<PAGE>
As filed with the Securities and Exchange Commission on February 14, 2000
Registration No. 333-92851
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
Under
the Securities Act of 1933
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divine interVentures, inc.
(Exact name of registrant as specified in its charter)
Delaware 7389 36-4301991
(State or other
jurisdiction of
incorporation or
organization)
(Primary Standard Industrial Classification Code No.)
(I.R.S. Employer Identification
No.)
4225 Naperville Road, Suite 400, Lisle, Illinois 60532, (630) 799-7500
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Andrew J. Filipowski
Chairman and Chief Executive Officer
4225 Naperville Road, Suite 400, Lisle, Illinois 60532, (630) 799-7500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Matthew S. Brown, Esq. Marc M. Rossell, Esq.
Mark D. Wood, Esq. Shearman & Sterling
Katten Muchin Zavis 599 Lexington Avenue
525 West Monroe Street, Suite New York, New York 10022
1600 (212) 848-4000
Chicago, Illinois 60661-3693
(312) 902-5200
----------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed
Proposed Maximum
Title of Each Class of Maximum Aggregate Amount of
Securities to be Amount to be Offering Price Offering Registration
Registered Registered per Unit(1) Price(1) Fee(2)
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<S> <C> <C> <C> <C>
Class A Common Stock,
$0.001 par value........ 57,500,000 $8.00 $460,000,000 $121,440
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</TABLE>
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(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o) of Regulation C under the Securities Act of 1933, as
amended.
(2) $66,000 of the registration fee was previously paid.
----------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to
Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED FEBRUARY 14, 2000
50,000,000 Shares
[DIVINE NAME LOGO]
Class A Common Stock
--------
Prior to this offering, there has been no public market for our class A
common stock. The initial public offering price is expected to be between $6.00
and $8.00 per share. We have applied to list our class A common stock on The
Nasdaq Stock Market's National Market under the symbol "DVIN."
The underwriters have an option to purchase a maximum of 7,500,000 additional
shares of our class A common stock to cover over-allotments of shares.
Investing in our class A common stock involves risks. See "Risk Factors" on
page 8.
<TABLE>
<CAPTION>
Underwriting
Discounts
Price to and Proceeds to
Public Commissions divine
------------ ------------ ------------
<S> <C> <C> <C>
Per share.................................. $ $ $
Total...................................... $ $ $
</TABLE>
Delivery of the shares of class A common stock will be made on or about
, 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Credit Suisse First Boston
Donaldson, Lufkin & Jenrette
Bear, Stearns & Co. Inc.
Robertson Stephens
William Blair & Company
DLJdirect Inc.
The date of this prospectus is , 2000.
<PAGE>
[Red Japanese koi fish (divine logo) in upper left corner]
- --------------------------------------------------------------------------------
The divine Family Model
divine is building a [Bands of red and yellow
community of partner interwoven ribbons labeled
companies. This approach market makers (red) and
enables entrepreneurs to infrastructure service providers
collaborate with one (yellow)]
another to create mutual
opportunities and benefits.
divine's business-to-business partners fall into two primary categories:
- --------------------------------------------------------------------------------
Market Makers
Market makers enable BeautyJungle.com iGive.com Neoforma.com
commerce to be conducted
more efficiently and at iSalvage.com
lower costs by bringing
together buyers and sellers bid4real.com OfficePlanIt.com
to exchange products and i-Street
services on the Internet.
divine's market makers BidBuyBuild The National OilSpot.com
include:
CapacityWeb.com TheExecClub.com
Transportation
Commerx Exchange Whiplash
eFiltration.com
- --------------------------------------------------------------------------------
Infrastructure Service Providers
Infrastructure service Blueridge Knowledge Sales divine
providers assist companies Technologies divine
in building and managing
the technical LiveOnTheNet.com Sequoia
infrastructure to support
business-to-business e- Buzz divine sho research
commerce. Their goal is to Martin Partners
maintain and extend their
clients' competitive closerlook Talent divine
advantage by allowing Mercantec
companies to focus on their
core competencies. divine's comScore OpinionWare.com ViaChange.com
infrastructure service
providers include:
divine interChange
OUTTASK.COM Web Design
Group
dotspot
Perceptual Westbound
Robotics Consulting
eXperience
divine PocketCard Xippix
Xqsite
FiNetrics.com
Host divine
i-
Fulfillment
Justice
divine
2
<PAGE>
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 4
Risk Factors.............................................................. 8
Cautionary Note Regarding Forward-Looking Statements...................... 27
Use of Proceeds........................................................... 28
Dividend Policy........................................................... 28
Capitalization............................................................ 29
Dilution.................................................................. 30
Selected Financial Data................................................... 32
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 33
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Business................................................................... 40
Management................................................................. 63
Relationships and Related-Party Transactions............................... 77
Principal Stockholders..................................................... 86
Description of Capital Stock............................................... 88
Shares Eligible for Future Sale............................................ 91
Underwriting............................................................... 94
Notice to Canadian Residents............................................... 97
Legal Matters.............................................................. 98
Experts.................................................................... 98
Where Can You Find More Information........................................ 100
Index to Financial Statements.............................................. F-1
</TABLE>
------------
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This prospectus may only be used where it is
legal to sell these securities. The information contained in this document may
only be accurate on the date of this document.
Dealer Prospectus Delivery Obligation
Until , 2000, 25 days after the commencement of the offering, all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to unsold allotments or subscriptions.
3
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary does not contain all of the information that you should consider
before investing in our class A common stock. You should read this entire
prospectus carefully, including the risk factors and our financial statements,
and the related notes.
divine interVentures, inc.
We are actively engaged in business-to-business e-commerce through our
community of partner companies. We foster collaboration among these companies,
many of which are located together in our facilities, to provide cross-selling
and marketing opportunities and support business growth and the sharing of
information and business expertise. We manage, finance and operate these
companies and offer them a comprehensive array of infrastructure services,
including web hosting and design, systems integration, information technology
management and marketing and public relations. These services are designed to
allow each of our partner companies to focus on its core competencies and
accelerate the time-to-market of its products and services. We focus our
efforts in geographic areas that we believe have a strong base of intellectual
capital and entrepreneurial talent, but that have traditionally lacked
infrastructure services and venture capital funding.
We were formed in May 1999, began operations on June 30, 1999 and generated
revenues totalling approximately $1,037,000 through December 31, 1999,
principally from our majority-owned partner companies. Our partner companies
generate revenues primarily from the sale of products and services, advertising
and transaction and sponsor fees. We also generate revenues from fees paid to
us by venture capital funds that we manage, as well as consulting fees. Our
operating results also reflect our share of the earnings or losses of non-
majority owned partner companies over which we exercise significant influence.
We intend to capitalize on the significant growth in the inter-company trade
of goods and services over the Internet, commonly referred to as business-to-
business e-commerce. We believe, based on industry research estimates, that
business-to-business e-commerce will grow to approximately $2.7 trillion by
2004. Today, many new companies, including spin-outs from traditional
businesses, are being formed and funded to develop technologies and solutions
to support the new business-to-business e-commerce market. Business-to-business
e-commerce solutions are being rapidly adopted to facilitate the continuous
exchange of information among business partners to large customer audiences and
to allow businesses to interact more efficiently with suppliers, distributors
and service providers.
We acquire interests in and establish two categories of business-to-business
e-commerce companies: market makers, which bring buyers and sellers together on
Internet-based markets to exchange products, services and information, and
infrastructure service providers, which offer software or services, such as
consulting and systems integration. We acquire interests in market makers and
infrastructure service providers primarily by purchasing their capital stock.
We also establish partner companies when we identify opportunities consistent
with our business strategy and recruit entrepreneurial talent to manage these
companies. After forming these partner companies, we help develop their
business plans, provide them with capital, build their management teams and
hire their initial employees.
From October 14, 1999 to February 14, 2000, we acquired interests in or
established the following 43 business-to-business e-commerce companies:
4
<PAGE>
Market Makers Infrastructure Service Providers
BeautyJungle.com, Inc.* Blueridge Technologies,
Incorporated
bid4real.com, inc.* [/R]
Buzz divine, inc.*+
BidBuyBuild, Inc.* [/R]
closerlook, inc.
CapacityWeb.com, Inc.* [/R] comScore, Inc.
Commerx, Inc.
eFiltration.com, Inc.* divine interChange, inc.* [/R]
iGive.com, inc. dotspot, Inc.*+ [/R]
iSalvage.com, Inc.* eXperience divine, inc.*+ [/R]
i-Street, Inc.* FiNetrics.com, Inc.*+ [/R]
Host divine, inc.*+
The National Transportation Exchange, Inc.
Neoforma.com, Inc.* i-Fulfillment, Inc.* [/R]
OfficePlanIt.com, Inc.*+ Justice divine, Inc.*+ [/R]
Oilspot.com, Inc.* Knowledge divine, inc.*+ [/R]
LiveOnTheNet.com, Inc.
TheExecClub.com, Inc.*
Martin Partners, L.L.C.
Whiplash, Inc.* [/R]
Mercantec, Inc.
OpinionWare.com, Inc.*
OUTTASK.COM, Inc.*
Perceptual Robotics, Inc.
PocketCard Inc.*
Sales divine, inc.*+
Sequoia Software Corporation
sho research, Inc.*+
Talent divine, inc.*+
ViaChange.com, Inc.*
Web Design Group, Inc.
Westbound Consulting, Inc.
Xippix, Inc.
Xqsite, Inc.*+
- --------------------
*Development stage company
+Company we established
Through February 14, 2000, we have paid or committed to pay a total of
approximately $218,601,000 for our acquisitions of interests in partner
companies, including a total of $60,000,000 in the form of promissory notes,
but excluding $405,000 in brokerage fees. We have also issued a total of
13,000,000 shares of our series F preferred stock in connection with three of
these acquisitions. These shares will convert into 10,400,000 shares of class A
common stock upon completion of this offering. We currently intend to
contribute up to a total of $106,000,000 through the foreseeable future to
partner companies that we have established to date, $208,000 of which we had
paid through January 31, 2000.
None of the partner companies that we have established commenced operations
before January 1, 2000. However, before that date, we offered directly many of
the services now provided by these companies. Of our current partner companies,
only BeautyJungle.com, Blueridge Technologies, closerlook, Commerx, comScore,
iGive.com, LiveOnTheNet.com, Martin Partners, Mercantec, The National
Transportation Exchange, Neoforma.com, Perceptual Robotics, PocketCard,
Sequoia, Web Design Group, Westbound Consulting and Xippix generated revenues
in excess of $10,000 in 1999.
Our principal executive offices are located at 4225 Naperville Road, Suite
400, Lisle, Illinois 60532, and our telephone number at that location is (630)
799-7500. Our web site is located at http://www.divine.com. None of the
information contained in our web site or in those of our partner companies is
part of this prospectus.
Although we refer to the companies in which we have an equity interest as
our partner companies, we do not have partnership agreements with any of these
companies, nor do we act as an agent or legal representative for any of them,
have the power or authority to legally bind any of them or have the types of
liabilities for any of them that a general partner of a partnership would have.
5
<PAGE>
The Offering
<TABLE>
<S> <C>
Class A common stock offered.... 50,000,000 shares
Common stock to be outstanding
after this offering:
Class A common stock.......... 437,658,254 shares
Class B common stock.......... 56,080,000 shares
Total......................... 493,738,254 shares
Use of proceeds................. To acquire interests in and establish partner
companies and for general corporate and
working capital purposes.
Proposed Nasdaq National Market DVIN
symbol.........................
</TABLE>
The number of shares of our common stock to be outstanding after this
offering is based on the number of shares outstanding on January 15, 2000. This
number excludes the following:
. 3,509,900 shares of class A common stock issuable upon the exercise of
stock options outstanding on January 15, 2000, with a weighted average
exercise price of $0.9375 per share;
. 28,445,680 shares of class A common stock reserved for grants that we
may make in the future under our stock incentive plan; and
. 20,000,000 shares of class A common stock reserved for issuance under
our employee stock purchase plan.
Additionally, the number of shares reserved for grant under our stock incentive
plan automatically increases on January 1 of each year, beginning on January 1,
2001, by a number of shares of class A common stock equal to the lesser of (1)
10% of the total number of shares of our class A common stock then outstanding,
assuming for that purpose the conversion into class A common stock of all then
outstanding convertible securities, or (2) 240,000,000 shares.
----------------
Except where we indicate differently, the information in this prospectus
assumes:
. a four-for-five reverse split of our class A common stock and class B
common stock to be effected before the completion of this offering;
. the conversion of our outstanding convertible preferred stock into
344,236,042 shares of class A common stock and 46,280,000 shares of
class B common stock to be effected before the completion of this
offering;
. the completion of our sale of 18,284,327 shares of our convertible
preferred stock to CMGI under a purchase agreement dated as of February
3, 2000, the closing of which is subject to termination or expiration of
the applicable antitrust waiting period;
. the closing of our acquisition of an interest in divine interChange inc.
under a purchase agreement dated February 11, 2000, the closing of which
is subject to termination or expiration of the applicable antitrust
waiting period; and
. no exercise by the underwriters of their over-allotment option.
6
<PAGE>
Summary Financial Information
You should read the following historical and unaudited pro forma financial
information along with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our consolidated financial statements
and the related notes included in this prospectus.
<TABLE>
<CAPTION>
Period from
May 7, 1999
(Inception) to
December 31,
1999
----------------
(in thousands,
except share and
per share data)
<S> <C>
Statement of Operations Data:
Revenues.................................................... $ 1,037
Total operating expenses.................................... 9,435
Net loss.................................................... (8,080)
Basic and diluted net loss per share........................ (0.86)
Shares used in computing basic and diluted net loss per
share...................................................... 13,517,155
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1999
-----------------------------
Pro Pro Forma,
Actual Forma As Adjusted
-------- -------- -----------
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents....................... $162,841 $296,140 $617,640
Working capital................................. 138,279 234,876 604,100
Total assets.................................... 239,452 519,569 888,794
Total stockholders' equity...................... 205,814 433,948 803,173
</TABLE>
- --------------------
The Pro Forma column reflects (1) our sale of 215,284,327 shares of our
convertible preferred stock from January 1 through February 2000 and our
receipt of $215,134,327 of net proceeds from these sales, (2) our issuance of
20,044,420 shares of our Class A common stock upon exercise of outstanding
options and (3) our acquisitions of interests in partner companies from January
1 through February 14, 2000, and our issuance of 13,000,000 shares of our
convertible preferred stock in connection with three of these acquisitions. The
Pro Forma, As Adjusted column further reflects (1) our issuance of 6,817,792
shares of class A common stock to CMGI in exchange for shares of CMGI common
stock and (2) our sale of 50,000,000 shares of class A common stock in this
offering at an assumed initial public offering price of $7.00 per share, and
our receipt of the estimated net proceeds of $321,500,000 from this sale, after
deducting the estimated underwriting discounts and commissions and estimated
offering expenses.
For an explanation of the determination of the number of shares used in
computing basic and diluted net loss per share, see Note 1(l ) of the notes to
our financial statements.
7
<PAGE>
RISK FACTORS
You should carefully consider the risks and uncertainties described below,
and all of the other information included in this prospectus, before you decide
whether to purchase shares of our class A common stock. Any of the following
risks could materially adversely affect our business, financial condition or
operating results and could negatively impact the value of your investment. Our
financial and operating success depends on the financial and operating success
of our partner companies. Many of the risks described below may affect our
partner companies and may therefore affect us to the extent of our interest in
the affected partner company. If any one of our partner companies is harmed or
fails as a result of any of these risks, our business will be adversely
affected, and the adverse effect on us could be material depending on the size
and nature of the business of the affected company and the amount of capital
that we have committed to that company. Any adverse impact on us will be
magnified to the extent that multiple partner companies are harmed or fail.
Risks Particular to Us
We have been in business for less than one year and our partner companies have
little operating history, which makes it difficult to evaluate our business.
We were formed in May 1999 and began operations on June 30, 1999. We have
only engaged in start-up activities, acquired interests in or established our
initial partner companies and analyzed and engaged in discussions with other
potential partner companies. Because we have only recently begun operating and
because many of our partner companies are in the early stages of their
development, we are unable to provide you with significant data upon which you
can evaluate our prospects. We cannot be certain that our business strategy or
the business strategies of our partner companies will be successful, because
these strategies are new and unproven. As early stage companies, we and our
partner companies will be particularly susceptible to the risks and
uncertainties described in these risk factors and will be more likely to incur
the expenses associated with addressing them. Because we have interests in
numerous early-stage companies, we are exposed not only to our own start-up
risks, but to the start-up risks associated with each of our partner companies.
This exposure will increase as we continue to acquire interests in and
establish new partner companies. Because we will generally not be required to
provide separate financial statements for each of our partner companies,
except, in some cases, for periods before our acquisition of interests in them,
our stockholders may not be able to assess the impact of these risks on the
individual companies. Further, our stockholders may have difficulty evaluating
the success of our individual partner companies and, accordingly, the success
of our business strategy.
We expect to incur increasing losses for the foreseeable future, and we and our
partner companies may never become profitable.
As a company that acquires interests in, establishes, develops and manages
emerging business-to-business e-commerce companies, we expect to incur
increasing losses for the foreseeable future. Our current partner companies
are, and we expect that our future partner companies will be, in the early
stages of development and will have limited or no revenues. Because business-
to-business e-commerce companies, even if successful, typically generate
significant losses while they grow, we do not expect our partner companies to
generate income for us for the foreseeable future, and they may never generate
income.
In addition, we expect our expenses to increase significantly as we develop
the infrastructure necessary to implement our business strategy. Our expenses
will continue to increase as we:
. acquire interests in and establish new partner companies;
. build the operations of our current and new partner companies;
. hire additional employees;
8
<PAGE>
. expand our information technology systems; and
. lease more space, including our planned 300,000 square foot facility in
Chicago, to accommodate our operations and to sublease to some of our
partner companies and other business-to-business e-commerce companies.
We estimate that our annual rent for our planned 300,000 square foot
facility will be approximately $7,000,000 and that our annual taxes and
operating expenses relating to the facility will be approximately
$5,000,000.
We are currently in active discussions with over 50 potential partner
companies, but do not have plans to acquire interests in or establish a
specific number of new partner companies or to commit a target amount of
capital to these transactions. Instead, we continuously seek to identify
opportunities suitable for our business strategy, employing our partner company
evaluation criteria and considering our available funds. Costs associated with
building our partner companies and developing the infrastructure we will need
to support them will vary based upon many factors, including the number of
companies and the size, nature and state of development of each company.
Therefore, we cannot now determine the amount by which our expenses will
increase as we grow.
If our management fails to properly identify partner companies in which to
acquire interests or to establish and effectively complete these transactions,
you may lose all or part of your investment.
Our success depends on our ability to identify opportunities to acquire
interests in and establish desirable market makers and infrastructure service
providers and to successfully negotiate the terms of any acquisitions we make.
Our management will have sole and absolute discretion in identifying and
selecting partner companies in which to acquire interests or to establish and
in structuring, negotiating, undertaking and divesting of interests in our
partner companies. You will not be able to evaluate the merits of the
acquisition of an interest in, or the establishment of, any particular partner
company before we make the acquisition or establish the company. In addition,
in making decisions to acquire interests in or establish partner companies, we
will rely, in part, on financial projections developed by our management and
the management of potential partner companies. These projections will be based
on assumptions and subjective judgments. The actual results of our partner
companies may differ significantly from these projections.
Even if we identify a company that complements our strategy, we may be
unable to acquire an interest in that company for many reasons, including:
. our inability to interest companies in joining our collaborative
network;
. our inability to agree on the terms of an acquisition or to acquire a
controlling interest in the company; and
. incompatibility between us and management of the company.
After this offering, we will have approximately $617,640,000 of cash to
deploy, based on an assumed initial public offering price of $7.00 per share,
after deducting the estimated underwriting discounts and commissions and
estimated offering expenses. If we cannot acquire a sufficient number of
controlling interests in, and establish a sufficient number of, emerging
business-to-business e-commerce companies with this capital, our strategy to
build a collaborative network of partner companies will not succeed. Further,
we expect that, even if we are successful in identifying, acquiring and
establishing partner companies, we will not be profitable for the forseeable
future and may never become profitable.
We will not be able to successfully execute our business strategy if we are
deemed to be an investment company under the Investment Company Act of 1940.
Companies which are, or hold themselves out as being, engaged primarily in
the business of investing, reinvesting or trading in securities are subject to
regulation under the Investment Company Act of 1940.
Unless a substantial part of our assets consists of, and a substantial part of
our income is derived from, interests
in majority-owned subsidiaries and companies that we primarily control, we may
be required to register and become subject to regulation under the Investment
Company Act. Because Investment Company Act regulation
9
<PAGE>
is, for the most part, inconsistent with our strategy of actively managing,
operating and promoting collaboration among our network of partner companies,
we cannot feasibly operate our business as a registered investment company.
