telegram shall be
effective upon actual receipt if received during the recipient's normal business
hours, or at the beginning of the recipient's next business day after receipt if
not received during the recipient's normal business hours. Any Party may change
any address to which Notice is to be given to it by giving Notice as provided
above of such change of address.
17. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
XPEDIOR INCORPORATED
SERVICES AGREEMENT
5
<PAGE> 6
IN WITNESS WHEREOF, the Parties hereto have caused this Services Agreement
to be signed on their behalf by their duly authorized officers.
METAMOR WORLDWIDE, INC.
By:
-------------------------------------
Name:
Title:
XPEDIOR INCORPORATED
By:
-------------------------------------
Name:
Title:
XPEDIOR INCORPORATED
SERVICES AGREEMENT
6
<PAGE> 7
EXHIBIT A
SUBSIDIARIES OF XPEDIOR INCORPORATED
Xpedior M Incorporated, formerly Metamor Technologies, Ltd. (Illinois)
NDC Group, Inc. (Delaware)
Xpedior S Incorporated, formerly Sage I.T. Partners, Inc. (California)
Xpedior V Incorporated, formerly Virtual Solutions, Inc. (Texas)
Xpedior W Incorporated, formerly Workgroup Productivity Corporation (Illinois)
Xpedior K Incorporated, formerly Kinderhook Systems, Inc. (Delaware)
Xpedior (Canada) Inc. (Ontario)
Xpedior (Australia) Pty Ltd. (Australia)
Xpedior (UK) Ltd. (United Kingdom)
Xpedior America Incorporated, formerly Metamor Consulting Solutions Acquisition
Sub #1, Inc. (Delaware)
XPEDIOR INCORPORATED
SERVICES AGREEMENT
7
<PAGE> 1
EXHIBIT 10.6
ASSIGNMENT AND INDEMNIFICATION AGREEMENT
This Assignment and IndemnIfication Agreement, dated as of the __ day of
____________, 1999, between Metamor Worldwide, Inc., a Delaware corporation
("MMWW") and Xpedior Incorporated, a wholly-owned subsidiary of MMWW
("Xpedior").
WHEREAS, MMWW has entered into those certain purchase agreements listed on
Exhibit A hereto (the "Agreements);
WHEREAS, the Agreements permit MMWW to assign any or all of its rights,
interests and obligations thereunder to a wholly-owned subsidiary of MMWW (in
any or all of which cases MMWW nonetheless shall remain liable and responsible
for the performance of all of its obligations thereunder); and
WHEREAS, as consideration for MMWW's agreeing to assign to Xpedior all of
MMWW's rights and interests under the Agreements, Xpedior will indemnify MMWW
for all of its obligations existing, resulting from or arising out of the
Agreements.
NOW, THEREFORE, the parties hereby agree as follows:
1. MMWW hereby assigns, and Xpedior hereby assumes, all of MMWW's rights,
interests and obligations under and arising out of the Agreements.
2. Xpedior hereby agrees to indemnify, defend and hold harmless MMWW, its
directors, officers and employees and their respective representatives for any
claims, suits or actions arising out of or resulting from any of the present or
future obligations of MMWW or the actions of Xpedior under the Agreements.
METAMOR WORLDWIDE, INC.
By: --------------------
Name:
Title:
XPEDIOR INCORPORATED
By: --------------------
Name:
Title:
<PAGE> 2
EXHIBIT A
1. Merger Agreement dated as of March 26, 1997 by and among Irvin M. Shapiro,
The Irvin M. Shapiro Children's Trust, Metamor Technologies, Ltd. and
CORESTAFF, Inc. and CORESTAFF Acquisition Sub #9, Inc.
2. Agreement and Plan of Merger dated as of December 23, 1997 by and among
CORESTAFF, Inc., CORESTAFF Acquisition Sub #12, Inc., Sage I.T. Partners,
Inc., and the Shareholders of Sage I.T. Partners, Inc.
3. Stock Purchase Agreement dated as of December 31, 1997 by and among
CORESTAFF, Inc., Workgroup Productivity Corporation, and the Shareholders
of Workgroup Productivity Corporation
4. Stock Purchase Agreement dated as of June 17, 1998 by and among Metamor
Worldwide, Inc., Informix Corporation and the Sellers
5. Stock Purchase Agreement dated as of July 16, 1998 by and among Metamor
Worldwide, Inc., Advanced Information Solutions, Inc. and the Sellers
6. Asset Purchase Agreement dated as of November 12, 1998 by and among
Metamor Worldwide, Inc., Metamor Technologies, Ltd., New Technology
Partners, Inc. and the Shareholders of New Technology Partners, Inc.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated November 22, 1999 related to the consolidated financial
statements of Xpedior Incorporated, dated July 3, 1999 except for Note 1 as to
which the date is August 31, 1999 related to the financial statements of Metamor
Technologies, Ltd., dated August 19, 1999 related to the financial statements of
Workgroup Productivity Corporation, dated July 6, 1999 related to the financial
statements of Sage I.T. Partners, Inc., dated September 15, 1999 related to the
financial statements of NDC Group, Inc., and dated April 10, 1997 related to the
financial statements of Virtual Solutions, Inc. in this Registration Statement
and related Prospectus of Xpedior Incorporated for the registration
of shares of its common stock.
ERNST & YOUNG LLP
Houston, Texas
December 7, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated February 2, 1998 relating to the financial statements of Virtual
Solutions, Inc. as of December 28, 1997 and for the year then ended, and to all
references to our firm included in or made a part of this registration
statement.
ARTHUR ANDERSEN LLP
Dallas, Texas
December 7, 1999
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 4, 1997, except for Notes 1 and 12 as to which
the date is September 16, 1999 related to the financial statements of Metamor
Technologies, Ltd. for the year ended December 31, 1996 in this Registration
Statement and related Prospectus of Xpedior Incorporated dated October 18, 1999.
MORRISON & MORRISON, LTD.
Chicago, Illinois
December 7, 1999
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated March 5, 1999 on our audits of the financial statements of
Kinderhook Systems, Inc., which is included in such Registration Statement. We
also consent to the reference to us under the heading "Experts" in such
Registration Statement.
PricewaterhouseCoopers LLP
New York, New York
December 7, 1999
<PAGE> 1
EXHIBIT 99.5
CONSENT OF NOMINEE FOR DIRECTOR
The undersigned nominee for director hereby consents to the disclosure
under the caption "Management" in the Xpedior Incorporated Registration
Statement on Form S-1 that the undersigned has been elected and appointed as a
director of Xpedior Incorporated effective upon completion of the offering of
common stock as contemplated in the Registration Statement.
Dated: December 7, 1999
/s/ ROBERT K. HATCHER
---------------------------------------
Robert K. Hatcher
<PAGE> 1
EXHIBIT 99.6
CONSENT OF NOMINEE FOR DIRECTOR
The undersigned nominee for director hereby consents to the disclosure
under the caption "Management" in the Xpedior Incorporated Registration
Statement on Form S-1 that the undersigned has been elected and appointed as a
director of Xpedior Incorporated effective upon completion of the offering of
common stock as contemplated in the Registration Statement.
Dated: December 7, 1999
/s/ MARC J. SHAPIRO
--------------------------------
Marc J. Shapiro