If we are deemed to be, and are required to register as, an investment
company, we will be forced to comply with substantive requirements under the
Investment Company Act, including:
. limitations on our ability to borrow;
. limitations on our capital structure;
. restrictions on acquisitions of interests in partner companies;
. prohibitions on transactions with affiliates;
. restrictions on specific investments; and
. compliance with reporting, record keeping, voting, proxy disclosure and
other rules and regulations.
If we were forced to comply with the rules and regulations of the Investment
Company Act, our operations would significantly change, and we would be
prevented from successfully executing our business strategy.
We may have to sell, buy or retain assets when we would not otherwise wish to
in order to avoid regulation as an investment company.
To avoid regulation under the Investment Company Act and related SEC rules,
we may need to sell assets which we would otherwise want to retain and may be
unable to sell assets which we would otherwise want to sell. In addition, we
may be forced to acquire additional, or retain existing, income-generating or
loss-generating assets which we would not otherwise have acquired or retained
and may need to forego opportunities to acquire interests in attractive
companies that would benefit our business. If we were forced to sell, buy or
retain assets in this manner, we would be prevented from successfully executing
our business strategy. In addition, if we dispose of our interests in partner
companies, the strength of our collaborative network will be adversely
affected.
We may sell our partner company interests for less than their maximum value or
at a loss.
Our ability to sell partner company interests to generate income or to avoid
regulation under the Investment Company Act may be limited, especially where
there is no public market for a partner company's stock. Market, regulatory,
contractual and other conditions largely beyond our control will affect:
. our ability to sell our interests in partner companies;
. the timing of these sales; and
. the amount of proceeds from these sales.
If we divest all or part of our interest in a partner company, we may not
receive maximum value for the interest, and we may sell it for less than the
amount we paid to acquire it. Even if a partner company has publicly-traded
stock, we may be unable to sell our interest in that company at then-quoted
market prices.
Our business strategy may not be successful if valuations of Internet-related
companies decline.
Our strategy involves helping our partner companies grow and access the
public capital markets. Therefore, our success is dependent on acceptance by
these markets of Internet-related companies in general and of initial public
offerings of those companies in particular. If the capital markets for
Internet-related companies or the market for initial public offerings of those
companies weakens, our partner companies may be delayed or prevented from going
public.
10
<PAGE>
Intense competition from other capital providers to acquire interests in
business-to-business e-commerce companies could result in lower returns or
losses on acquisitions.
We face intense competition from traditional venture capital firms,
companies with business strategies similar to our own, corporate strategic
investors and other capital providers to develop and acquire interests in
business-to-business e-commerce companies. Competitors with business strategies
similar to our own include publicly-held CMGI, Internet Capital Group and
Safeguard Scientifics, as well as Idealab! and other private companies. In
addition, we may face competition from an emerging group of online service
providers that facilitate relationships between entrepreneurs and venture
capitalists, such as vcapital.com and Garage.com. Further, several professional
service firms have recently announced their intention to provide capital and
services to e-commerce companies. Many of our competitors have more experience
identifying and acquiring interests in business-to-business e-commerce
companies and have greater financial and management resources, brand name
recognition and industry contacts than we do.
This intense competition, and the impact it has on the valuation of
business-to-business e-commerce companies, could limit our opportunities to
acquire interests in partner companies or force us to pay higher prices to
acquire these interests, which would result in lower returns or losses on
acquisitions. In addition, some of our competitors, including venture capital
firms, private companies with business strategies similar to ours and corporate
strategic investors, may have a competitive advantage over us because they have
more flexibility than we do in structuring acquisitions in partner companies
because they do not need to acquire majority or controlling interests in
companies to avoid regulation under the Investment Company Act.
We may not be able to secure additional financing when we need it in the
future to support our growth.
In the future, we expect to need to access the public and private equity or
debt markets periodically to obtain the funds we need to acquire interests in
and establish new partner companies and to otherwise support our operations and
continued growth and the operations and growth of our partner companies. Our
future capital requirements will depend in large part on the number of partner
companies in which we acquire interests and which we establish, the amounts of
capital we provide to these companies and the timing of these payments. Our
plans and the related capital requirements will be dependent on various
factors, such as developments in our markets and the availability of
acquisition and entrepreneurial opportunities. We may not be able to obtain
financing on acceptable terms, or at all, when we need it. If we require, but
are unable to obtain, additional financing in the future on acceptable terms,
or at all, we will not be able to continue our business strategy, respond to
changing business or economic conditions, withstand adverse operating results
or compete effectively.
Our management has not previously actively managed, operated or promoted
Internet companies, and if they cannot do so effectively, our business strategy
will fail.
Our strategy involves helping partner companies grow and access the public
capital markets by providing them with management and operational support. Our
management has not previously actively managed, operated or promoted Internet
companies, and we cannot assure you that they will be able to do so
effectively. In addition, we may acquire interests in or establish business-to-
business e-commerce companies focused on industries in which our management has
little experience. If our management cannot effectively manage, operate and
promote our partner companies, they may not become profitable or gain access to
the public capital markets, and we may be unable to convince new companies to
join our network.
Our success is dependent on the retention of Andrew J. Filipowski.
We believe that Andrew J. Filipowski, our Chairman and Chief Executive
Officer, is critical to our success. If we lost the services of Mr. Filipowski,
our ability to attract partner companies, promote our business and that of our
partner companies and raise additional capital would be severely limited, and
our business could fail. We do not maintain key man life insurance on Mr.
Filipowski.
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Our key personnel have entered into non-compete agreements which may prevent us
from engaging in certain activities and acquiring interests in some companies.
Andrew J. Filipowski, Michael P. Cullinane and Paul L. Humenansky have
entered into consulting and non-compete agreements with PLATINUM technology
International, inc. These agreements prohibit Mr. Filipowski until June 29,
2007, and each of Messrs. Cullinane and Humenansky until June 29, 2004, from
participating or engaging, directly or indirectly in the development,
manufacture, marketing or distribution of any products or services offered by
PLATINUM as of March 29, 1999, or any products or services offered by PLATINUM
after that date and in which they had actively participated. PLATINUM is
engaged principally in the business of developing, marketing and supporting
software products for managing information technology infrastructures and
providing related professional services. As of March 29, 1999, PLATINUM also
offered products and services for the creation, deployment and management of
web content.
Under the agreements, competitive activities which Messrs. Filipowski,
Cullinane and Humenansky are prohibited from conducting include:
. selling goods or rendering services, or assisting another person to sell
goods or render services or attempt to sell goods or render services, of
the type, or similar to the type, sold or rendered by PLATINUM; and
. soliciting, or assisting another person to solicit or attempt to solicit,
persons or entities that were current customers of PLATINUM or its
affiliates before the end of the respective employment periods of Messrs.
Filipowski, Cullinane and Humenansky, unless the solicitation of these
customers is for goods or services unrelated to any activity which
competes with PLATINUM.
Other of our key employees, including Larry S. Freedman, our Executive Vice
President, General Counsel and Secretary, have entered into consulting and non-
compete agreements with Computer Associates, Inc., the parent of PLATINUM,
containing terms substantially similar to those of Messrs. Filipowski,
Cullinane and Humenansky. All of these agreements terminate on June 29, 2001.
These agreements with PLATINUM and Computer Associates may be interpreted in
a way that could severely impact our ability to execute our business strategy.
As a result, to manage our business effectively with respect to these
agreements, we have consulted with PLATINUM and Computer Associates before
making any acquisition to confirm that it would not result in a breach of these
agreements. If the relevant parties to these agreements deem our activities or
those of any proposed partner company to be prohibited by these consulting and
non-compete agreements, we may not be able to conduct those activities or
acquire interests in that partner company. These consulting and non-compete
agreements may therefore limit our business opportunities, which could impair
our success.
There are numerous conflicts of interest among partner companies and our
officers, directors and stockholders.
We provide our employees with 20% of the initial equity of partner companies
that we establish, and we create option pools in these companies for their
employees.
When we establish a partner company, we provide our employees with
approximately 20% of the initial outstanding equity, subject to vesting, of
that partner company. Those persons who were our employees as of December 31,
1999 have received equity in the partner companies that we have established to
date: Buzz divine, dotspot, eXperience divine, FiNetrics.com, Host divine,
Justice divine, Knowledge divine, OfficePlanIt.com, Sales Divine, sho research,
Talent divine and Xqsite. These issuances could encourage our employees to
focus their attention and resources disproportionally on those partner
companies in which they have interests, particularly the partner companies that
they believe have the greatest potential for
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completing public offerings in the near future. In addition, for each partner
company that we establish, we create a pool of options representing up to 20%
of its outstanding equity to be issued to employees and service providers of
that company. As a result of these issuances of stock and options, we may have
as little as 60% of the economic interest in partner companies that we
establish, even though we generally will have contributed substantially all of
their operating capital.
Some of our executive officers and directors and their affiliates have
management positions with, and economic interests in, several of the partner
companies in which we have acquired interests, which may create conflicts with
our interests.
The following executive officers and members of our Board of Directors have
management positions with, or economic interests in, our partner companies:
. Andrew J. Filipowski, our Chairman and Chief Executive Officer, is a
director of BeautyJungle.com and beneficially owns approximately 3.3% of
BeautyJungle.com. We beneficially own approximately 51.3% of
BeautyJungle.com. Based on the satisfaction of conditions by
BeautyJungle.com, we may be obligated to acquire between an additional
29.1% and 33.9% of BeautyJungle.com for between $8,000,000 and
$10,000,000 on March 13, 2000.
. Mr. Filipowski is the chairman of the board of directors of iGive.com
and has personally loaned iGive.com $800,000 under notes which are
convertible into iGive.com's stock. Mr. Filipowski beneficially owns
approximately 14.2% of iGive.com. We beneficially own approximately
31.1% of iGive.com.
. Mr. Filipowski and Paul L. Humenasky, our Executive Vice President and a
director, are directors of OpinionWare.com and beneficially own a total
of approximately 12.6% of the equity of OpinionWare.com. In addition,
Mr. Filipowski's son beneficially own less than 1% of its equity. We
beneficially own approximately 44.1% of OpinionWare.com.
. Mr. Filipowski is a director of Perceptual Robotics and beneficially
owns approximately 2.3% of its equity. We beneficially own approximately
33.4% of Perceptual Robotics, and it owns 800,000 shares of our class A
common Stock.
. Mr. Filipowski is a director of Sequoia and beneficially owns less than
1% of its equity. We beneficially own approximately 10.7% of Sequoia.
. Messrs. Filipowski and Humenansky; Michael P. Cullinane, our Executive
Vice President, Chief Financial Officer and Treasurer and a director;
and James E. Cowie, Thomas P. Danis, Arthur P. Frigo, Gian M. Fulgoni,
Jeffrey D. Jacobs and Lawrence F. Levy, six of our directors, have
economic interests in Platinum Venture Partners II, L.P., which
beneficially owns approximately 3.6% of The National Transportation
Exchange. We beneficially own approximately 5.3% of The National
Transportation Exchange.
. Gian Fulgoni and George Garrick, two of our directors, are directors of
bid4real.com, and beneficially own a total of approximately 2.3% of
bid4real.com. We beneficially own approximately 54.3% of bid4real.com.
. Mr. Fulgoni is the founder and chairman of comScore and beneficially
owns approximately 20.7% of comScore. Mr. Garrick beneficially owns 1.2%
of comScore. We beneficially own approximately 0.9% of comScore.
. Steven Kaplan and Mohanbir Sawhney, two of our directors, are members of
CapacityWeb.com's Advisory Board. Michigan & Oak, LLC, a venture
advisory firm of which Messrs. Kaplan and Sawhney are principals,
beneficially owns approximately 3.8% of CapacityWeb.com. We beneficially
own approximately 44.5% of CapacityWeb.com. In addition, Michigan & Oak
is entitled to a finders fee of approximately $225,000, 5% of the amount
paid by us for our interest in CapacityWeb.com. Michigan & Oak will be
entitled to similar fees on other transactions which it brings to us.
. Tim Stojka, one of our directors, is the Chief Executive Officer of
Commerx and beneficially owns approximately 17.1% of Commerx. We
beneficially own approximately 1.1% of Commerx.
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. Robert Jay Zollars, one of our directors, is the Chairman, President and
Chief Executive Officer of Neoforma.com and beneficially owns
approximately 9.3% of Neoforma.com. Mr. Filipowski is a director of
Neoforma.com and beneficially owns less than 1% of its equity. We
beneficially own approximately 1.9% of Neoforma.com.
These individuals may have conflicting fiduciary obligations to our
stockholders and the stockholders of the partner companies in which they hold
management positions. In addition, they may have conflicts between our
interests and their personal financial interests in these partner companies. In
the future, we may acquire interests in other companies in which our directors
and executive officers have management and economic interests.
Members of our Board of Directors are executive officers and directors of
companies and equity investment firms that may compete with us to acquire
interests in, and, in some cases, provide services to, business-to-business e-
commerce companies.
The following members of our Board of Directors are executive officers and
directors of companies, equity investment firms and other capital providers
that may regularly compete with us to acquire interests in, and, in some cases,
provide services to, business-to-business e-commerce companies:
.James E. Cowie is a General Partner of Frontenac Company, a Chicago-based
private equity firm.
. Michael M. Forster is a Senior Partner of Operations of Internet Capital
Group, a provider of capital and services to Internet businesses.
. Craig D. Goldman is a director of CMGI, a provider of capital and
services to Internet businesses.
. David Hiller is the Senior Vice President/Development of the Tribune
Company, which has a strategic investment unit known as Tribune
Ventures, a provider of capital to new media and broadband
communications businesses.
. Messrs. Kaplan and Sawhney are principals of Michigan & Oak, LLC, a
venture advisory firm.
. Ronald D. Lachman is the co-founder and President of Lachman Goldman
Ventures, a company which funds and builds management teams for
networking and software related companies.
. Eric C. Larson is the Managing Partner of Bank One Equity Capital, a
private equity investment unit of Bank One Corporation.
. William A. Lederer is the founder and president of Minotaur Capital
Management, an Illinois-based investment firm.
. Bruce V. Rauner is a principal of GTCR Golder Rauner, L.L.C., a Chicago-
based company that manages private equity funds.
. Alex C. Smith is the Vice President of Dell Ventures, a venture capital
division of Dell USA L.P., which holds the greatest number of shares of
our class A common stock and is a subsidiary of Dell Computer
Corporation. Thomas J. Meredith is the Senior Vice President and Chief
Financial Officer of Dell Computer Corporation.
. James C. Tyree is the Chairman and Chief Executive Officer of Mesirow
Financial, which has a private equity investment unit.
In addition, many of our other directors are executive officers of other
companies that may, from time-to-time, compete with us to make particular
acquisitions or provide particular services.
Our executive officers and directors have interests in entities that provide
products or services to, or have other economic arrangements with, us or our
partner companies, which may result in business being conducted with these
entities on terms less favorable to us or our partner companies than could be
obtained in transactions with unaffiliated parties.
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The following executive officers and directors have interests in
entities that provide products or services to, or have other economic
arrangements with, us or our partner companies:
. Mr. Filipowski is a manager of Blackhawk, LLC. He also owns 3% of
Blackhawk and has the right to acquire an additional 30.33% of
Blackhawk. Since July 1999, we have paid, and continue to pay, Blackhawk
$50,000 a month for an option to lease a 300,000 square foot facility in
Chicago which we expect to open in the second half of 2000, which, along
with the underlying property, is owned by Blackhawk. We expect to enter
into a long-term lease with Blackhawk for this facility by February 28,
2000. If we do not purchase or enter into a lease for the property by
that date, we are responsible for a $200,000 building material loss fee,
a $100,000 design supervision fee and all design and reengineering costs
incurred in the renovation of the facility.
. Mr. Filipowski owns 33.3% and is a manager of Habitat-Kahney, LLC. On
January 7, 2000, we entered into a ten year lease with Habitat-Kahney
for additional office space in Chicago, Illinois. Our rent under this
lease is $730,080 per year, with an increase of 2% for each year of the
lease.
. Messrs. Filipowski, Cullinane and Humenansky are directors of Platinum
Entertainment, Inc. and beneficially own a total of approximately 7.1%
of Platinum Entertainment. Additionally, Messrs. Filipowski, Cullinane,
Humenansky, Cowie, Danis, Frigo, Fulgoni, Jacobs and Levy have economic
interests in Platinum Venture Partners I and/or Platinum Venture
Partners II, which beneficially own a total of approximately 5.6% of
Platinum Entertainment. On December 30, 1999 LiveOnTheNet.com, one of
our partner companies, entered into a license agreement with Platinum
Entertainment to use Platinum Entertainment's library of digital music
and video, interview and other performance content. LiveOnTheNet.com has
paid $2,000,000 to Platinum Entertainment for the initial term of the
license, the length of which is based on website use and downloads, and
may renew the license for two additional terms at the same license fee.
. Robert Bernard is the Chairman and Chief Executive Officer of Whittman-
Hart, Inc. On January 21, 2000, we entered into a contract under which
Whittman-Hart provides us with information technology consulting
services when we need them. We owe Whittman-Hart approximately $900,000
for consulting services through January 31, 2000. We expect to incur
approximately $900,000 of additional expenses for Whittman-Hart
consulting services through July 2000.
. Mr. Danis is the President and Chief Executive Officer of Aon Risk
Services of Missouri. Teresa L. Pahl, one of our directors, is the
President and Chief Executive Officer of Aon Enterprise Insurance
Services, Inc., an affiliate of Aon Risk Services of Missouri. We owe
Aon Risk Services of Missouri approximately $250,000 through February
14, 2000 as broker with respect to our directors and officers liability
insurance.
. Arthur Hahn is a partner of Katten Muchin Zavis, our legal counsel.
Katten Muchin Zavis has provided us with legal services since our
inception. The cost to us for these services through December 31, 1999
was approximately $2,400,000. We paid $400,000 of this total billed
amount by issuing Katten Muchin Zavis 400,000 shares of our series C
preferred stock, which will convert into 320,000 shares of class A
common stock in connection with the completion of this offering.
Additionally, partners in Katten Muchin Zavis purchased a total of
2,360,000 shares of our series C preferred stock, which will convert
into 1,888,000 shares of class A common stock in connection with the
completion of this offering.
. Richard Kiphart, one of our directors, is a principal of William Blair &
Company, one of the underwriters of this offering. William Blair is
receiving a fee as agent of the Big Shoulders Fund in connection with
its capital raising efforts. This fee will be equal to 1.75% of the
total capital raised for the fund by William Blair.
. Michael Leitner is a Senior Director of Corporate Development of
Microsoft Corporation. On January 28, 2000, we entered into an Alliance
Agreement with Microsoft under which we agreed to incorporate Microsoft
products, technologies and services into our systems and the web
application
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hosting services that we provide to our partner companies. Under this
agreement, we are obligated to purchase approximately $15,000,000 of
Microsoft software and services over the next four years and have
committed to use commercially reasonable efforts to encourage our
partner companies to migrate to Microsoft software solutions. In
addition, in connection with this agreement, we have agreed to use
commercially reasonable efforts to develop a Seattle-based incubator
habitat by April 2001.
. Messrs. Smith and Meredith are affiliated with Dell Computer
Corporation. We have paid approximately $1,200,000 to Dell Computer
Corporation for computers and servers through January 31, 2000. We
expect these purchases to continue as we grow.
. James C. Tyree, one of our directors, is the Chairman and Chief
Executive Officer of Mesirow Financial. An affiliate of Mesirow
Financial has committed to invest $4,000,000 in the Big Shoulders
interTech Fund, L.P.
We expect to continue to enter into transactions with businesses in which
our executive officers and directors have interests. These current and future
transactions may be on terms less favorable to us than could be obtained in
transactions with unaffiliated parties. In addition, we may enter into
transactions which we would not have entered into in the absence of our
relationship with the affiliated party. Further, our executive officers and
directors may have conflicts between our interests and their personal
financial and other interests in the other parties to those transactions.
We manage a venture capital fund which will invest in start-up and early-
stage Illinois-based companies, and we may have conflicts in allocating
opportunities between us and the fund when acquiring interests in these
companies.
Through Big Shoulders Management, L.L.C., our wholly-owned subsidiary, we
manage the Big Shoulders interTech Fund, L.P., as general partner of the fund.
Big Shoulders interTech Fund is a venture capital fund which will invest in
start-up and early-stage Illinois-based companies. The fund is seeking
commitments from investors for approximately $75,000,000 to $125,000,000, of
which we have committed to contribute $4,000,000 to the fund, $3,920,000 as a
limited partner and $80,000 as a general partner. We are obligated to
contribute 1% of the total commitments to the fund as general partner. The
fund may admit additional limited partners through November 10, 2000. During
that period, we may commit to contribute up to an additional $6,000,000 to the
fund. With respect to each interest in a company acquired by the fund, we are
entitled to receive 20% of all distributions in relation to that interest, but
only after the partners in the fund have received a return of their invested
capital in that company. If, upon liquidation of the fund, the partners fail
to receive a return of all of their contributed capital, we are obligated to
contribute an amount equal to the deficiency, but not to exceed an amount
equal to the distributions received by us with respect to our 20% share.
We may have conflicts of interest in allocating opportunities to acquire
interests in Illinois-based technology and e-commerce companies between us and
the fund. In general, we intend to allocate all opportunities involving
Illinois companies which require an initial investment of $2,000,000 or less
to the fund, although we are not obligated to do so. The fund will form an
advisory board consisting of representatives of some partners of the fund to
assist us in managing these conflicts of interest. Specifically, the fund has
established the following policies concerning conflicts of interest:
. The fund must obtain the approval of its advisory board before investing
in a company in which we or any of our affiliates have previously
acquired an interest.
. The fund must obtain the approval of its advisory board before investing
jointly with us in a company in which none of the fund, us or any of our
affiliates has an interest, unless the investment is made by these
parties on substantially equivalent terms.
. We must provide notice to the fund's advisory board before investing in
a company in which the fund has previously acquired an interest,
although no approval of the fund's advisory board is required.
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. We must provide notice to the fund's advisory board before permitting a
company in which we or our affiliates hold 25% or more of the equity
interests to acquire 50% or more of the equity interests of a company in
which the fund has an interest, although no approval of the fund's
advisory board is required.
As a result, we may forego acquiring interests in some companies that would
otherwise meet our acquisition criteria and allocate these opportunities to the
fund. You will not have the opportunity to evaluate the merits of any
particular opportunity before we make these determinations, and you must rely
on our management to manage the conflicts of interest appropriately.
We have entered into an agreement with some of our stockholders who have
representatives on our Board of Directors that limits the obligations of these
stockholders and their representatives to present us with business
opportunities.
Under an agreement with Frontenac VII Limited Partnership, Frontenac Masters
VII Limited Partnership, First Chicago Investment Corporation, Cross Creek
Partners X, LLC, Mesirow Capital Partners VII, Dell USA, CBW/SK divine
Investments, Microsoft, Randolph Street Partners II and Randolph Street
Partners III 1998 and DIF LLC, holders of our series D and D-1 preferred stock,
we have agreed that neither these stockholders nor representatives on our Board
of Directors which are affiliated with them have any obligation to us, our
stockholders or any other party to present business opportunities to us before
presenting them to other entities, other than opportunities that are presented
to director representatives solely in, and as a direct result of, their
capacity as our directors. As a result, we may be denied opportunities to
establish or acquire interests in prospective partner companies that would
otherwise be available.
We cannot assure you that our conflicts of interest policy will address all
potential conflicts of interest adequately.
We have established a policy to address conflicts of interest that arise
between us and our directors, officers and affiliates and entities in which
these persons have an interest. Under this policy, we intend that any future
transactions between us and these persons and entities will be on terms no less
favorable to us than can be obtained on an arm's length basis from unaffiliated
third parties. Further, any of these transactions which we do not consider to
be in the ordinary course of business will be subject to approval by the
conflicts committee or the acquisition committee of our Board of Directors.
However, this conflicts policy cannot guarantee that every contract or other
transaction involving a conflict of interest will be on terms as favorable to
us as would have existed in the absence of the conflict of interest. Further,
this policy cannot guarantee that we will not enter into transactions which we
would not otherwise have entered into absent our relationship with the
affiliated party.
If we fail to expand our controls and integrate new personnel to support our
anticipated growth, our business will suffer.
We are rapidly expanding our controls and integrating new personnel to
support our growth, which makes it difficult to maintain our standards,
controls and procedures. In addition, to the extent that we are responsible for
the internal controls of our partner companies, our systems will be under
additional strain. We are still in the process of developing and implementing
our operating and financial systems, including our internal systems and
controls, and have recently begun integrating our initial partner companies
into our operational, financial and managerial systems. Members of our senior
management will be required to devote considerable amounts of their time to
this development and integration process, which may reduce the time they will
have to identify, analyze and acquire interests in new partner companies and
provide management and other necessary services to our existing partner
companies. To continue to develop our business, we and our partner companies
must rapidly hire a substantial number of new employees. Since we were founded
in May 1999, our employee base has grown to 351 employees as of January 31,
2000, including 146 employees of our majority-owned subsidiaries. We and our
majority-owned subsidiaries plan to hire a significant number of additional
employees
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in the near future, including over 1,000 additional employees by December 31,
2000. The recruiting, hiring, training and integration of this large number of
employees will place a significant strain on our management and operational
resources. To manage our growth effectively, we must successfully develop,
implement, maintain and enhance our financial and accounting systems and
controls, integrate new personnel and partner companies and manage expanded
operations.
Geographic expansion could disrupt our business and that of our partner
companies and distract our management from our ongoing business.
We are developing facilities in geographic markets outside of the midwestern
United States to house partner companies and provide infrastructure and support
services. In this regard, we have begun operations in Austin, Texas, plan to
develop a facility in Seattle, Washington by November 2000 and are currently
considering developing a facility in Calgary, Alberta, Canada. This expansion
could disrupt our business and that of our partner companies and distract our
management from our ongoing business as resources and attention are focused on
new facilities and geographic markets. Additionally, we may be unable to
recruit or retain qualified management and other key personnel for our new
facilities, and may fail to acquire interests in or establish partner
companies, or build a network of partner companies, in new markets. We could
face significantly greater competition from other providers of capital and
services to e-commerce companies in these markets than we face in the
historically underserved midwestern market. We will also suffer additional
operating losses if the revenues generated by new facilities are not adequate
to offset the expense of maintaining them.
If we or our partner companies expand internationally, we or they may face
difficulties managing remote facilities and will be subject to other
challenges, including foreign regulatory requirements and technology standards.
We and our partner companies may develop operations outside of North
America. Our entry, or the entry of our partner companies, into international
markets would require significant management attention and financial resources,
which could harm our or their ability to effectively manage existing business.
We and our partner companies would also be subject to the following challenges
associated with conducting international business:
. difficulties of managing remote offices;
. burdens of complying with foreign laws and regulatory requirements;
. reduced protection of proprietary rights;
. problems in meeting different technology standards;
. increased tax burdens; and
. exposure to general foreign economic declines, currency fluctuations and
political instability.
If we are unable to facilitate collaboration among our partner companies, our
strategy will not be successful and our partner companies may fail.
Our business strategy is dependent on our ability to facilitate
collaboration among our partner companies, including joint marketing, cross-
selling and sharing of business information and technical expertise. If we are
unable to promote this collaboration, our partner companies will not fully
realize the benefits of being part of our network, possibly slowing their
growth. As a result, we may have difficulty attracting new companies to our
network.
The hosting and other network services which we provide to our partner
companies may fail or work improperly due to physical damage, failure of third-
party services or other unexpected problems.
We provide hosting and other information technology services, including data
warehousing and web server and network facilities, to support our partner
companies' operations. We provide these services through partner companies that
we control, which rely, in large part, on relationships with third-party
suppliers to provide these
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services. We intend to continue to rely on third-party suppliers for the
forseeable future. An unexpected event, such as a power or telecommunications
failure, fire or flood, or physical or electronic break-in at any of our
facilities or server facilities, or those of any of the third parties
suppliers, could cause a loss of our, and our partner companies', critical data
and prevent us from offering services to our partner companies. If our hosting
and information technology services were interrupted, our business and the
businesses of partner companies using these services would be disrupted, which
could result in decreased revenues, lost customers and impaired business
reputation for us and them. As a result, we could experience greater difficulty
attracting partner companies to join our network. Our business interruption
insurance may not adequately compensate us or our partner companies for losses
that may occur. A failure by us or any of the third party suppliers to provide
these services satisfactorily would impair our ability to support our
operations and those of our partner companies and could subject us to legal
claims.
Risks Particular to Our Partner Companies and the Business-to-Business E-
Commerce Industry
Our partner companies depend on the Internet and the wide-spread acceptance of
the business-to-business e-commerce market, which is uncertain.
Our current partner companies rely, and our future partner companies will
rely, on the Internet for the critical aspects of their businesses. The
development of the business-to-business e-commerce market is in its early
stages. If widespread commercial use of the Internet does not continue to
develop, or if the Internet does not continue to develop as an effective medium
for the provision of products and services, our partner companies may not grow,
become profitable or go public.
Our success also depends on the development and widespread acceptance of the
business-to-business e-commerce market. The following factors could prevent
this acceptance:
. the unwillingness of companies to shift from traditional business
processes, which are not based on the Internet, to e-commerce processes;
. a lack of the necessary network infrastructure for substantial growth in
the use of e-commerce;
. increased government regulation or taxation of e-commerce;
. insufficient availability of telecommunication services or changes in
telecommunication services, resulting in slower response times for users
of e-commerce; and
. concern and adverse publicity about the security of e-commerce
transactions.
We and our partner companies will not be successful if businesses who do not
currently conduct a substantial amount of their business on the Internet do not
shift, to a large degree, to e-commerce from their traditional methods of
exchanging goods and services.
Our partner companies face intense competition in their product and service
markets, and if they cannot compete effectively, they will fail.
Competition for Internet products and services is intense. As the market for
e-commerce grows, we expect that competition will intensify. Barriers to entry
are minimal, and competitors can offer products and services at a relatively
low cost. Further, our partner companies' competitors may develop Internet
products or services that are superior to, or have greater market acceptance
than, the solutions offered by our partner companies. Many of our partner
companies' competitors have greater brand recognition and greater financial,
marketing and other resources than our partner companies. This may place our
partner companies at a disadvantage in responding to their competitors' pricing
strategies, technological advances, advertising campaigns, strategic
partnerships and other initiatives. If our partner companies are unable to
compete successfully against their competitors, they will fail.
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Our partner companies may fail if they do not adapt to the rapidly changing e-
commerce marketplace.
If our partner companies fail to adapt to the rapid changes in technology
and customer and supplier demands, they may not generate revenues or become or
remain profitable. Therefore, although we expect all of our current partner
companies to generate revenue by the end of 2000, they may not do so. The e-
commerce market is characterized by:
. rapidly changing technology;
. evolving industry standards;
. frequent new product and service introductions;
. shifting distribution channels; and
. changing customer demands.
Our future success will depend on our partner companies' ability to adapt to
this rapidly evolving marketplace. They may not be able to adapt their products
and services adequately or economically, develop new products and services or
establish and maintain effective distribution channels for their products and
services. If our partner companies are unable to meet these challenges, they
may be unable to sell their products and services and generate revenues.
Therefore, their businesses may become or remain unprofitable.
Our partner companies may not be able to attract a loyal base of customers to
their web sites or develop relationships with distribution partners, which will
negatively affect their ability to generate revenues.
Our success depends on the ability of our partner companies to deliver
compelling Internet content, products or services to their targeted customers.
Internet users can freely navigate and instantly switch among a large number of
web sites. Many of these web sites offer original content, products or
services, which may make it difficult for our partner companies to distinguish
the content on their web sites sufficiently to attract a loyal base of users.
If any partner company fails to differentiate itself from other Internet
industry participants, the value of its brand name could decline, and its
prospects for future growth would diminish. In addition, our partner companies
will need to develop relationships with entities, such as Internet service
providers, Internet portals and e-commerce web sites, typically called
distribution partners, that can guide or deliver customers to visit our partner
companies' web sites. There is intense competition for these distribution
partners. Accordingly, maintaining a strong base of distribution partners may
be difficult and costly for our partner companies.
Many of our partner companies may grow rapidly and may be unable to manage
their growth.
We expect many of our partner companies to grow rapidly. Rapid growth often
places considerable operational, managerial and financial strain on a business.
To successfully manage rapid growth, our partner companies must accurately
project their rate of growth and:
. rapidly improve, upgrade and expand their business infrastructures;
. deliver products and services on a timely basis;
. maintain levels of service expected by clients and customers;
. maintain adequate levels of liquidity; and
. expand and upgrade their technology, transaction processing systems and
network hardware or software or find third parties to provide these
services.
Our business will suffer if our partner companies are unable to successfully
manage their growth. In addition, many of our partner companies have only
recently begun developing their financial reporting systems and controls. As a
result, these companies may not be able to provide us with their financial
results on a timely basis, making it difficult for us to monitor these
companies and assess our financial position.
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Our partner companies' growth depends on their ability to retain their key
personnel.
Although we offer management guidance and support to our partner companies,
the growth of our partner companies, even those that we have established, will
depend on their ability to attract and retain their own senior management
personnel. As they expand, our partner companies will also need to continue to
hire additional technical, marketing, financial and other key personnel, unless
they rely on us or other partner companies or third parties to provide these
services. A shortage in the availability of required personnel could limit the
ability of our partner companies to grow, sell their existing products and
services and launch new products and services.
Our partner companies could make business decisions that are not in our best
interests or that we do not agree with, which could impair the value of our
partner company interests.
We may not be able to control significant business decisions of our partner
companies. We currently have no control over each of Commerx, comScore, The
National Transportation Exchange, Neoforma.com or Sequoia. We have at least
25%, but less than 50%, of the voting power of each of BidBuyBuild,
CapacityWeb.com, closerlook, eFiltration.com, i-Fulfillment, iGive.com,
iSalvage.com, Martin Partners, Mercantec, OpinionWare.com, OUTTASK.COM,
Perceptual Robotics, PocketCard, The ExecClub.com, Whiplash and Xippix and,
therefore, do not have complete control over any of them. We expect to continue
to acquire less than majority voting interests in partner companies. Further,
we may not maintain our current ownership or control levels in our partner
companies if we sell portions of our interests or our partner companies issue
additional equity to other parties.
Our ownership of interests in partner companies over which we do not
exercise complete control involves additional risks that could cause the
performance of our interests and our operating results to suffer, including:
. management of a partner company having economic or business interests or
objectives that are different than ours; and
. partner companies not taking our advice with respect to the financial or
operating difficulties that they encounter.
Our inability to control our partner companies completely could prevent us
from assisting them, financially or otherwise, or could prevent us from
liquidating our interests in them at a time or at a price that is favorable to
us. Additionally, to the extent we do not completely control them, our partner
companies may not collaborate with each other, may not act in ways that are
consistent with our business strategy and may compete with us or other partner
companies. These factors could hamper our ability to maximize returns on our
interests, and cause us to recognize losses on our interests in partner
companies.
If we are unable or unwilling to provide our partner companies with the
significant additional financing they will need, our interests in them may be
diluted or they may fail.
Most of our current partner companies are, and we expect that our future
partner companies will be, in the early stages of their development. Our
partner companies will require significant amounts of additional capital to
compete successfully, meet their business objectives and produce revenues and
profits. We may not be able to accurately predict these capital needs, and we
may decide not to provide the additional capital that our partner companies
require or may not be given the opportunity to provide it. If our partner
companies receive capital from other sources, our ownership interest in them
may be diluted. If our partner companies are unable to obtain additional
capital, they may fail.
Our partner companies may be at a competitive disadvantage if they are unable
to protect their proprietary rights or if they infringe on the proprietary
rights of others, and any related litigation could be time consuming and
costly.
Because all our partner companies operate or will operate their businesses
through web sites and rely on hardware and software to conduct e-commerce,
proprietary rights, particularly in the form of trade secrets, copyrights and
patents, will be critical to the success and competitive position of all of our
partner companies.
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<PAGE>
The actions that our partner companies take to protect their proprietary rights
may be inadequate. In addition, effective copyright and trademark protection
may be unenforceable or limited in certain countries and our partner companies
may be unable to control the dissemination of their content and products and
use of their services due to the global nature of the Internet. A substantial
majority of our partner companies license content and technology which they
include in their product or service offerings from third parties, and they
could become subject to infringement actions as a result. In addition, third
parties may claim that our partner companies have violated their intellectual
property rights. For example, companies have recently brought claims regarding
alleged infringement of patent rights relating to methods of doing business
over the Internet. To the extent that any of our partner companies violates a
patent or other intellectual property right of a third party, it may be
prevented from operating its business as planned, and it may be required to pay
damages, to obtain a license, if available, to use the patent or other right or
to use a non-infringing method, if possible, to accomplish its objectives. Any
of these claims, with or without merit, could subject our partner companies to
costly litigation and the diversion of their technical and management
personnel. If our partner companies incur costly litigation and their personnel
are not effectively deployed, the expenses and losses incurred by them will
increase, and their profits, if any, will decrease.
Our partner companies' operations may be disrupted by technological problems.
Our partner companies' businesses will depend on the efficient and
uninterrupted operation of their computer and communications hardware systems
to enable them to continuously provide their products and services over the
Internet. Currently, all of our internally developed partner companies, as well
as three partner companies--Whiplash, TheExecClub.com, and OpinionWare.com--in
which we acquired interests, are dependent on us for hosting services and
maintenance of their computer systems. All of our partner companies are
dependent, to some extent, on third parties for technological support. Service
interruptions could result from natural disasters, power loss,
telecommunications failures and similar events or from capacity constraints.
These interruptions could cause a complete shut-down of our partner companies'
businesses, which could result in lost revenues or customers.
If the Internet does not continue to be a reliable commercial medium, our
partner companies' businesses could be materially adversely affected.
Continued growth in Internet usage could cause a decrease in the quality of
Internet connection service. Web sites have experienced service interruptions
as a result of outages and other delays occurring throughout the Internet
network infrastructure. In addition, there have been several recent incidents
in which individuals have intentionally caused service disruptions of major e-
commerce web sites. If these outages, delays or service disruptions frequently
occur in the future, usage of our partner companies' products and services
could grow more slowly than anticipated or decline, and they may lose revenues
and customers.
Concerns regarding security of transactions or the transmission of confidential
information over the Internet or security problems experienced by our partner
companies may prevent them from expanding their businesses or subject them to
legal exposure.
If a partner company does not offer sufficient security features in its
online product and service offerings, its products and services may not gain
market acceptance, and it could be exposed to legal liability. Despite the
measures that may be taken by our partner companies, the infrastructure of each
of them will be potentially vulnerable to physical or electronic break-ins,
viruses or similar problems. If a person circumvents the security measures of
our partner companies, that person could misappropriate proprietary information
or cause interruptions in the operations of the partner company. Security
breaches that result in access to confidential information could damage the
reputation of any one of our partner companies and expose it to a risk of loss
or liability. All of our partner companies will be required to make significant
expenditures, either for internal development efforts or payments to us or
other third parties providing security-related services, to protect against or
remedy security breaches. Additionally, as e-commerce becomes more widespread,
our partner companies' customers may become more concerned about security. If
our partner companies are unable to adequately address these concerns, they may
be unable to sell their goods and services.
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<PAGE>
Future government regulation could place financial burdens on the businesses of
our partner companies.
Because of the Internet's popularity and increasing use, new laws and
regulations directed specifically at e-commerce may be adopted. These laws and
regulations may cover issues such as the collection and use of data from web
site visitors, including the placing of small information files, or "cookies,"
on a user's hard drive to gather information, and related privacy issues;
pricing; taxation; telecommunications over the Internet; content; copyrights;
distribution; and quality of products and services. In particular, states may
impose discriminatory, multiple or special taxes on the Internet if the current
moratorium on the application of these taxes, due to end on October 21, 2001,
is not extended. If the moratorium ends, federal taxes may also be imposed on
e-commerce. These state and federal taxes could cause a decrease in the volume
of business-to-business e-commerce. Additionally, new laws or regulations could
be enacted which could burden the companies that provide the infrastructure on
which the Internet is based, slowing the Internet's rapid expansion and its
availability to new users. The enactment of any additional laws or regulations,
including international laws and regulations, could impede the growth of the
Internet and business-to-business e-commerce or reduce the effectiveness of our
partner companies' technology, which could decrease the revenue of our partner
companies and place additional financial burdens on our business and the
businesses of our partner companies.
Risks Relating to the Offering
Our founding stockholders control us because they own all of our class B common
stock, which has ten votes per share and represents 56.0% of the voting power
of our common stock, and they may vote in a way with which you do not agree.
After this offering, Andrew J. Filipowski, Michael P. Cullinane, Paul L.
Humenansky, Larry S. Freedman, Thomas A. Slowey, Paul A. Tatro and their
affiliates will together own all of the outstanding shares of our class B
common stock. Our class B common stock is entitled to ten votes per share on
all matters submitted to a stockholder vote, while our class A common stock is
entitled to one vote per share. Therefore, in the aggregate, these founding
stockholders will hold approximately 56.0% of the voting power of our capital
stock after this offering. These stockholders will, together, control us and
all of our corporate actions requiring stockholder approval, including the
election of our directors, a sale of substantially all of our assets, our
merger with another entity or an amendment to our certificate of incorporation.
Accordingly, holders of our class A common stock will not be able to direct our
business. Our founding stockholders may take actions with which you do not
agree, including actions which could delay, defer or prevent a change of
control and could adversely affect the price that investors might be willing to
pay in the future for shares of our class A common stock.
Our class B common stock generally converts into an equal number of shares
of our class A common stock upon its sale and loses its supervoting rights.
However, our founding stockholders are entitled to transfer their shares of
class B common stock to other founding stockholders, family members of the
founding stockholders, trusts or estates of founding stockholders or their
family members, charitable entities created by founding stockholders or their
family members, or entities controlled by founding stockholders or their family
members. Through these transfers, persons other than our founding stockholders
could gain significant influence or control over us. In addition, because of
the supervoting nature of our class B common stock, our class B stockholders
may sell a substantial portion of their stock and still retain control of us.
Provisions in our charter, our by-laws and Delaware law could delay or deter
tender offers or takeover attempts that may offer you a premium for your class
A common stock, which could adversely affect our stock price.
Provisions in our certificate of incorporation and by-laws and Delaware law,
in addition to the terms of our class B common stock, could make it more
difficult for a third party to acquire control of us, even if the change in
control would be beneficial to you. These provisions are:
. the classification of our Board of Directors into three classes serving
staggered three-year terms;
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<PAGE>
. the ability of our Board of Directors to issue shares of preferred stock
with rights as they deem appropriate without stockholder approval;
. a requirement that special meetings of our Board of Directors may be
called only by our Chairman, President or a majority of our Board of
Directors;
. a prohibition against action by written consent of our stockholders;
. a requirement that our stockholders comply with advance notice
provisions to bring director nominations or other matters before
meetings of our stockholders; and
. adoption of a provision of Delaware law that prohibits us from entering
into some business combinations with interested stockholders without the
approval of our Board of Directors.
The existence of these provisions may deprive you of an opportunity to sell
your shares at a premium over prevailing prices. The potential inability of our
stockholders to obtain a control premium could adversely affect the market
price for our class A common stock.
You will suffer immediate dilution in the value of your shares and may suffer
further dilution in the future.
You will suffer immediate dilution in the value of your shares because we
recently sold a large number of shares of our capital stock at a price lower
than our public offering price.
From August 25, 1999 through February 2000, giving effect to the conversion
of all outstanding shares of our convertible preferred stock into common stock,
we sold 436,920,462 shares of our common stock at an average price per share of
$0.98. These shares include (1) 157,600,000 shares of our class A common stock
which we will issue upon conversion of 197,000,000 shares of our series D and
D-1 preferred stock which we sold for total consideration of $197,000,000; (2)
14,627,462 shares of our class A common stock which we will issue upon
conversion of 18,284,327 shares of our series E preferred stock which we sold
for a total consideration of $18,284,327; and (3) 20,044,420 shares of our
class A common stock which we issued at a price of $0.9375 per share upon the
issuance of outstanding options. In addition, 10,400,000 shares of our class A
common stock will be issuable upon conversion of a total of 13,000,000 shares
of our series F preferred stock which we issued in February 2000 in exchange
for interests in three partner companies. Investors purchasing shares in this
offering will incur immediate and substantial dilution in net tangible book
value per share of $5.45.
There are options outstanding to purchase our class A common stock with an
exercise price of $0.9375 per share, which will cause you to suffer further
dilution in the value of your shares in the future.
Since October 1, 1999, we have granted options to purchase 23,554,392 shares
of our class A common stock to our directors, officers and employees with an
exercise price of $0.9375 per share. Options to purchase 3,509,900 shares of
our class A common stock were outstanding as of January 15, 2000. Additionally,
beginning on the date of this prospectus, under our employee stock purchase
plan, we are granting initial options to purchase shares of our class A common
stock to our employees who elect to participate in the plan. These initial
options will be exercisable at a price which will be no greater than 85% of our
initial public offering price and may be lower than that price, depending on
the trading price of our class A common stock in the future. To the extent that
our outstanding options are exercised, you will suffer dilution in addition to
the dilution described above.
We may issue shares in connection with our acquisitions of interests in
partner companies, which could cause you to suffer further dilution in the
value of your shares.
We may issue shares of our class A common stock, or debt or equity
securities convertible into our class A common stock, in the future to raise
capital to carry out our business strategy of establishing and acquiring
interests in partner companies. We may also issue these shares or convertible
securities as consideration in our acquisitions of interests of partner
companies. These issuances may cause further dilution to our stockholders.
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<PAGE>
The market price of our class A common stock may fluctuate widely, and this
volatility could result in stockholder lawsuits.
The initial public offering price for our class A common stock will be
negotiated between us and the underwriters and may not be indicative of the
market price that will prevail after this offering. We believe the following
factors could cause the market price of our class A common stock to fluctuate
widely and could possibly cause our class A common stock to trade at a price
below the initial public offering price:
. announcements of acquisitions of interests in business-to-business e-
commerce companies or strategic relationships by us or our competitors;
. announcements of new services, products, technological innovations,
acquisitions or strategic relationships by our partner companies;
. trends or conditions in the Internet industry;
. our inability to avoid regulation under the Investment Company Act;
. changes in valuation estimates by securities analysts and in analyst
recommendations;
. variations in the operating results of our partner companies;
. changes in the stock prices of our partner companies that are publicly
traded;
. changes in market valuations of other capital and service providers for
Internet companies; and
. general political, economic and market conditions.
Many of these factors are beyond our control. These factors may cause a
decrease in the market price of our class A common stock regardless of our
operating performance.
The market price for our class A common stock may also be affected by our
ability to meet or exceed expectations of analysts or investors. Any failure to
meet or, in some cases, exceed these expectations, even if minor, could cause
the market price of our class A common stock to decline. In addition, the
market price of our class A common stock may fluctuate widely because we depend
on e-commerce companies for our revenue. The market prices of equity securities
of companies in the Internet industry often fluctuate significantly for reasons
unrelated to the operating performance of these companies. We expect to be
particularly susceptible to such volatility, as have been other public
companies with models similar to ours, because we may be valued in the future
on the basis of a number of minority interests we hold in public Internet
companies. Therefore, fluctuations in the valuations of any of our partner
companies may cause our valuation to fluctuate. The trading prices of many
Internet companies have reached historical highs within the last 52 weeks and
have reflected relative valuations substantially above historical levels.
During the same period, these companies' stocks have also been highly volatile
and have recorded lows well below such historical highs. Our class A common
stock may not trade at the same levels as other Internet-related stocks, and
Internet-related stocks in general may not sustain their current market prices.
In the past, following periods of volatility in the market price of a company's
securities, securities class action litigation has often been instituted
against that company. If any securities litigation is initiated against us, we
could incur substantial costs and our management's attention and resources
could be diverted from our business.
Our stock price may decline if a large number of shares are sold after this
offering or there is a perception that these sales may occur.
The market price of our class A common stock could decline as a result of
sales of a large number of shares of our class A common stock by our
stockholders in the market after this offering, or the perception that these
sales could occur. These factors also could make it more difficult for us to
raise funds through future offerings of our equity securities. When we complete
this offering, we will have 437,658,254 outstanding shares of class A common
stock and 56,080,000 outstanding shares of class B common stock. The 50,000,000
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shares of our class A common stock sold in this offering will be freely
transferable, unless they are purchased by our affiliates, as that term is
defined in Rule 144 under the Securities Act. The remaining total of
443,920,462 shares will be restricted shares, which may be resold only through
registration under the Securities Act or under an available exemption from
registration, including the exemption provided by Rule 144. In addition, upon
completion of this offering, options to purchase 3,509,900 shares of class A
common stock will be issued and outstanding, all of which will be exercisable
in full.
The holders of all of our outstanding shares and options have agreed not to
sell any of their securities for the period ending 180 days after the date of
this prospectus, without the prior written consent of Credit Suisse First
Boston Corporation. Credit Suisse First Boston Corporation may release all or
any portion of the shares subject to these lock-up agreements at any time. Any
early waiver of the lock-up agreements by the underwriters could permit sales
of a substantial number of shares and could adversely affect the trading price
of our class A common stock.
Under Rule 144, in June 2000, 8,000 restricted shares of our class A common
stock, and, from September 2000 through March 2001, 402,678,042 restricted
shares of our class A common stock, including the 56,080,000 shares of our
class A common stock issuable upon conversion of our class B common stock, will
become eligible for sale, subject to volume and manner of sale limitations and
the underwriters' lock-up agreements. These shares exclude the shares which
will be eligible for sale in the public market under Rule 701 under the
Securities Act, as described below. We are unable to estimate accurately the
number of restricted shares that will actually be sold under Rule 144 because
these sales will depend in part on the market price of our class A common
stock, the personal circumstances of the sellers and other factors.
Beginning 90 days after the date of this prospectus, 26,360,000 shares of
our common stock sold by us in August 1999, and 14,847,420 shares issued upon
exercise of options granted by us before the effective date of the registration
statement of which this prospectus is a part will be eligible for sale in the
public market through Rule 701 under the Securities Act, subject to the
underwriters' lock-up agreements discussed above and, in the case of our
affiliates, to the volume and manner of sale limitations of Rule 144.
Additionally, beginning six months after we complete this offering, the holders
of 179,045,254 shares of our class A common stock will be entitled to demand
and piggyback registration rights. The holders of an additional 234,240,580
shares, including the 56,080,000 shares of our class A common stock issuable
upon conversion of our class B common stock, will be entitled only to piggyback
registration rights. We plan to file a registration statement to cover the
shares that we may issue in the future under our stock incentive plan and
employee stock purchase plan immediately after the effectiveness of the
registration statement of which this prospectus is a part. Shares issued under
this registration statement will be freely tradeable in the public markets,
subject, in the case of our affiliates, to the volume and manner of sale
limitations of Rule 144.
We will have broad discretion in using the proceeds from this offering and may
not use them in a manner that our stockholders would prefer.
We have not identified specific uses for most of the proceeds from this
offering, and we will have broad discretion in how we use them. In addition, we
are unable to determine how much of the proceeds will be used for any
identified purpose because circumstances regarding our planned uses of the
proceeds may change. You will not have the opportunity to evaluate the
economic, financial or other information on which we base our decisions on how
to use the proceeds. The failure of our management to apply the funds
effectively could have a material adverse effect on our business and financial
performance.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements that reflect our current
expectations and projections about our future results, performance, prospects
and opportunities. We have tried to identify these forward-looking statements
by using words such as "may," "will," "expect," "anticipate," "believe,"
"intend," "plan," "estimate" and similar expressions. These forward-looking
statements are based on information currently available to us and are subject
to a number of risks, uncertainties and other factors that could cause our
actual results, performance, prospects or opportunities to differ materially
from those expressed in, or implied by, these forward-looking statements. These
risks, uncertainties and other factors include:
. our need to continue to identify and acquire interests in suitable
partner companies;
. the intense competition among capital providers to acquire interests in
business-to-business e-commerce companies;
. existing and future regulations affecting our business, the businesses
of our partner companies or the Internet generally; and
. other factors set forth under "Risk Factors" in this prospectus.
Except as otherwise required by federal securities laws, we undertake no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events, changed circumstances or any
other reason, after the date of this prospectus.
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USE OF PROCEEDS
We estimate that our net proceeds from the sale of the class A common stock
we are offering, assuming an initial public offering price of $7.00 per share,
will be approximately $321,500,000. If the underwriters exercise their over-
allotment option in full, our net proceeds will be approximately $370,325,000.
Our net proceeds are what we expect to receive after deducting the estimated
underwriting discounts and commissions and estimated offering expenses payable
by us. We intend to use these net proceeds to acquire interests in and
establish partner companies and for general corporate and working capital
purposes.
Pending these uses, we will invest the net proceeds of this offering
primarily in cash equivalents or direct or guaranteed obligations of the United
States.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock and
do not anticipate paying cash dividends in the foreseeable future. We plan to
retain all future earnings, if any, to finance our establishment of, and
acquisitions of interests in, partner companies and for general corporate
purposes. Any future determination as to the payment of dividends will be at
our Board of Directors' discretion and will depend on our financial condition,
operating results, current and anticipated cash needs, plans for expansion and
other factors that our Board of Directors considers relevant.
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CAPITALIZATION
The table below shows our cash and cash equivalents and total capitalization
as of December 31, 1999:
. on an actual basis;
. on a pro forma basis to reflect (1) our sale of an additional
215,284,327 shares of convertible preferred stock at $1.00 per share
from January 1, 2000 through February 2000 and our receipt of
$215,134,327 of net proceeds from these sales, assuming $150,000 of
expenses associated with the offerings; (2) our issuance of
18,404,420 shares of our class A common stock in January 2000 upon
exercise of outstanding options at an exercise price of $0.9375 per
share and our receipt of promissory notes and cash totalling
$17,254,144 for the exercise of these options; and (3) our
acquisitions of interests in partner companies from January 1, 2000
through February 14, 2000, and our issuance of 13,000,000 shares of
convertible preferred stock in connection with three of these
acquisitions, as if all these events had occurred on December 31,
1999; and
. on a pro forma, as adjusted basis to reflect (1) the conversion of
our convertible preferred stock into 344,236,042 shares of our class
A common stock and 46,280,000 shares of class B common stock to be
effected before the completion of this offering; (2) our issuance of
6,817,792 shares of our class A common stock to CMGI in exchange for
shares of CMGI common stock having an approximate fair market value
equal to that of those shares of our class A common stock, based on
the assumed initial public offering price of our class A common
stock; and (3) our issuance and sale in this offering of 50,000,000
shares of our class A common stock at an assumed initial public
offering price of $7.00 per share, and our receipt of $321,500,000 of
net proceeds from this offering, after deducting the estimated
underwriting discounts and commissions and estimated offering
expenses payable by us, as if all these events had occurred on
December 31, 1999.
You should read this table along with our financial statements and the
related notes included in this prospectus.
<TABLE>
<CAPTION>
As of December 31, 1999
-------------------------------
Pro Pro Forma,
Actual Forma As Adjusted
-------- -------- -----------
(in thousands, except share
data)
<S> <C> <C> <C>
Cash and cash equivalents.................. $162,841 $296,140 $617,640
======== ======== ========
Stockholders' equity:
Preferred stock, $.001 par value,
700,000,000 shares authorized and
259,860,725 convertible shares issued
and outstanding, actual; 700,000,000
shares authorized and 488,145,052
convertible shares issued and
outstanding pro forma; and 700,000,000
shares authorized and no shares issued
and outstanding, pro forma, as adjusted. $ 260 $ 488 --
Class A common stock, $.001 par value,
720,000,000 shares authorized and
18,200,000 shares issued and
outstanding, actual; 720,000,000 shares
authorized and 36,604,420 shares issued
and outstanding pro forma; and
720,000,000 shares authorized and
437,658,254 shares issued and
outstanding, pro forma, as adjusted..... 18 36 438
Class B common stock, $.001 par value,
80,000,000 shares authorized and
9,800,000 shares issued and outstanding,
actual and pro forma; 80,000,000 shares
authorized and 56,080,000 shares issued
and outstanding, pro forma, as adjusted. 10 10 56
Additional paid-in capital................. 213,606 458,748 828,013
Accumulated deficit........................ (8,080) (8,080) (8,080)
Notes receivable from stock exercises...... -- (17,254) (17,254)
-------- -------- --------
Total stockholders' equity............. 205,814 433,948 803,173
-------- -------- --------
Total capitalization................. $205,814 $433,948 $803,173
======== ======== ========
</TABLE>
The pro forma, as adjusted number of issued and outstanding shares of our
class A common stock excludes:
. 3,509,900 shares issuable upon the exercise of stock options
outstanding on January 15, 2000 with a weighted average exercise
price of $0.9375 per share;
. 28,445,680 shares reserved for grants that we may make in the future
under our stock incentive plan; and
. 20,000,000 shares reserved for issuance under our employee stock
purchase plan.
29
<PAGE>
DILUTION
As of December 31, 1999, after giving effect to our pro forma net tangible
book value as follows (1) an increase for our receipt of $215,134,327 of net
proceeds from our sale of 215,284,327 shares of convertible preferred stock
from January 1, 2000 through February 2000 and the addition of 172,227,462
shares of class A common stock issuable upon conversion of those shares; (2)
the addition of 10,400,000 shares of class A common stock issued in February
2000 in exchange for interests in three partner companies; and (3) the
conversion of all outstanding shares of our convertible preferred stock and
shares of class B common stock into class A common stock, our pro forma net
tangible book value was approximately $397,036,969 or $0.91 per share. Our pro
forma net tangible book value is our pro forma total assets minus the sum of
our liabilities and intangibles assets. Our pro forma net tangible book value
per share is our pro forma net tangible book value divided by the pro forma
total number of shares of our common stock outstanding. Dilution in pro forma
net tangible book value per share to new investors represents the difference
between (1) the assumed price at which we sell each share of our class A common
stock to investors in this offering and to CMGI as to the shares to be issued
to it upon completion of this offering; and (2) the pro forma net tangible book
value per share immediately following the completion of this offering.
As of December 31, 1999, after giving effect to (1) an increase in our as
adjusted pro forma net tangible book value to reflect our receipt of
$321,500,000 of estimated net proceeds from the sale of 50,000,000 shares of
class A common stock in this offering, at an assumed initial public offering
price of $7.00 per share and following the deduction of estimated underwriting
discounts and commissions and estimated offering expenses payable by us, and
the addition of those 50,000,000 shares of class A common stock, and (2) an
increase in our as adjusted pro forma net tangible book value to reflect our
receipt of shares of CMGI common stock having an approximate fair market value
of $47,675,000, net of estimated offering costs of $50,000, in exchange for
6,817,792 shares of our class A common stock to be issued to CMGI upon
completion of this offering, based on the assumed initial public offering price
of our class A common stock, and the addition of those 6,817,792 shares of our
class A common stock, our pro forma net tangible book value would have been $
766,211,513, or $1.55 per share. This represents an immediate increase in net
tangible book value of $0.64 per share to existing stockholders and an
immediate and substantial dilution of $5.45 per share to new investors
purchasing shares of class A common stock in this offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C> <C>
Assumed initial public offering price per share............. $7.00
---
Pro forma net tangible book value per share as of December
31, 1999 without giving effect to this offering............ $0.91
Increase per share attributable to new investors............ 0.64
-----
Pro forma net tangible book value per share as of December
31, 1999 after giving effect to this offering.............. 1.55
-----
Dilution in pro forma net tangible book value per share to
new investors.............................................. $5.45
=====
</TABLE>
30
<PAGE>
The following table shows the difference, on a pro forma basis as of
December 31, 1999, between existing stockholders and new investors, including
investors in this offering and CMGI as to the shares to be acquired by it upon
completion of this offering, with respect to the number of shares of common
stock purchased from us, the total consideration received by us and the average
price paid per share, assuming an initial public offering price of $7.00 per
share and before deducting estimated underwriting discounts and commissions and
estimated offering expenses, giving effect to the conversion of all outstanding
shares of convertible preferred stock into our common stock.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------- -------------------- Price
Number Percent Amount Percent Per Share
----------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.... 436,920,462 88.5% $459,282,474 53.6% $1.05
New investors............ 56,817,792 11.5 397,724,544 46.4 7.00
----------- ----- ------------ ----- -----
Total................ 493,738,254 100.0% $857,007,018 100.0% $1.74
=========== ===== ============ ===== =====
</TABLE>
These calculations do not give effect to:
. 3,509,900 shares of class A common stock issuable upon the exercise of
stock options outstanding on January 15, 2000, with a weighted average
exercise price of $0.9375 per share;
. 28,445,680 shares of class A common stock reserved for grants that we may
make in the future under our stock incentive plan; and
. 20,000,000 shares of class A common stock reserved for issuance under our
employee stock purchase plan.
31
<PAGE>
SELECTED FINANCIAL DATA
In this section, we present our selected financial data. You should read
carefully the financial statements in this prospectus, including the notes to
the financial statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The selected data in this section is not
intended to replace our financial statements. We derived the statement of
operations data and the balance sheet data from our audited financial
statements included in this prospectus. Those statements were audited by KPMG
LLP, independent public accountants. Our results of operations for the period
from May 7, 1999, our inception, to December 31, 1999 are not necessarily
indicative of the results we may achieve in the future.
<TABLE>
<CAPTION>
Period from May 7, 1999
(Inception) to
December 31, 1999
-----------------------
(in thousands,
except share and
per share data)
<S> <C>
Statement of Operations Data:
Revenues............................................. $ 1,037
Total operating expenses............................. 9,435
Net loss............................................. (8,080)
Basic and diluted net loss per share................. (0.86)
Shares used in computing basic and diluted net loss
per share........................................... 13,517,155
<CAPTION>
As of December 31, 1999
-----------------------
<S> <C>
<CAPTION>
(in thousands)
<S> <C>
Balance Sheet Data:
Cash and cash equivalents............................ $ 162,841
Working capital...................................... 138,279
Total assets......................................... 239,452
Total stockholders' equity........................... 205,814
</TABLE>
For an explanation of the determination of the number of shares used in
computing basic and diluted net loss per share, see Note 1(l ) of the notes to
our financial statements.
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
You should read the following discussion along with our financial statements
and the related notes included in this prospectus. This discussion contains
forward-looking statements that are subject to risks, uncertainties and
assumptions, including those discussed under "Risk Factors." Our actual results
may differ materially from those expressed in, or implied by, these forward-
looking statements. See "Cautionary Note Regarding Forward-Looking Statements."
Overview
We were incorporated on May 7, 1999 and began operations on June 30, 1999.
We actively engage in business-to-business e-commerce through our community of
partner companies. Through September 1999, we engaged in start-up and
organizational activities, including building our management team, raising our
initial capital, hiring technical and operational personnel and marketing our
business. We also analyzed and engaged in discussions with potential partner
companies, but we did not establish or acquire interests in any partner
companies. Since September 30, 1999, we have continued to build our
organization and have acquired interests in 31 partner companies and
established 12 partner companies.
We generated revenues totalling $1,037,000 through December 31, 1999,
principally through our majority-owned partner companies. Our partner companies
generate revenues primarily from the sale of products and services, advertising
and transaction fees. We also generate revenues from fees paid to us by venture
capital funds that we manage, as well as consulting fees. Our operating results
also reflect our share of the earnings or losses of non-majority owned partner
companies over which we exercise significant influence.
We expect to continue to acquire interests in partner companies for the
foreseeable future, and we expect that the amount of cash that we will use for
acquisitions will increase substantially in future periods. We also expect to
expend substantial funds in future periods to fund partner companies that we
have established. We are currently in active discussions with over 50 potential
partner companies, but do not have plans to acquire interests in or establish a
specific number of new partner companies or to commit a target amount of
capital to these transactions. Instead, we continuously seek to identify
opportunities suitable for our business strategy, employing our partner company
evaluation criteria and considering our available funds. Our costs associated
with building partner companies and developing the infrastructure that we will
need to support them will vary based upon many factors, including the size,
nature and state of development of each company.
Because we acquire significant interests in business-to-business e-commerce
companies, many of which generate net losses, we expect to experience
significant volatility in our quarterly results. We do not know if we will
report net income in any period, and we expect that we will report increasing
net losses for the foreseeable future. Although our partner companies may
report net losses in the future, we may record net income in certain periods
due to one-time transactions incidental to our ownership interests in, and
advances to, partner companies. These one-time transactions may include
dispositions of, or changes to, our partner company ownership interests,
dispositions of our holdings of available-for-sale securities and impairment
charges.
On a continuous basis, but no less frequently than at the end of each
quarterly reporting period, we will evaluate the carrying value for financial
statement purposes of our interests in, and advances to, each of our partner
companies for impairment. We will base these evaluations on achievement of
business plan objectives and milestones by the partner company, the fair value
of each ownership interest and advance relative to its carrying value, the
financial condition and prospects of the partner company and other relevant
factors. The business plan objectives and milestones that we will consider
include, among others, those related to financial performance, such as
achievement of planned financial results and completion of capital raising
activities, and those that are not primarily financial in nature, such as the
launching of a web site, the hiring of key employees, the number of people who
have registered to be part of the partner company's web community and the
number of visitors to the partner company's web site per month. For financial
statement purposes, the fair value of our ownership interests in, and advances
to, privately held partner companies will generally be
33
<PAGE>
determined based on the prices paid by third parties for ownership interests in
the partner company, to the extent third party ownership interests exist, or
based on the achievement of business plan objectives and the milestones
described above.
The presentation and content of our financial statements is largely a
function of the presentation and content of the financial statements of our
partner companies. We assume responsibility for the presentation and content of
our financial statements, and each of our partner companies assumes
responsibility for the presentation and content of its financial statements. To
the extent any of our partner companies change the presentation or content of
its financial statements, as may be required upon changes in accounting
standards, the presentation and content of our financial statements may also
change.
We account for our ongoing services to our partner companies, including
technological support, facilities usage and professional services, at a price
mutually agreed upon with our partner companies, which is considered to be at
arms-length.
Management of Venture Capital Funds
We receive management fees from venture capital funds that we manage. As
general partner of Platinum Venture Partners I, we receive an annual management
fee, payable in advance in quarterly installments, of 2 1/2% of the fair market
value of the partnership, adjusted annually by the increase in a consumer price
index during the preceding calendar year. As general partner of Platinum
Venture Partners II, we receive an annual management fee, payable in advance in
quarterly installments, of 2 1/2% of the aggregate partner commitments,
adjusted annually by the percentage increase in a consumer price index during
the preceding calendar year. We received a total of approximately $275,000 from
Platinum Venture Partners I and II on October 1, 1999 for fourth quarter 1999
management fees, which represented a significant portion of our fourth quarter
revenues, and received approximately $193,000 on January 1, 2000 for first
quarter 2000 management fees, which we expect will represent a substantially
lower percentage of our revenues for that period. We expect to receive a total
of approximately $579,000 in management fees from Platinum Venture Partners I
and II for the remainder of 2000. We have made only a nominal capital
contribution to each of these funds and, therefore, have a significantly less
than 1% interest in their profits and losses. Because Platinum Venture Partners
I has invested all of its raised capital and Platinum Venture Partners II has
invested substantially all of its raised capital, we only devote a limited
amount of resources to managing their operations, including recordkeeping,
auditing and managing any dispositions of investments by the funds. In
addition, we will make investment decisions for the remaining available capital
for Platinum Venture Partners II. We also provide some strategic and
operational support to the funds' portfolio companies.
Through Big Shoulders Management, L.L.C., our wholly-owned subsidiary, we
manage the Big Shoulders interTech Fund, L.P., as general partner of the fund.
Big Shoulders interTech Fund is a venture capital fund which primarily will
make investments of $2,000,000 or less in start-up and early-stage companies
located in Illinois. On February 10, 2000, we became general partner and were
admitted as a limited partner and one other investor, an affiliate of Mesirow
Financial, was admitted as a limited partner. The two initial investors in the
fund committed to contribute a total of $8,000,000 to the fund, of which we
have committed to contribute $3,920,000 as a limited partner and $80,000 as
general partner. We are obligated to contribute 1% of the total commitments to
the fund as general partner. The fund is seeking $75,000,000 to $125,000,000 in
total commitments and may admit additional limited partners for a period of
nine months after February 10, 2000. During that period, we may commit to
contribute up to an additional $6,000,000 to the fund. The fund may draw down
its commitments from investors for a period of four years and will terminate no
later than ten years from the date on which the last investor was admitted as a
limited partner, unless we extend the fund for up to three additional one-year
periods.
With respect to each interest in a company acquired by the fund, we are
entitled to receive 20% of all distributions in relation to that interest,
after the partners in the fund have received a return of their invested capital
in that company. If, upon liquidation of the fund, the partners fail to receive
a return of all of their contributed capital, we are obligated to contribute an
amount equal to the deficiency, but not to exceed an
34
<PAGE>
amount equal to the distributions received by us with respect to our 20% share.
We are also entitled to receive an annual management fee of 2% of the total
capital committed to the fund during the first six years of the fund. This
management fee will then be reduced in 10% increments each year until the
termination of the fund.
We may have conflicts of interest in allocating opportunities to acquire
interests in Illinois-based technology and e-commerce companies between us and
the fund. In general, we intend to allocate all opportunities involving
Illinois companies which require an initial investment of $2,000,000 or less to
the fund. However, our management has sole and absolute discretion in
allocating these opportunities, and we are not obligated to allocate these
opportunities to the fund. See "Risk Factors" for a description of our policies
concerning these and other conflicts of interest.
Effect of Various Accounting Methods on the Consolidated Financial Statements
The various interests that we acquire in our partner companies are accounted
for under three methods: consolidation, equity method or cost method. We
determine the method of accounting for our partner company interests on a case
by case basis based upon our ownership percentage in each partner company, as
well as our degree of influence over each partner company.
Consolidation. Partner companies in which we own, directly or
indirectly, more than 50% of the outstanding voting power are generally
accounted for under the consolidation method of accounting. Under this
method, a partner company's results of operations are reflected within our
consolidated statements of operations. Earnings or losses attributable to
other stockholders of a consolidated partner company are identified as
"minority interest" in our consolidated statements of operations. Minority
interest adjusts our consolidated net results of operations to reflect only
our share of the earnings or losses of a partner company.
Equity Method. Partner companies in which we own 50% or less of the
outstanding voting power, but over which we exercise significant influence,
are generally accounted for under the equity method of accounting. Whether
or not we exercise significant influence with respect to a partner company
depends on an evaluation of several factors including, among other things,
representation on the partner company's board of directors, ownership
percentage and voting rights associated with our holdings in the partner
company. Generally, if we own at least 20%, but not more than 50%, of the
outstanding voting power of a partner company, we account for our interests
under the equity method. Under the equity method of accounting, a partner
company's results of operations are not reflected within our consolidated
operating results. However, our share of the earnings or losses of that
partner company is identified as "equity income (loss)" in our consolidated
statements of operations.
The net effect of a partner company's results of operations on our
results of operations is generally the same under either the consolidation
method of accounting or the equity method of accounting, because, under
each of these methods, only our share of the earnings or losses of a
partner company is reflected in the net results of operations in our
consolidated statements of operations. However, the presentation of the
consolidation method differs dramatically from the equity method of
accounting. The consolidation method presents partner company results
throughout the applicable line items within our financial statements. In
contrast, the equity method of accounting presents partner company results
in a single category, "equity income (loss)," within our financial
statements.
Cost Method. Partner companies not accounted for under either the
consolidation or the equity method of accounting are accounted for under
the cost method of accounting. Under this method, our share of the earnings
and losses of these companies is not included in our consolidated
statements of operations unless earnings or losses are distributed.
We expect to record our ownership interest in equity securities of our
partner companies accounted for under the cost method at cost, unless the
securities have readily determinable fair values based on quoted market
prices, in which case these interests would be classified in accordance
with Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities."
The presentation of our financial statements may differ from period to
period if our ownership in any of our partner companies changes significantly.
Our consolidated revenues and related costs and expenses may fluctuate due to
the applicable accounting method used for recognizing our participation in the
operating results of a particular partner company.
35
<PAGE>
Partner Company Interests
Acquired Interests
The table below shows the name of each partner company in which we have
acquired an interest, the date of acquisition, the cash consideration paid by
us exclusive of brokerage fees, the amount of our outstanding promissory notes,
if any, to the partner company, the number of shares, if any, of our class A
common stock issuable upon conversion of series F preferred stock issued by us
in connection with the acquisition, our percentage of equity ownership and
voting power in the partner company and our method of accounting for our
interest in it. Our current equity ownership/voting power percentages have been
calculated based on the issued and outstanding common stock of each partner
company, assuming the issuance of common stock on the conversion or exercise of
preferred stock, but excluding the effect of options and warrants. Except where
we indicate otherwise, our equity ownership and voting power percentages are
the same.
<TABLE>
<CAPTION>
Shares of Our Current
Class A Equity Ownership/
Date of Cash Promissory Common Voting Power Accounting
Partner Company Acquisition Consideration Notes Stock Percentage Method
--------------- ----------- ------------- ----------- --------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BeautyJungle.com, Inc... 1/11/00 $10,000,000 -- -- 51.3% Consolidation
bid4real, inc........... 1/24/00 $ 7,000,000 -- -- 54.3% Consolidation
BidBuyBuild,
Incorporated........... 2/11/00 $ 3,000,000 $ 3,000,000 -- 35.4%(1) Equity
Blueridge Technologies,
Inc.................... 11/19/99 $ 4,500,000 -- -- 100.0% Consolidation
CapacityWeb.com, Inc.... 2/11/00 $ 4,500,000 -- -- 44.5% Equity
closerlook, inc......... 2/1/00 $13,000,000 -- 1,600,000 37.3% Equity
Commerx, Inc............ 11/19/99 $ 2,500,000 -- -- 1.1% Cost
comScore, Inc........... 10/29/99 $ 200,208 -- -- 0.9% Cost
divine interChange,
inc.................... 2/11/00 $15,000,000 -- 8,000,000 75.1% Consolidation
eFiltration.com, Inc.... 2/11/00 $ 5,000,000 $ 5,000,000 -- 45.2% Equity
i-Fulfillment, Inc...... 1/28/00 $ 1,000,000 $ 9,000,000 -- 48.8% Equity
iGive.com, inc.......... 2/11/00 $ 4,000,000 -- -- 31.1% Equity
iSalvage.com, Inc....... 2/3/00 $ 6,500,000 -- -- 36.3% Equity
i-Street, Inc........... 11/23/99 $ 500,000 -- -- 63.8%/89.8% Consolidation
LiveOnTheNet.com, Inc... 12/8/99 $ 7,500,000 $ 7,500,000 -- 76.9% Consolidation
Martin Partners, L.L.C.. 2/8/00 $ 1,670,883 -- -- 25.0% Equity
Mercantec, Inc.......... 2/11/00 $12,000,000 $11,500,000 -- 40.4% Equity
The National
Transportation
Exchange, Inc.......... 10/29/99 $ 5,862,665 -- -- 5.3% Cost
Neoforma.com, Inc....... 10/14/99 $ 6,000,000 -- -- 1.9% Cost
Oilspot.com, Inc........ 2/10/00 $ 2,500,000 $ 2,500,000 -- 55.6% Consolidation
OpinionWare.com, Inc.... 12/8/99 $ 2,000,000 -- -- 44.1% Equity
OUTTASK.COM, Inc........ 12/10/99 $ 4,000,000 $ 3,000,000 -- 31.8% Equity
Perceptual Robotics,
Inc.................... 2/14/00 $10,000,000 -- 800,000 33.4% Equity
PocketCard Inc.......... 11/23/99 $ 5,000,000 $10,000,000 -- 37.4% Equity
Sequoia Software
Corporation............ 11/23/99 $ 5,000,000 -- -- 8.3%(2) Cost
TheExecClub.com, Inc.... 11/23/99 $ 867,000 -- -- 43.0% Equity
ViaChange.com, Inc...... 1/31/00 $ 3,000,000 $ 2,000,000 -- 70.0% Consolidation
Web Design Group, Inc... 2/11/00 $ 7,000,000 -- -- 53.4% Consolidation
Westbound Consulting,
Inc.................... 2/11/00 $ 500,000 $ 500,000 -- 52.0% Consolidation
Whiplash Inc............ 11/8/99 $ 4,000,000 $ 2,000,000 -- 26.5% Equity
Xippix, Inc............. 2/4/00 $ 5,000,000 $ 4,000,000 -- 32.3% Equity
</TABLE>
- -------------------
(1) We also hold warrants to purchase shares of common stock of BidBuyBuild.
Giving effect to the exercise of these warrants, we hold 37.7% of both the
equity and voting power of BidBuyBuild.
(2) We also hold warrants to purchase shares of preferred stock of Sequoia.
Giving effect to the exercise of these warrants, we hold 10.7% of both the
equity and voting power of Sequoia.
Of the partner companies listed above, only BeautyJungle.com, Blueridge
Technologies, closerlook, Commerx, comScore, iGive.com, i-Street,
LiveOnTheNet.com, Martin Partners, Mercantec, The National Transportation
Exchange, Neoforma.com, Perceptual Robotics, PocketCard, Sequoia, Web Design
Group, Westbound Consulting, Whiplash and Xippix are currently generating
revenues, and only Martin Partners and Web Design Group currently have net
income.
36
<PAGE>
Companies We Established
The table below shows the name of each partner company that we have
established, the date of its establishment, our maximum intended capital
commitment to the partner company, our percentage of equity ownership and
voting power in the partner company and our method of accounting for our
interest in it. Our maximum intended capital commitment for each partner
company represents the amount up to which we currently intend to contribute to
that partner company in the foreseable future. We may, however, ultimately
contribute more or less than the listed amount to any particular partner
company. Our current equity ownership/voting power percentages have been
calculated based on the issued and outstanding common stock of each partner
company, assuming the issuance of common stock on the conversion or exercise of
preferred stock, but excluding the effect of options and warrants.
<TABLE>
<CAPTION>
Maximum Our Current
Intended Equity Ownership/
Date of Capital Voting Power Accounting
Partner Company Incorporation Commitment Percentage Method
--------------- ------------- ----------- ----------------- -------------
<S> <C> <C> <C> <C>
Buzz divine, inc........ 10/26/99 $10,000,000 80%/90% Consolidation
dotspot, Inc............ 10/26/99 $10,000,000 80%/90% Consolidation
eXperience divine, inc.. 10/26/99 $10,000,000 80%/90% Consolidation
FiNetrics.com, Inc...... 11/3/99 $10,000,000 80%/90% Consolidation
Host divine, inc........ 10/26/99 $10,000,000 80%/90% Consolidation
Justice divine, inc..... 10/26/99 $10,000,000 80%/90% Consolidation
Knowledge divine, inc... 10/26/99 $ 3,000,000 80%/90% Consolidation
OfficePlanIt.com, Inc... 11/23/99 $10,000,000 80%/90% Consolidation
Sales divine, inc....... 10/26/99 $10,000,000 80%/90% Consolidation
sho research, Inc....... 10/26/99 $ 3,000,000 80%/90% Consolidation
Talent divine, inc...... 10/26/99 $10,000,000 80%/90% Consolidation
Xqsite, Inc............. 10/26/99 $10,000,000 80%/90% Consolidation
</TABLE>
Of the partner companies listed above, only Buzz divine, dotspot and Justice
divine are currently generating revenues, and none currently have net income.
Each of the partner companies listed above commenced separate operations as of
January 1, 2000. Before that date, we directly offered the services provided by
these partner companies.
Results of Operations
General. We were incorporated in the state of Delaware on May 7, 1999 and
had no substantive operations through June 30, 1999. From June 30, 1999 to
December 31, 1999, we engaged in our initial organization, infrastructure
building and marketing activities. During this period, we acquired a
controlling majority voting interest in Blueridge Technologies, i-Street and
LiveOnTheNet.com, Inc. We also acquired significant minority ownership
interests in five partner companies accounted for under the equity method and
ownership interests in five partner companies accounted for under the cost
method.
Revenues. For the period ended December 31, 1999, we generated revenues of
$1,037,000. These revenues included approximately $275,000 in management fees
as general manager of Platinum Venture Partners I and II. These revenues also
included approximately $272,000 related to software sales contracts and
maintenance contracts by Blueridge Technologies. Other sources of revenues
included $135,000 in web-based advertising, and other infrastructure service
revenues such as public relations, consulting and facilities management.
Cost of Revenues. For the period ended December 31, 1999, cost of revenues
were approximately $819,000, consisting of direct costs of providing products
and services.
Selling, General and Administrative Expenses. For the period ended December
31, 1999, we incurred selling, general and administrative expenses of
approximately $8,616,000. These expenses consisted primarily of $4,150,000 of
employee benefits and related compensation, $1,449,000 of travel and business
development
37
<PAGE>
costs, $865,000 of professional fees including legal, consulting and accounting
and $582,000 of facility costs consisting primarily of rent expense.
Other Income and Expenses. Other income consisted of interest income of
approximately $1,589,000 earned from investment of our available cash balances.
Other expense consisted of interest expense of approximately $205,000. Interest
expense was incurred principally from notes payable to partner companies.
Income Taxes. We have recorded no income tax benefit or loss for the period
ended December 31, 1999. Because we have no history of taxable income through
December 31, 1999, the tax benefit associated with our net loss has been fully
reserved.
Minority Interest. Minority interest of approximately $51,000 represents the
non-controlling stockholders' share of our consolidated partner companies' net
loss for the period ended December 31, 1999.
Equity Loss. Equity loss resulted from our minority ownership in certain
partner company interests that are accounted for under the equity method.
Equity loss includes our proportionate share of equity method partner
companies' losses, which totaled approximately $674,000 for the period ended
December 31, 1999. Equity loss also includes amortization of our net excess
investment over the equity in the net assets of these partner companies, which
totaled approximately $443,000 for the period ended December 31, 1999.
Net Loss. We reported a net loss of approximately $8.1 million for the
period ended December 31, 1999, principally due to selling, general and
administrative expenses we incurred in addition to our equity loss in partner
companies, partially offset by our revenues and interest income earned.
Liquidity and Capital Resources
As of January 31, 2000, we had cash and cash equivalents of approximately
$335,155,000, consisting almost entirely of funds raised in private placements
of securities. This amount represented an increase of $172,314,000 from
$162,841,000 as of December 31, 1999. As of December 31, 1999, we had raised
$212,323,553 from sales of shares of our convertible preferred stock. From
January 1 through February 2000, we have raised an additional $215,134,327 from
sales of additional shares of our convertible preferred stock, including
$18,234,327 to be received upon completion of our sale of series E preferred
stock under a purchase agreement dated as of February 3, 2000, the closing of
which is subject only to termination or expiration of the application antitrust
waiting period.
During the period ended December 31, 1999, we borrowed approximately
$927,000 under a line of credit for ongoing operating expenses. This amount was
repaid during October 1999. We are currently negotiating to enter into a
$50,000,000 line of credit. We anticipate that this line of credit will be
available for working capital financing and general corporate purposes other
than permanent financing for acquisitions of interests in partner companies. In
addition, our obligations under our office lease in Lisle, Illinois are secured
by a letter of credit for $442,865 issued by Bank of America.
Through February 14, 2000, we have paid or have committed to pay a total of
approximately $219,601,000, including a total of $60,000,000 in the form of
promissory notes, but excluding $405,000 in brokerage fees, to acquire
interests in 31 partner companies, as shown in the table under "--Partner
Company Interests". We currently intend to contribute up to a total of
$97,000,000 through the foreseeable future to partner companies that we have
established to date, $208,000 of which we had paid through January 31, 2000.
We currently expect to incur expenses of approximately $5,000,000 in the
year 2000 for the development of the physical infrastructure of our planned
300,000 square foot facility in Chicago. We estimate that our annual rent for
this facility will total approximately $17,000,000, and that our annual taxes
and operating expenses relating to this facility will total approximately
$5,000,000. In addition, under an Alliance Agreement with Microsoft, we have
committed to purchase approximately $9,600,000 of software products, $4,600,000
of consulting services and $1,000,000 of product support services from
Microsoft through January 2004.
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Following this offering, we will have cash and cash equivalents, and hold
direct or guaranteed obligations of the United States, totaling approximately
$617,640,000, compared to approximately $296,140,000 if we did not complete
this offering. We believe that, if we did not complete this offering, the
proceeds we received from our private placements of equity securities would be
sufficient to fund our cash needs for at least the next 12 months, but that we
would be constrained in our ability to acquire interests in and establish
business-to-business e-commerce companies. Our proceeds from this offering will
enable us to significantly expand this ability. During this 12-month period, we
may seek additional capital in the private or public equity markets to enable
us to further expand this program. After this period, we expect to need to
periodically access the private and/or public equity markets to support our
continued growth. Our future capital requirements will depend in large part on
the number of partner companies which we establish and in which we acquire
interests, the amounts we pay for interests and as capital contributions and
the timing of these payments. Management's plans and the related capital
requirements will depend on various factors, such as developments in our
markets and the availability of acquisition and entrepreneurial opportunities.
Year 2000 Disclosure
The Year 2000 issue resulted from the fact that many computer programs were
previously written using two digits rather than four to define the applicable
year. Programs written in this way could have recognized a date ending in "00"
as the year 1900 rather than the year 2000, possibly resulting in systems
failures or miscalculations causing disruptions of operations.
We did not experience any disruptions relating to the Year 2000 issue, and
we did not incur any expense to remediate our systems. We do not believe that
any of our partner companies experienced any material disruptions relating to
the Year 2000 issue or incurred any material expense to address the Year 2000
issue.
Recent Accounting Pronouncements
We do not expect the adoption of any recently issued accounting
pronouncements to have a significant impact on our net results of operations,
financial position or cash flows.
Qualitative and Quantitative Disclosure About Market Risk
At December 31, 1999, we had $162,841,000 in cash and cash equivalents. A
decrease in market rates of interest would have no material effect on the value
of these assets.
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BUSINESS
You should read the following discussion along with our financial statements
and the related notes included in this prospectus. This discussion contains
forward-looking statements that are subject to risks, uncertainties and
assumptions, including those discussed under "Risk Factors." Our actual results
may differ materially from those expressed in, or implied by, these forward-
looking statements. See "Cautionary Note Regarding Forward-Looking Statements."
Overview
We are actively engaged in business-to-business e-commerce through our
community of partner companies. We foster collaboration among these companies,
many of which are located together in our facilities, to provide cross-selling
and marketing opportunities and support business growth and the sharing of
information and business expertise. We manage, finance, operate and provide
services to our partner companies, helping them build their businesses.
We were formed in May 1999 and on June 30, 1999 began start-up and
organizational activities, including building our management team, raising our
initial capital, hiring technical and operational personnel and marketing our
business. In addition, from June 30, 1999 to September 30, 1999, we engaged in
initial analysis of, and discussions with, potential partner companies, but we
did not acquire interests in or establish any partner companies. Since
September 30, 1999, we have acquired interests in 31 partner companies,
established a total of 13 partner companies and also further developed our
operational procedures and capabilities. We acquire interests in market makers
and infrastructure service providers primarily by purchasing capital stock of
these companies. We also establish new partner companies when we identify
opportunities consistent with our business strategy and recruit entrepreneurial
talent to manage these companies. After forming these companies, we help
develop their business plans, provide them with capital, build their management
teams and hire their initial employees. Principally through partner companies
that we control, we now provide a wide range of infrastructure and support
services, such as marketing and public relations, web site design and strategic
planning. We currently operate principally in the Chicago area and also
recently opened an office in Austin, Texas.
Through the remainder of 2000, we plan to continue acquiring interests in
partner companies, although we have not determined the number or size of the
acquisitions that we will make. We also intend to expand the operations of
partner companies we have established and, as we identify opportunities and
recruit entrepreneurial talent, we will consider establishing new partner
companies that can advance our business strategy. Throughout the year, we will
be providing strategic guidance and day-to-day operational support and offering
our infrastructure services to our partner companies to assist them in getting
their products and services to market quickly and positioning themselves for
possible initial public offerings. Most of our current partner companies are
now in the development stage and have not yet generated meaningful revenues. We
expect that all of our current partner companies will be engaged in revenue-
generating operating activities by the end of the year. Further, in 2000 we
plan to develop a 300,000 square foot facility in Chicago to house and
facilitate collaboration among partner companies, as well as other e-commerce
businesses. In addition, we plan to hire a managing partner and core business
development team for a Seattle-based facility to develop business-to-business
e-commerce companies. We plan to open this facility by November 2000 and expect
that four of our infrastructure service companies, dotspot, Host divine,
eXperience divine, and Xqsite, will operate at this facility by the end of
2000. Also, we plan to expand our Austin facility and expect that dotspot, Host
divine, eXperience divine and Xqsite will operate at this facility by June
2000. Additionally, we will continue to build the internal corporate and
managerial capabilities we need to support our planned rapid growth and the
growth of our partner companies. Finally, to accelerate this growth, we may
seek additional capital in the public or private securities markets later in
the year. We intend to continue to grow our business through internal expansion
and acquisitions, supported by periodic capital-raising, in future years.
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Industry Background
The Growth of Business-to-Business E-Commerce
Businesses are increasingly relying on the Internet to share information and
sell goods and services. We believe, based on industry research estimates, that
the inter-company trade of goods and services over the Internet, commonly
referred to as business-to-business e-commerce, will to approximately $2.7
trillion by 2004. This growth is being driven, in part, by advancements in
Internet-related technology that are enabling companies to reach larger
audiences while reducing sales, marketing and related expenses and to integrate
their systems more efficiently with those of their partners and customers.
With the continuous advances in the use and business applications of the
Internet, the economy is becoming increasingly competitive and customer-
oriented. The proliferation of the Internet has enabled businesses to establish
more direct relationships with customers. As a result of the greater
availability of current pricing information from multiple online vendors and
marketplaces, businesses can continuously compare product and service offerings
and improve their purchasing decisions. To attract and retain customers in this
increasingly competitive environment, businesses have been forced to minimize
distribution inefficiencies and adopt more customer-oriented marketing, order
fulfillment and service solutions. Businesses today must make rapid inventory
adjustments, streamline procurement and distribution processes and automate the
entire selling process. Accordingly, businesses are investing significant
amounts in developing and deploying e-commerce solutions.
To capitalize on these business trends, a large number of new companies
exclusively devoted to developing business-to-business e-commerce products and
services are being formed and funded. In addition, traditional businesses are
committing significant resources to deploy e-commerce businesses which may
eventually operate as separate companies. We classify business-to-business e-
commerce companies as either market makers or infrastructure service providers:
Market Makers: Market makers enable commerce to be conducted more
efficiently and at lower costs by bringing together large numbers of buyers
and sellers in traditional businesses on Internet-based markets where they
can exchange products and services. They also provide web-based community
forums which allow businesses and professionals to share information.
Market makers usually operate in specific industries, capitalizing on
inherently inefficient distribution channels and business processes.
Infrastructure Service Providers: Infrastructure service providers
assist companies in building and managing the technological infrastructure
needed to support business-to-business e-commerce. Their goal is to
maintain and extend their clients' competitive advantage by allowing
companies to focus on their core competencies, thereby improving operating
efficiencies and decreasing time-to-market. They accomplish these goals by
offering systems integration, web site design and hosting, as well as other
outsourced services, such as legal and accounting services and marketing
and public relations expertise.
Operating Challenges Facing Emerging Business-to-Business E-Commerce
Companies
Today's low barriers to entry and the ability of businesses to market
products on a global basis make it critical that businesses bring new products
and services to market quickly. To be successful, new business-to-business e-
commerce companies must:
. identify e-commerce needs and opportunities within targeted industries;
. rapidly develop and effectively market solutions that satisfy specific
industry demands;
. quickly build brand recognition and an online presence to establish
market leadership; and
. secure valuable strategic partnerships.
To build the necessary technology and management infrastructure in a timely
manner, new business-to-business e-commerce companies must obtain significant
capital and rapidly hire sales and marketing professionals, web designers,
information technology specialists and administrative personnel. Moreover,
because e-commerce solutions are typically targeted at particular industries
with distinct business practices,
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distribution channels and product and service needs, new business-to-business
e-commerce companies also often require the assistance of industry experts. In
today's competitive labor market, they may be unable to locate and hire the
personnel needed to ensure commercial success, or the time and effort required
to hire and integrate available individuals could divert management's attention
from efforts to construct core product or service offerings and bring them to
market. Accordingly, in addition to capital, emerging business-to-business e-
commerce companies require access to:
. industry experts who can help define and refine their business plans;
. management teams experienced in the day-to-day operations of business-
to-business e-commerce companies;
. infrastructure services that can reduce costs and time-to-market; and
. a variety of service professionals.
Venture capital firms, the traditional source of capital for emerging
technology companies, have primarily focused on providing capital and have not
offered infrastructure services.
Geographic Concentration of Capital and Services
We believe, based on available market data, that $48.2 billion of venture
capital investments were made in U.S. businesses in 1999, and that, of that
amount, approximately $34.1 billion was invested in businesses located in
California and the northeastern United States, including $16.2 billion invested
in northern California businesses alone. We believe that this capital
concentration has contributed to a lack of infrastructure services available
outside of these areas, making it more difficult to launch successful
e-commerce start-ups and attract capital. The rest of the United States, which
is home to numerous traditional manufacturing, retail and service businesses,
many major research institutions and a large pool of intellectual capital, as
well as a large consumer population, has, to date, experienced less e-commerce
business development.
Our Solution and Strategy
We focus primarily on partnering with, managing and operating emerging
companies that develop new business-to-business e-commerce products and
services and that we believe can become leaders in their markets. In addition
to providing our partner companies with capital, we offer them a comprehensive
array of strategic and infrastructure services. Our collaborative network of
business-to-business e-commerce companies creates an environment designed to
support business growth and the sharing of information and business expertise.
Exploit Our Resources to Identify Potential Business-to-Business Partner
Companies
We believe that significant industry and management expertise is required to
understand and forecast industry trends, assess the value and needs of our
partner companies and successfully build market leaders. To that end, we have
assembled a team with extensive expertise and industry knowledge in e-commerce
infrastructure software, Internet services and emerging e-commerce solutions.
This team includes our executive officers and other senior managers, as well as
our managing partners and the partners that assist them, who identify and act
as liaisons to partner companies. Among our current managing partners and
partners are eight individuals who have experience analyzing, recommending and
making investments in e-commerce businesses on behalf of venture capital firms
and other equity investors. We also intend to capitalize on the industry
knowledge, insights and expertise of the members of our Board of Directors and
the corporations and venture capital firms that have invested in us. For
example, Dell USA, which only recently made a large investment in us, has
already assisted us in identifying companies in which we have subsequently
acquired interests. We believe that our team of senior management, managing
partners and partners, directors and investors provide us with the expertise
necessary to review and evaluate new partnering opportunities.
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In addition, we manage, and have committed to contribute $4,000,000 to, the
Big Shoulders interTech Fund and may commit to contribute up to an additional
$6,000,000 to the fund. This venture capital fund will focus on making small
investments in early stage technology companies located in Illinois. We expect
that our management of this fund will enable us to develop relationships with
new companies early in their development cycle and provide us with a pipeline
of potential new partner companies.
Focus on Partnering with Companies which can Become Market Leaders
We focus on partnering with business-to-business e-commerce companies that
we believe are positioned to become leaders in their markets. We select partner
companies through a comprehensive screening process that involves the
contributions of business, industry and technical experts. In addition, we use
the expertise of employees of our existing partner companies, many of whom have
extensive industry experience before joining those companies, to evaluate
opportunities that are related to, or extensions of, the market segments in
which their companies operate. In evaluating these companies, we analyze the
size and growth of the target markets that their products and services address
and assess their ability to achieve commercial success and gain significant
market share. We believe that there are several key elements to successful
business-to-business e-commerce companies, including compelling concepts,
strong management, technological expertise and competitive advantage.
Provide Valuable Infrastructure and Support Services
We typically take an active role in the affairs of partner companies in
which we acquire at least a 25% voting interest and have board representation.
Through entities that we control, we offer our network of partner companies a
variety of infrastructure services designed to enable them to focus most of
their efforts on product development and marketing, rather than the many other
aspects of building a company. We believe that by allowing a partner company to
focus on its core business, the partner company can accelerate its time-to-
market with new products and services. The infrastructure services offered by
entities we control may also reduce the operating costs of partner companies
due to the economies of scale created by our collaborative network.
Based upon our acquisition experience to date, we believe that the
infrastructure service offerings offered by companies we control enhance our
competitive position when compared with traditional venture capital and other
private company investors. The companies listed below currently offer services
at competitive rates to each other and our other partner companies, as well as
to e-commerce businesses outside our network:
. Buzz divine--marketing services, . Justice divine--management of legal
including branding, advertising and service relationships
public relations [/R]
. Knowledge divine--knowledge
applications and consulting
. dotspot--facilities leasing and services
other real estate services [/R]
. eXperience divine--e-commerce . OfficePlanIt.com--office furniture
consulting services and supplies [/R]
. Sales Divine--sales strategy and
. FiNetrics.com--accounting and support
financial services [/R]
. sho research--market and
. Host divine--core information opportunity assessment
technology services, including
hosting, customer service and . Talent divine--recruiting and human
infrastructure implementation resources [/R]
. Xqsite--web site design and
deployment
These companies generally do not provide their services for equity or any
other non-cash consideration, and the company providing the services charges
the business that uses them, whether that business is within or outside of our
network. To date, these services have not been provided under any formal
written agreements.
Our executive team dedicates significant attention to our partner companies,
offering them strategic guidance on such matters as private financings, public
offerings, market positioning and business development. In addition, our
executive team offers assistance in evaluating, structuring and negotiating
joint ventures, strategic alliances, joint marketing agreements, acquisitions
and other corporate transactions.
In addition, we assist our partner companies' management with day-to-day
operations. We assign a managing partner to each of our partner companies to
offer dedicated operational guidance and resources, assist
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it in refining its business model and adopting sound business practices and to
act as a liaison with that partner company. The managing partner also has
principal responsibility for ensuring that the partner company has full access
to our wide range of infrastructure and support services. The managing partner
assigned to a particular partner company will generally be the same person who
led our initial due diligence review of that company.
Promote Collaboration among our Partner Companies and Strategic Relationships
We promote collaboration among the partner companies in our network to help
them gain significant cross-selling and marketing benefits. We encourage and
coordinate joint marketing activities where various partner companies together
offer comprehensive solutions in particular markets, as well as efforts of
partner companies to assist each other in accessing their respective customer
bases. Our community of partner companies also facilitates the sharing of
information and expertise regarding technology, operational issues, market
opportunities and other strategic and business matters. In connection with the
regularly scheduled meetings of our Board of Directors, we plan to bring
together our management team and representatives of our partner companies for
conferences combining presentations by new partner companies, guest speakers,
panel discussions, team building and networking activities and other forums for
the exchange of information and ideas. We held the first of these conferences
in January 2000. In addition, we seek to leverage the aggregate purchasing
power of our network of partner companies to reduce the costs of obtaining
equipment, supplies, software and legal and other professional services. We
also intend to capitalize on the industry relationships of members of our
management team and Board of Directors, as well as the corporations and venture
capital firms that have invested in us, to facilitate strategic partnerships,
technology licensing agreements, distribution arrangements and co-marketing
relationships. For example, we have entered into an Alliance Agreement with
Microsoft, which is one of our investors and has a representative on our Board
of Directors, under which we will purchase software products and consulting and
product support services that our partner companies can use. In addition, as
part of a recent agreement with CMGI to enter into a strategic relationship, we
and CMGI agreed to attempt to use and promote the products and services of the
other's partner companies, in addition to making investments in one another.
Target Underserved Markets
We partner with companies operating in areas that lack easy access to
capital and infrastructure services. We are initially focusing our efforts in
the midwestern United States. We believe that the traditional manufacturing,
retail and service businesses in these areas will provide a customer base for
our partner companies, as well as a source for potential partner companies as
these traditional businesses develop online divisions and subsidiaries. By
focusing on these areas, we are able to support existing technical and
entrepreneurial talent and identify and acquire interests in promising early-
stage companies, while avoiding the intense competition faced by capital
providers in other parts of the country. We believe that we will be able to
replicate our model in other underserved markets. In that regard, we have begun
operations in Austin, Texas and plan to open a facility in Seattle, Washington
by November 2000. We continue to evaluate these and other potential U.S.
markets. Further, we may consider locating operations in carefully selected
international markets that meet our criteria. We have identified Calgary,
Alberta, Canada as a possible site for our first foreign facility.
Partner Company Criteria and Screening Process
We regularly analyze and monitor developments in business-to-business e-
commerce so we can identify suitable partner companies. We identify potential
partner companies in a variety of ways, including referrals from multiple
sources, such as our existing partner companies, board members and the
corporations and venture capital firms who have invested in us, and unsolicited
proposals and business plans submitted to our
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web site. We also expect to identify potential partner companies through
relationships we establish through management of the Big Shoulders interTech
fund. We have developed partner company criteria that we believe allow us to
identify attractive business-to-business e-commerce market makers and
infrastructure service providers. Our screening procedures are designed to
ensure that we maximize the number of opportunities we review and that we
acquire interests in a rapid and efficient manner.
Partner Company Criteria
We believe that there are several key elements to evaluating the potential
success of a business-to-business e-commerce company. We focus on companies
with one or more of the following characteristics:
. Compelling Concept. We seek partner companies with compelling, unique
concepts that we believe allow them to address unmet market needs or
establish new market opportunities. We also look for
companies that offer products and services which are sufficiently
developed with respect to design, features, functions and pilot
operations to begin large-scale implementation and execution.
. Technical Expertise. We look for companies with a technological
advantage which prevents competitors from easily entering their market.
In addition, we look for companies with accomplished technical teams
that have the skills to bring their concept to commercial readiness.
. Early Stage of Development. We focus on acquiring interests in early-
stage companies that we believe have the greatest potential for growth
and which can most benefit from the services provided by us and the
partner companies that we control. We also believe that our focus on
early-stage companies allows us more flexibility to structure our
interests in companies in a manner consistent with our goal of avoiding
regulation under the Investment Company Act.
. Large Target Market. We seek companies that target large and rapidly
growing markets. The size of the target market and a partner company's
share of that market allow us to determine the potential future value of
that company.
. Favorable Competitive Landscape. We favor companies with strong
competitive positions, as well as industries where there is no dominant
business-to-business e-commerce participant. As part of our assessment
of partner companies, we evaluate current competitors and potential
market entrants.
. Strong Management Team. We target companies with highly-qualified
management that possess significant e-commerce or specific industry
experience and demonstrate the leadership skills critical to guiding the
strategy and development of an early-stage company.
. Potential for Public Capital. We favor companies which can rapidly reach
the stage of development necessary to complete an initial public
offering.
Screening Process
Our screening process is designed to rapidly identify attractive partner
companies, assess their value and determine their ability to be integrated into
our collaborative network. Our screening process consists of the following
steps:
Initial Screening. We have recently implemented a web-based initial
screening stage. In this initial stage of our screening process, a
potential partner company is required to complete an on-line questionnaire
for review by our finance group. This questionnaire, which provides us with
general information about the potential partner company's business, state
of development, market opportunity, competitive situation, marketing plan,
technical team and capital and infrastructure service needs, allows us to
efficiently identify opportunities that fit our business strategy. Suitable
opportunities are passed on to the due diligence phase of the screening
process described below. We anticipate that only a small percentage of the
potential partner companies that we review will successfully pass through
this stage of our screening process. All of the companies in which we have
acquired interests to date have come to our attention through referrals or
other direct sources, and none of them have participated in this initial
screening process.
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Due Diligence. The next step of our screening process involves a
comprehensive due diligence investigation. A due diligence team with
transactional and industry expertise is assigned to each potential partner
company. This team assesses the overall business opportunity by performing
a financial review and valuation of the potential partner company,
reviewing its technical capability and conducting more specialized reviews
of areas critical to its success. We have completed a comprehensive due
diligence assessment for all of our acquisitions of interests in partner
companies to date.
Commitment Team Approval. Following the completion of due diligence, our
commitment team, which consists of members of our senior management, as
well as other individuals with finance and acquisition experience, makes a
determination as to whether we will pursue acquiring an interest in a
potential partner company. All of our acquisitions have received the
approval of a commitment team.
If we make a decision to pursue an acquisition, the designated managing
partner works with our finance department and the potential partner company to
agree to terms for the transaction. As part of this process, partner companies
that we control make proposals to provide infrastructure and other services to
the potential partner company based on its specific needs.
Overview of Current Partner Companies
The table below and the table on page 48 show information about our partner
companies as of February 14, 2000. Our current equity ownership and voting
power percentages have been calculated based on the issued and outstanding
common stock of each partner company, assuming the issuance of common stock on
the conversion or exercise of preferred stock, but excluding the effect of
options and warrants. Except where we indicate otherwise, our equity ownership
and voting power percentages are the same. Each partner company which is a
development stage company is marked with an asterisk (*); each partner company
that we have established is marked with a cross (+). For additional information
regarding our equity interests in, and ability to exercise control over, our
partner companies, see "--Structure of Interests in Partner Companies."
Market Makers:
<TABLE>
<CAPTION>
Our Current
Equity
Ownership/
Partner Voting
Date Company Power
Partner Company Market Formed Since Percentage
--------------- ------ -------- -------- -----------
<C> <S> <C> <C> <C>
BeautyJungle.com, Inc.* Beauty Products 5/11/99 1/11/00 51.3%
bid4real.com, inc.* Real Estate 12/13/99 1/24/00 54.3%
BidBuyBuild, Inc.* Construction 11/9/99 2/11/00 35.4%(1)
CapacityWeb.com, Inc.* Manufacturing 1/11/00 2/11/00 44.5%
Commerx, Inc. Plastics 12/14/98 11/19/99 1.1%
eFiltration.com, Inc.* Filtration 9/7/99 2/11/00 45.2%
iGive.com, inc. Charitable Services 9/21/95 2/11/00 31.1%
iSalvage.com, Inc.* Automotive Parts 7/20/99 2/3/00 36.3%
Media/Business
i-Street, Inc.* Services 9/15/98 11/23/99 63.8%/89.8%
The National Transportation Freight Transportation 4/30/99 10/29/99 5.3%
Exchange, Inc.
Neoforma.com, Inc.* Medical Products 8/18/98 10/14/99 1.9%
Office Furniture and
OfficePlanIt.com, Inc.*+ Supplies 11/23/99 11/23/99 80.0%/90.0%
Oilspot.com, Inc.* Petroleum 10/21/99 2/10/00 55.6%
TheExecClub.com, Inc.* Executive Recruiting 10/14/99 11/23/99 43.0%
Whiplash, Inc.* Travel 3/7/96 11/8/99 26.5%
</TABLE>
- --------------------
(1) We also hold warrants to purchase shares of common stock of BidBuyBuild.
Giving effect to the exercise of these warrants, we would hold 37.7% of
both the equity and voting power of BidBuyBuild.
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BeautyJungle.com, Inc. (www.beautyjungle.com) is creating an electronic
marketplace for beauty products buyers and sellers to reduce the
transaction costs of manufacturers and retailers, including drugstores,
salons, and spas. BeautyJungle.com is also expanding its e-commerce service
provider business in which it partners with content and portal sites,
manufacturers and brick-and-mortar retailers to enable them to sell beauty
products online at reduced costs, with accelerated time to market and
greater operating efficiencies. BeautyJungle.com also maintains a consumer
online retailing site that offers a wide selection of beauty products.
BeautyJungle.com generates revenues from transaction fees and enablement
services. BeautyJungle.com is headquartered in Chicago, Illinois and had 70
full-time employees as of January 31, 2000.
bid4real.com, inc. (www.bid4real.com) plans to provide online business-
to-business real estate auctions. bid4real.com will focus on the auction of
commercial, industrial and government-owned properties, initially in the
Chicago area, and plans to expand across the United States. bid4real.com
plans to expedite the exchange of information and improve the due diligence
process in real estate purchases through the use of virtual tours and
electronic information dissemination. Sellers using bid4real.com's services
will be able to offer properties via the auction process, either with or
without a broker. bid4real.com intends to generate revenues from
transaction-based fees and advertising. bid4real.com is headquartered in
Chicago, Illinois and had three full-time employees as of January 31, 2000.
BidBuyBuild, Inc. (www.bidbuybuild.com) is creating an electronic
marketplace in the commercial and industrial construction supply industry,
initially focusing on the heating, ventilation and air conditioning
markets. BidBuyBuild intends to serve contractors and subcontractors and
manufacturers. It plans to allow contractors and subcontractors to obtain
bids from various suppliers of building equipment and materials quickly and
cost-effectively. It intends to allow manufacturers to reduce their
dependence on field sales offices, third party distributors and other sales
organizations. BidBuyBuild expects to generate revenues primarily through
commissions and membership fees. BidBuyBuild is headquartered in Chicago,
Illinois and had ten full-time employees as of January 31, 2000.
CapacityWeb.com, Inc., is creating an electronic marketplace for custom
manufactured parts. Starting with fabricated metal manufacturing,
CapacityWeb.com's site will be marketed as an exchange for industrial
manufacturing capacity across a variety of industries. CapacityWeb.com
intends to generate revenues through annual membership fees, sales
commissions and transaction fees. CapacityWeb.com is headquartered in
Evanston, Illinois and had three full-time employees as of January 31,
2000.
Commerx, Inc. (www.commerx.com) creates electronic marketplaces that
enable buyers and sellers in industrial processing markets to transact
business on the Internet. Its first marketplace, PlasticsNet, is designed
for plastics processors and suppliers. It launched its "PlasticsNet
Marketplace" in May 1999 to streamline the sourcing and procurement process
for plastics products and services. PlasticsNet offers procurement tools,
auction exchange capabilities and information on products. Commerx
generates revenues primarily through e-commerce transaction fees. Commerx
is headquartered in Chicago, Illinois and had 129 full-time employees as of
January 31, 2000. On January 26, 2000 Commerx filed a registration
statement with the SEC for an initial public offering of its common stock.
eFiltration.com, Inc. (www.efiltration.com) is creating an electronic
marketplace for the filtration industry. eFiltration.com brings together a
wide array of filtration equipment manufacturers in one online destination,
allowing users to compare products, seek technical support, contact
customer service, participate in auctions, track orders and obtain
financing. Customers include consumers, resellers and manufacturers of
filtration products. eFiltration.com intends to generate revenues primarily
from transaction fees. eFiltration.com is headquartered in Chicago,
Illinois and had two full-time employees as of January 31, 2000.
iGive.com, inc (www.igive.com) provides technology and services to a
network of merchants, nonprofit organizations and consumers which enable
retail purchasers to assist non-profit organizations. Members of
iGive.com's network may currently shop at over 190 online vendors, serving
over 8,000 non-profit organizations. iGive.com generates revenues through
merchant fees, online advertising and
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<PAGE>
sponsorship fees. iGive.com is headquartered in Evanston, Illinois and had
24 full-time employees as of January 31, 2000.
iSalvage.com, Inc. (www.isalvage.com) is creating an electronic
marketplace for recycled and rebuilt automotive parts. Buyers will be able
to use iSalvage.com to search for parts quickly and efficiently based on
both quantitative and qualitative criteria, compare their prices and
purchase them through iSalvage.com. iSalvage.com will also enable sellers
of recycled parts to make price specifications available on the Internet
and offer their inventories outside their local trading areas. iSalvage.com
is running a pilot program through March 2000 and plans to expand
nationally after its completion. iSalvage.com intends to generate revenues
primarily through transaction fees it charges to suppliers and through
auctions, subscription fees and advertising. iSalvage.com is headquartered
in New York City and had 16 full-time employees as of January 31, 2000.
i-Street, Inc. (www.i-streetcentral.com) is a business-to-business media
company and news portal focused on the Internet and technology businesses
in Chicago and the midwest. i-Street's products include
i-StreetCentral.com, a web community which supports entrepreneurs who are
establishing and growing start-up business-to-business companies by
providing an Internet who's who, a newsletter covering Internet issues,
discussion networks and interviews and web broadcasts featuring Internet
entrepreneurs. It also has e-commerce partners that offer products and
services to help start-up companies and small businesses. i-Street
currently generates revenues from advertising, sponsorships and content
licensing fees. i-Street is headquartered in Chicago, Illinois and had one
full-time employee as of January 31, 2000.
The National Transportation Exchange, Inc. (www.nte.net) offers an
electronic marketplace that aggregates suppliers and buyers of freight
transportation capacity. It's electronic marketplace is designed to allow
suppliers of freight capacity to sell available unused capacity efficiently
and effectively and to improve yields and reduce buyer costs. NTE currently
has over 100 shipper members and 250 member carriers, which operate a total
of 200,000 trucks, participating in its marketplace. It generates revenues
primarily from transaction and placement fees. NTE is headquartered in
Downers Grove, Illinois and had 93 full-time employees as of January 31,
2000.
Neoforma.com, Inc. (www.neoforma.com) provides business-to-business e-
commerce services in the medical products market. Neoforma.com uses the
Internet to address inefficiencies in the market for medical products,
offering three primary services on its web site:
. The Shop service, which provides a marketplace for new medical
products;
. The Auction service, which provides a marketplace for used or
surplus products; and
. The Plan service, which allows hospital planners to view and
manipulate diagrams and photographs of leading medical facilities
worldwide.
Neoforma.com's principal source of revenue is transaction fees paid by
the sellers of medical products that use the Shop and Auction services.
Neoforma.com is headquartered in Santa Clara, California and had 328 full-
time employees as of January 31, 2000. Neoforma.com is a public company
listed on the Nasdaq National Market under the symbol NEOF.
OfficePlanIt.com, Inc. is developing Internet technologies to allow
businesses to research, procure and manage office products and services
from a single source. OfficePlanIt.com expects to generate revenues through
recruiting and outsourcing fees. OfficePlanIt.com is located in Lisle,
Illinois and had four full-time employees as of January 31, 2000.
Oilspot.com, Inc. (www.oilspot.com) provides an electronic marketplace
that aggregates suppliers and buyers of petroleum products and services. It
serves as an Internet clearinghouse for the petroleum industry's
information, product availability and purchases through online exchanges,
auctions and buying groups. Oilspot.com intends to generate revenues
primarily through transaction fees and service fees. Oilspot.com is
headquartered in Chicago, Illinois and had two full-time employees as of
January 31, 2000.
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<PAGE>
TheExecClub.com, Inc. is developing web database and proprietary profile
matching technologies to allow businesses, recruiters and experienced
professionals to locate, learn about and contact one another easily and
confidentially through its web site. TheExecClub's software will screen
individuals and identify matching job opportunities and board and advisory
panel positions, based on advanced search criteria and personality
profiles. This technology will be coupled with confidential mailboxes,
optional networking features and a referral network. TheExecClub intends to
generate revenues primarily from registration and advertising fees.
TheExecClub is headquartered in Chicago, Illinois and had two full-time
employees as of January 31, 2000.
Whiplash, Inc. (www.whiplashnow.com) is a web-based distribution system
that allows travel providers to market and produce complex leisure travel
reservations. Whiplash's electronic marketplace allows travel providers and
travel agents to negotiate deals for product representation and
distribution. This marketplace provides these travel providers and travel
agents with workflow and product aggregation and is intended to enable them
to achieve operational efficiencies. Whiplash software integrates
reservations and combines disparate products from various sources on one
itinerary and in real time. Whiplash's primary source of revenue is
transaction fees paid by travel providers. Whiplash is headquartered in
Lisle, Illinois and had 32 full-time employees as of January 31, 2000.
Xippix, Inc. (www.xippix.com) has developed technology that enables e-
commerce businesses to incorporate a large number of large, high-resolution
images into their web sites. Its high-speed image server, ImagePump, allows
viewers to zoom, pan and spin images on the web. Xippix generates revenues
primarily from sales of ImagePump servers. Xippix is located in Larkspur,
California and had 32 full-time employees as of January 31, 2000.
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<PAGE>
Infrastructure Service Providers:
<TABLE>
<CAPTION>
Our Current
Equity
Partner Ownership/
Date Company Voting Power
Partner Company Market Formed Since Percentage
--------------- ------ -------- -------- -------------
<C> <S> <C> <C> <C>
Blueridge Technologies, Incorporated Knowledge Management 1/12/88 11/19/99 100.0%/100.0%
Software
Buzz divine, inc.*+ Marketing/Public 10/26/99 10/26/99 80.0%/90.0%
Relations
closerlook, inc. Digital Strategy and 12/21/99 2/1/00 37.3%
Design
comScore, Inc. Online Tracking Tools 8/18/99 9/27/99 0.9%
and Services
divine interChange, inc.* Collaboration Software 1/26/00 2/11/00 75.1%
dotspot, Inc.*+ Facilities Management 10/26/99 10/26/99 80.0%/90.0%
and Lease
eXperience divine, inc.*+ Internet Consulting 10/26/99 10/26/99 80.0%/90.0%
FiNetrics.com, Inc.*+ Accounting and Finance 11/3/99 11/3/99 80.0%/90.0%
Services
Host divine inc.*+ Information Technology 10/26/99 10/26/99 80.0%/90.0%
Services
i-Fulfillment, Inc.* Inventory Management 10/6/98 1/28/00 48.8%
Services
Justice divine, inc.*+ Legal Services 10/26/99 10/26/99 80.0%/90.0%
Knowledge divine, inc.*+ Consulting Services 10/26/99 10/26/99 80.0%/90.0%
LiveOnTheNet.com, Inc. Web Broadcasting/ 9/13/85 12/8/99 76.9%
Online Advertising
Martin Partners, L.L.C. Executive Recruiting 1/10/96 2/8/00 25.0%
Mercantec, Inc. E-commerce Software 2/13/97 2/11/00 40.4%
OpinionWare.com, Inc.* Online Surveys 11/16/99 12/8/99 44.1%
OUTTASK.COM, Inc.* Business Services 4/6/99 12/10/99 31.8%
Perceptual Robotics, Inc. Internet-Based Video 7/27/95 2/14/00 33.4%
Software
PocketCard Inc.* Business Debit and 11/2/99 11/23/99 37.4%
Credit Cards
Sales divine, inc.*+ Sales Services 10/26/99 10/26/99 80.0%/90.0%
Sequoia Software Corporation Internet Infrastructure 10/15/92 11/23/99 8.3%(1)
Software
sho research, Inc.*+ Market Research 10/26/99 10/26/99 80.0%/90.0%
Talent divine, inc.*+ Human Resources 10/26/99 10/26/99 80.0%/90.0%
ViaChange.com, Inc.* Mortgage 6/28/99 1/31/00 70.0%
Web Design Group, Inc. Web Design 6/9/93 2/11/00 53.4%
Westbound Consulting, Inc. Internet Consulting 8/25/97 2/11/00 52.0%
Services
Xippix, Inc. E-Commerce Imaging 4/13/99 2/4/00 32.3%
Xqsite, Inc.*+ Web Design 10/26/99 10/26/99 80.0%/90.0%
</TABLE>
- -------------------
(1) We also hold warrants to purchase shares of preferred stock of Sequoia.
Giving effect to the exercise of these warrants, we would hold 10.7% of
both the equity and voting power of Sequoia.
50
<PAGE>
Blueridge Technologies, Incorporated (www.blueridge.com) offers a
knowledge management software product, OPTIX, that provides workflow,
document imaging, text retrieval, document management and control, optical
character recognition and computer output to laser disk technology.
Blueridge generates revenues primarily from product licensing fees.
Blueridge is currently located in Flint Hill, Virginia and is moving its
headquarters to Chicago, Illinois and had 27 employees as of January 31,
2000.
Buzz divine, inc. is an integrated marketing firm specializing in
servicing business-to-business Internet companies. Buzz divine offers a
variety of services, including strategic planning, branding, advertising,
direct mail, online marketing, event marketing, graphic design and public
relations. It also provides research services that are designed to monitor
the progress and effectiveness of corporate marketing efforts. Buzz divine
generates revenues primarily from service fees. Buzz divine is located in
Lisle, Illinois and had 23 employees as of January 31, 2000.
closerlook, inc. (www.closerlook.com) specializes in digital strategy,
web site design, e-commerce solutions and hands-on interactive learning
initiatives. closerlook primarily serves the small and mid-sized companies,
working with senior and executive management in industries such as
technology, pharmaceuticals, financial services and professional services.
closerlook designers, strategists and programmers work with clients to
understand their business goals and develop effective digital designs.
closerlook generates revenues from the sale of Internet strategy and
development services. closerlook is headquartered in Chicago, Illinois and
had 65 full-time employees as of January 31, 2000.
comScore, Inc. (www.comScore.com) provides online consumer behavior data
and related consulting services. It uses its proprietary research software
technology to track consumers' online behavior by monitoring web use
activities, online purchasing habits and responses to online
advertisements. comScore's customers can obtain market intelligence to
assist them in resource investment and marketing decisions. comScore
generates revenues primarily from its syndicated, subscription-based online
information services. comScore maintains headquarters in Reston, Virginia
and regional offices in Chicago, Illinois and Palo Alto, California and had
31 full-time employees as of January 31, 2000.
divine interChange, inc. intends to develop, market, license and manage
text-based collaboration and communication software. This software is
intended to allow information to be captured, filtered and stored in
corporate databases and used in knowledge management applications. divine
interChange intends to generate revenues primarily from consulting
services, as well as from maintenance updates. divine interChange is
headquartered in Chicago, Illinois and had three full-time employees when
it commenced operations on February 3, 2000.
dotspot, inc. develops and leases facilities and provides real estate
services for our partner companies, as well as unaffiliated Internet start-
up companies. dotspot intends to work closely with city governments,
architecture firms, office supply vendors and information technology
providers to create alliances to provide real estate, operations and
technical infrastructure support. It expects to generate revenues primarily
from fees associated with developing, managing and leasing facilities, as
well as from consulting services. dotspot is headquartered in Lisle,
Illinois and had nine full-time employees as of January 31, 2000.
eXperience divine, inc. provides business-to-business e-commerce
consulting services to traditional and web-based companies. eXperience
divine integrates management and systems consulting to provide a range of
consulting services for clients that are establishing and building e-
commerce businesses. eXperience divine delivers its services through a
series of executive workshops, which cover innovative business plan
creation, alliance formation, strategy and the planning of initial public
offering. eXperience divine intends to generate revenues primarily from
fixed fee contracts. eXperience divine is headquartered in Lisle, Illinois
and had 11 full-time employees as of January 31, 2000.
FiNetrics.com, Inc. offers a suite of integrated accounting and
financial services designed to help small and mid-sized companies get their
products and services to market quickly. FiNetrics.com includes accounts
payable, billing and collections, payroll, project accounting, general
ledger, cash management,
51
<PAGE>
stock administration and purchasing in its service offerings. In addition,
FiNetrics.com will assist customers with SEC reporting, tax matters,
financial reporting and strategic planning and analysis. FiNetrics.com
generates revenues primarily from customer fees. FiNetrics.com is
headquartered in Lisle, Illinois and had 18 full-time employees as of
January 31, 2000.
Host divine, inc. provides information technology services for business-
to-business e-commerce companies, including hosting, customer service and
infrastructure implementation, such as phone and e-mail systems and
Internet connectivity. Its products and services are designed to reduce the
time required to identify, develop and implement critical operating
technology and improve the quality, reliability and service levels of
technology-based operations. Host divine intends to expand its range of
information technology offerings to include other services, such as
knowledge management applications and database design, management and
consulting services. Host divine expects to generate revenues primarily
from customer fees. Host divine is headquartered in Lisle, Illinois and had
17 full-time employees as of January 31, 2000.
i-Fulfillment.com, Inc. (www.i-Fulfillment.com) plans to provide
standardized, complete fulfillment and inventory management services to
businesses selling products over the Internet. i-Fulfillment.com intends to
provide this service by integrating its supply chain systems and operating
automated fulfillment centers from which clients' inventory may be shipped.
Its service will help businesses bring their products to market quickly
without undertaking proprietary systems integration and infrastructure
development. i-Fulfillment.com plans to generate revenues primarily through
activity- and resource-based fees. i-Fulfillment.com is headquartered in
Chicago, Illinois and had four full-time employees as of January 31, 2000.
Justice divine, inc. facilitates the provision of legal services at
cost-effective prices for partner companies and intends to develop a web
portal which aggregates tools for corporate legal departments to manage and
communicate with their external legal counsel. Justice divine meets the
demands of partner companies through a program with a national law firm.
Justice divine manages the relationships between the law firm and partner
companies and generates revenues from compensation for this service.
Justice divine is located in Lisle, Illinois and had four full-time
employees as of January 31, 2000.
Knowledge divine, inc. offers a combination of focused knowledge
applications and consulting services. Knowledge divine intends to help
organizations identify, capture, manage and share their intellectual
capital. Knowledge divine generates revenues primarily from consulting fees
and the sales of application systems. Knowledge divine is located in Lisle,
Illinois and had five full-time employees as of January 31, 2000.
LiveOnTheNet.com (www.liveonthenet.com) provides video content through
its web site as a vehicle to showcase local and national advertisers.
LiveOnTheNet.com acquires and distributes live events, such as concerts,
sports and educational programming online. It partners with content
providers, including music and film festivals, professional sports leagues
and record labels. National advertisers and thousands of small business
customers have used Cornerpost, LiveOnTheNet.com's online promotion and
advertising platform for small businesses. LiveOnTheNet.com generates
revenues from advertising fees. LiveOnTheNet.com is headquartered in Lisle,
Illinois, with production studios and operational centers in Nashville,
Tennessee, Atlanta, Georgia and Huntsville, Alabama, and had 57 full-time
employees as of January 31, 2000.
Martin Partners, L.L.C. (www.martinptrs.com) is an executive search firm
which focuses o n e-commerce and technology. Martin Partners' clients
include start-ups, companies preparing to go public
and large public companies. Martin Partners generates revenues from client
fees paid in exchange for providing search services. Martin Partners is
headquartered in Chicago, Illinois and had 11 full-time employees as of
January 31, 2000.
Mercantec, Inc. (www.mercantec.com) produces software that allows
merchants to integrate e-commerce capabilities into their existing web
sites. Mercantec has licensed its software to more than 160 Internet
service providers and entered into licensing agreements with original
equipment manufacturers and web hosting providers in 13 countries. Through
these licensed users over 10,000 merchants use Mercantec software to sell
their products. Mercantec generates revenues primarily from monthly license
fees. Mercantec is located in Naperville, Illinois and had 58 full-time
employees as of January 31, 2000.
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<PAGE>
OpinionWare.com, Inc. (www.opinionware.com) is developing technology to
allow businesses to gather and analyze the opinions of large public and
private online communities. OpinionWare.com's solution is being designed to
help businesses develop and manage compelling content and enhance the
attractiveness of their web sites by generating information that enables
them to build closer relationships with their customers. Customers will be
able to use OpinionWare.com to build public opinion-based online
communities, create additional page impressions, continuously monitor
customer satisfaction, create opinion-driven e-commerce applications,
develop targeted marketing programs and add opinion information to business
decision-making applications. OpinionWare.com expects to generate revenues
primarily from product license fees, product rental fees from web-hosting
businesses and advertising revenue-sharing arrangements. OpinionWare.com is
headquartered in Chicago, Illinois and had 15 full-time employees as of
January 31, 2000.
OUTTASK.COM, Inc. intends to provide business-to-business e-commerce
applications and services to technology and Internet companies. OUTTASK.COM
will provide its customers with a full range of supported, hosted e-
commerce applications. OUTTASK.COM's primary applications will include
budgeting and sales, customer resource and time and expense report
management. Its integrated services will include employee travel, payroll,
personal computer acquisition, telecommunications and e-mail. OUTTASK.COM
intends to generate revenues primarily from annual subscription fees and
transaction fees for integrated services and on-site implementation
consulting support. OUTTASK.COM is headquartered in Arlington, Virginia and
had 40 full-time employees as of January 31, 2000.
Perceptual Robotics (www.perceptualrobotics.com) offers a software
system called iCam that allows Internet users to control a robotic camera
and immediately capture still images from remote locations. Users of this
system can control both the size and quality or the image to adjust to
their own modem or network speed. Peceptual Robotics' system includes
software, an integrated video subsystem and a server computer. Perceptual
Robotics currently generates revenues primarily from sales and maintenance
of its hardware and software. Perceptual Robotics plans eventually to
charge customers monthly fees. Perceptual Robotics is located in Evanston,
Illinois and had 22 full-time employees as of January 31, 2000.
PocketCard Inc. (www.pocketcard.com) provides businesses and individuals
with debit and credit cards that allow real-time funding, control and
reporting over the Internet. PocketCard's product and services offer credit
and payment solutions and to meet the day-to-day spending and credit
management needs of businesses and families. It uses web-based technology
which allows for secure on-line transactions and reporting. PocketCard is
an approved Independent Service Organization of Visa and also plans to co-
brand its cards with other recognized companies. PocketCard also provides
funding, spending and risk management expertise. PocketCard generates
revenues through annual membership and transaction fees, as well as online
advertising. PocketCard is headquartered in Lindenhurst, Illinois and had
25 full-time employees as of January 31, 2000.
Sales divine, inc. provides experienced sales personnel to help improve
the sales performance, and accelerate sales results, of its customers.
Sales divine's services include sales strategy development, sales
deployment modeling, hiring/placement, quota distribution/allocation, sales
plan management, contract management, pipeline/forecast management and
sales training. Sales divine intends to generate its revenues primarily
from customer commission fees and other revenue goal-based incentives.
Sales divine is located in Lisle, Illinois and had five full-time employees
as of January 31, 2000.
Sequoia Software Corporation (www.sequoiasw.com) provides Internet
infrastructure software, based on the XML programming language for web
applications, to help shorten the cost and time necessary to deploy
corporate portals. Corporate portals are proprietary web sites designed to
facilitate the sharing of information and the conduct of business among
companies and their customers and partners. Sequoia offers two XML-based
products: Sequoia XML Portal Server, a software application for deploying
corporate portals, and Xdex, an XML indexing application for organizing
XML-based data. Sequoia's primary source of revenue is license and
transaction fees from the use of its software. Sequoia is headquartered in
Columbia, Maryland, with offices in Santa Clara, California and Dublin,
Ireland, and had 157 full-time employees as of January 31, 2000. On
February 8, 2000, Sequoia filed a registration statement with the SEC for
an initial public offering of its common stock.
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sho research, Inc. is a market research company providing information
about how businesses use, and can be expected to use, the Internet. sho
research uses the Internet to collect and distribute information. sho
research intends to generate revenues through consulting fees. sho research
is headquartered in Lisle, Illinois and had one full-time employee as of
January 31, 2000.
Talent divine, inc. plans to provide recruiting, human resources and
benefits services for our partner companies by identifying and satisfying
recruitment needs. Talent divine also intends to manage benefits and
employee human resource requirements and negotiate relationships with
employee benefit plan carriers and payroll information services. Talent
divine plans to generate revenues through recruiting and outsourcing fees.
Talent divine is located in Lisle, Illinois and had 11 full-time employees
as of January 31, 2000.
ViaChange.com, Inc. (www.viachange.com) has developed technology to
conduct auctions in capital market products. ViaChange.com's solution has
been initially developed for the secondary mortgage market, by providing
online auctioning, valuation and transfer of whole loans and loan servicing
rights. The secondary mortgage market involves the purchasing and selling
of mortgage loans between banks, pension funds, government agencies,
insurance companies and investment banks. ViaChange.com intends to generate
revenues from transaction fees. ViaChange.com is headquartered in Chicago,
Illinois and had two full-time employees as of January 31, 2000.
Web Design Group, Inc. (www.webdesigngroup.com) provides web development
and electronic business services to companies seeking to develop and
implement effective web solutions for their operations. Web Design Group
has developed over 185 internet, intranet and extranet web applications.
Web Design Group coordinates strategic consulting, project management,
creative technology, online marketing and systems administration services.
Web Design Group generates revenues primarily through web technology
consulting services, online marketing services and development and
production services, as well as hosting and maintenance services. Web
Design Group is headquartered in Chicago, Illinois and had 32 full-time
employees as of January 31, 2000. We own our interest in Web Design Group
through Xqsite.
Westbound Consulting, Inc. (www.westbound.com) delivers customized
Internet solutions. Westbound generates revenues through web consulting,
marketing, development and hosting services. Westbound is headquartered in
Chicago, Illinois and has established its overseas development center in
Hyderabad, India. Westbound had 40 full-time employees as of January 31,
2000. We own our interest in Westbound through Xqsite.
Xqsite, Inc. provides web site design, deployment and implementation
solutions designed to help business-to-business e-commerce companies use
the Internet to gain competitive advantages. Xqsite uses its expertise in
system and asset integration to provide customized, technologically
sophisticated e-commerce solutions and internet applications. It uses
integrated strategy, design and technology to deliver e-commerce solutions.
Xqsite's primary source of revenues is expected to be contract service
fees. Xqsite is headquartered in Lisle, Illinois and had 21 full-time
employees as of January 31, 2000.
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Structure of Interests in Partner Companies
Partner Companies in Which We Acquire Interests
Generally, we initially acquire more than a 25% voting equity
interest, consisting of convertible preferred stock in the partner
companies in which we acquire interests. We generally structure our
interests in our partner companies so that we are the shareholder
holding the most voting power and can maintain our control position in
these companies. However, we have made, and expect to continue to make,
a limited number of smaller investments in partner companies to the
extent this activity is consistent with our desire to avoid having to
register as an investment company under the Investment Company Act. We
also may provide additional capital as our partner companies grow,
thereby increasing our ownership interest. Whenever possible, we obtain
rights of participation in, or control over, material decisions
affecting the partner company, including the right to approve business
plans, mergers and acquisitions, management compensation, stock and
option issuances and corporate borrowings. We also typically negotiate
for additional rights, including registration rights, rights of first
refusal, buy/sell arrangements, anti-dilution protection and preemptive
rights relating to the partner company's issuance of additional equity.
We generally have the right to appoint or nominate one or more members
of our management team to each of our partner companies' boards of
directors, with no other person having the right to appoint or nominate
any greater number of directors. By structuring our transactions in
this way, we intend to avoid regulation under the Investment Company
Act. Our efforts to avoid regulation may affect the acquisitions or
disposals of our partner company interests.
The convertible preferred stock we acquire in our partner companies
generally votes as if it were converted into common stock. As long as
we hold this stock, it converts into a special class of common stock,
with the voting rights described below. Conversion is at our option or
is automatic upon an initial public offering of the common stock of the
partner company that meets criteria relating to total offering size and
offering price per share. In general, the class of common stock
issuable upon conversion of our preferred stock has either (1) five
votes per share, typically when we beneficially own more than 50% of
the company, or (2) the greater of the actual vote per share or 25.1%
of the total voting power of all outstanding capital stock of the
company. In addition, we typically require that no other stockholder
can have more than 25% of the total voting power. To retain these
voting rights, we typically need to maintain a minimum equity ownership
interest in the partner company, which, in most cases, is five percent
but in some cases is greater. For some partner companies, we also must
participate pro rata up to a specified dollar amount in future equity
financings of the partner company.
Also, when we hold this preferred stock, we generally have the right
to take control of the board of directors of the partner company upon
events of default under the terms of this stock. These events of
default include failure to make a redemption payment when due,
bankruptcy or insolvency and default on indebtedness over a threshold
amount.
The table below shows our current voting percentage, type of stock
owned, current voting rights and board rights for our current partner
companies in which we have acquired interests. Our voting power
percentages have been calculated based on the issued and outstanding
common stock of each partner company, assuming the issuance of common
stock on the conversion or exercise of preferred stock, but excluding
the effect of options and warrants.
<TABLE>
<CAPTION>
Current
Voting
Power
Partner Company Percentage Stock Type Voting Rights Board Seats
--------------- ---------- --------------- ------------- -----------
<S> <C> <C> <C> <C>
BeautyJungle.com, 51.3% Series B Greater of our actual voting 2 of 7 directors
Inc............... Preferred interest or 25.1% as long as designated by us; 1
we hold at least 5% equity additional director
interest designated by us, subject
to management shareholders
approval; 1 director
designated jointly by
management shareholders
and us; 1 director
designated by management
shareholders subject to
our approval
bid4real.com, inc.. 54.3% Series A Greater of our actual voting 3 of 7 directors
Preferred interest or 25.1% so long as designated by us and 1
we hold at least 5% equity additional director
interest designated jointly with
the holders of a majority
of the common shares
BidBuyBuild, Inc... 35.4%(1) Series A Greater of our actual voting 2 of 5 directors
Preferred interest or 25.1% so long as designated by us and 1
we hold at least 5% equity additional director
interest designated jointly by
management representatives
and us
Blueridge
Technologies, 100% 1 vote per share Total control of board
Incorporated...... Class A Common
CapacityWeb.com, 44.5% Series A Greater of our actual voting 2 of 5 directors
Inc............... Preferred interest or 25.1% so long as designated by us and 1
we hold at least 5% equity additional director
interest designated jointly by us
and the management
representative director
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
Current
Voting
Power
Partner Company Percentage Stock Type Voting Rights Board Seats
--------------- ---------- --------------- ------------- -----------
<S> <C> <C> <C> <C>
closerlook, inc.... 37.3% Class B Common Greater of our actual voting 2 of 5 directors
and Series A-2 interest or 25.1% so long as designated by us
Preferred we hold at least 10% equity
interest
Commerx, Inc....... 1.1% Series B 1 vote per share None
Preferred
comScore, Inc...... 0.9% Series A 1 vote per share None
Preferred
divine interChange, 75.1% Series A-2 Greater of our actual voting 6 of 7 directors
inc............... Preferred and interest or 25.1% so long as designated by us
Class B Common we hold at least 5% equity
interest
eFiltration.com, 45.2% Series A Greater of our actual voting 2 of 5 directors
Inc............... Preferred interest or 25.1% so long as designated by us and 1
we hold at least 5% equity additional director
interest mutually approved by us
and the management
representatives
i-Fulfillment, 48.8% Series A Greater of our actual voting 2 of 5 directors
Inc............... Preferred interest or 25.1% so long as designated by us and 1
we hold at least 5% equity additional director
interest mutually agreed to by us
and a majority of the
holders of common stock
iGive.com, inc..... 31.1% Series B-2 Greater of our actual voting 2 of 5 directors
Preferred interest or 25.1% so long as designated by us and 1
we hold at least 5% equity additional director
interest mutually approved by us
and the management
representatives
iSalvage.com, Inc.. 36.3% Series B Greater of our actual voting 2 of 5 directors
Preferred interest or 25.1% so long as designated by us
we hold at least 5% equity
interest
i-Street, Inc...... 89.8% Series A-2 5 votes per share 3 of 5 directors
Preferred designated by us
LiveOnTheNet.com, 76.9% Common 1 vote per share Total control of board
Inc...............
Martin Partners, 25.0% L.L.C. interest 25% voting interest We must approve
L.L.C............. replacement of manager
Mercantec, Inc..... 40.4% Series Greater of our actual voting 1 director designated by
C Preferred interest or 25.1% so long as us, 1 outside director
we hold at least 5% equity designated jointly by us
interest and the management
representatives and 1
additional director
designated jointly by us
and the management
representatives
The National
Transportation 5.3% Series C-2 1 vote per share 1 of 6 directors
Exchange, Inc..... Preferred designated by us
Neoforma.com, Inc.. 1.9% Series E 1 vote per share None
Preferred
Oilspot.com, Inc... 55.6% Series A-2 Greater of our actual voting 2 of 5 directors
Preferred interest or 25.1% so long as designated by us and 1
we hold at least 5% equity additional director
interest designated by us and
approved by holders of a
majority of founders
securities
OpinionWare.com, 44.1% Series A-2 Greater of our actual voting 2 of 5 directors
Inc............... Preferred interest or 25.1% so long as designated by us and 1
we hold at least 5% equity additional director
interest designated jointly with
the holders of a majority
of the common shares
OUTTASK.COM, Inc... 31.8% Series A-2 As long as we hold A-2 2 of 5 directors
Preferred preferred or class B common, designated by us
we will at all times have a
voting interest larger than
any other holder or
affiliated group's voting
interest unless (a) the
number of preferred shares
we hold is less than 15% of
outstanding common stock on
a fully diluted basis or (b)
we have failed to exercise
our preemptive rights to
acquire equity securities up
to $7,000,000; so long as we
hold class B common stock
issued upon conversion of
series A-2 preferred stock
and own at least 10% of
outstanding common stock on
a fully diluted basis, we
will have the greater of our
actual voting interest or
25.1%
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
Current
Voting
Power
Partner Company Percentage Stock Type Voting Rights Board Seats
--------------- ---------- ---------------- ------------- -----------
<S> <C> <C> <C> <C>
Perceptual 33.4% Series C Greater of our actual voting 2 of 7 directors
Robotics, Inc..... Preferred interest or 25.1% as long as designated by us and 3
we hold at least 10% equity additional directors
interest designated jointly by us
and the management
representatives
PocketCard Inc..... 37.4% Series A-2 Greater of our actual voting 2 of 5 directors
Preferred interest and 25.1% so long designated by us and 1
as we hold at least 5% director designated
equity interest jointly by us and
PocketCard management
Sequoia Software
Corporation....... 8.3%(2) Series C 1 vote per share 1 of 7 directors
Preferred designated by us
TheExecClub.com, 43.0% Series A-2 Greater of our actual voting 2 of 5 directors
Inc............... Preferred interest or 25.1% as long as designated by us and 1
we hold at least 5% equity additional director must
interest be acceptable to us
ViaChange.com, 70.0% Series A Greater of our actual voting 5 of 8 directors
Inc............... Preferred interest or 25.1% so long as designated by us
we hold at least 5% equity
interest
Web Design Group, 53.4% Series A Greater of our actual voting 3 of 5 directors
Inc............... Preferred interest or 25.1% as long as designated by us
we hold at least 5% equity
interest
Westbound 52.0% Series A-2 Greater of actual voting 2 of 3 directors
Consulting, Inc... Preferred interest or 25.1% so long as designated by us
we hold at least 5% equity
interest
Whiplash, Inc...... 26.5% Series A-2 Greater of our actual voting 1 of 5 directors
Preferred interest or 25.1% as long as designated by us
we continue to exercise our
right of first refusal
Xippix, Inc........ 32.3% Series A Greater of our actual voting 3 of 7 directors
Preferred interest and 25.1% so long designated by us, and 1
as we hold at least 5% additional director
equity interest designated jointly by us
and management
representatives
</TABLE>
- -------------------
(1) We also hold warrants to purchase shares of common stock of
BidBuyBuild. Giving effect to the exercise of these warrants, we
would hold 37.7% of the voting power of BidBuyBuild.
(2) We also hold warrants to purchase shares of preferred stock of
Sequoia. Giving effect to the exercise of these warrants, we would
hold 10.7% of the voting power of Sequoia.
Partner Companies We Establish
Several of our infrastructure service provider partner companies
have been established by us as subsidiaries. We own at least 80% of the
initial equity of each subsidiary, and up to 20% of the initial equity
is sold to our employees, subject to transfer restrictions and
repurchase rights which lapse over time. For each of the partner
companies that we have established, we contributed $16,000 in exchange
for approximately 80% of the company's common stock and our employees,
including our executive officers, contributed approximately $4,000 in
exchange for approximately 20% of the company's common stock. We
typically receive class B common stock entitled to ten votes per share
and employees receive class A common stock entitled to one vote per
share. However, the voting power of our class B common stock is limited
to 90% of the voting power of any of these subsidiaries. For each of
the current partner companies that we have established, our executive
officers contributed a total of approximately $2,000 in exchange for
approximately 10% of its outstanding equity, and none of our other
affiliates own any of their equity. We also generally establish a pool
of options representing up to 20% of the equity of each subsidiary on a
fully-diluted basis for the benefit of the employees of, and other
service providers to, each of our partner companies. We intend to issue
one-half of the options shortly after the time of formation of each of
these partner companies. Options granted from this pool generally will
not be exercisable earlier than an initial public offering or a change
in control of the partner company.
In addition, we have committed to contribute additional capital to
these established companies from time-to-time as they meet various
milestones in exchange for preferred stock. The preferred stock will be
non-voting and earn an 8% cumulative dividend. The preferred stock will
convert into class B common stock after three years at the lesser of
the original purchase price or the fair market value of the preferred
stock. The partner company will be able to redeem the preferred stock
at any time after three years from its issuance.
57
<PAGE>
Maximizing Stockholder Value
We anticipate that we will realize returns from our partner company
interests principally through initial public offerings and also through mergers
and sales of the companies. Following initial public offerings by our partner
companies, we generally expect to continue to retain controlling interests in
most of these companies. In addition, our stockholders may, in the future, have
opportunities to participate in underwritten initial public offerings of
partner companies in which we have significant interests. We typically seek in
our purchase agreements rights relating to participation in directed share
programs associated with initial public offerings of our partner companies. The
applicable provisions generally require that at the time of a partner company's
initial public offering the partner company attempt to cause an offer to be
made to us or our designees, which we expect would include our stockholders, to
purchase 20% of the shares in the initial public offering. Currently, we have
this right with respect to BeautyJungle.com, bid4real.com, BidBuyBuild,
CapacityWeb.com, closerlook, eFiltration.com, i-Fulfillment, iGive.com,
iSalvage.com, i-Street, Mercantec, Oilspot.com, OpinionWare.com, Perceptual
Robotics, PocketCard, TheExecClub.com, ViaChange.com, Web Design Group,
Westbound Consulting and Xippix. In addition, we have a similar right with
respect to 5% of the common stock offered by OUTTASK.COM in its initial public
offering. Our stockholders may also be offered opportunities to participate in
the initial public offerings of partner companies that we establish or which we
control. We acquire interests in our partner companies for the long term.
Although we do not anticipate selling our interests in partner companies in the
ordinary course of business, other than as part of the merger or sale of an
entire company, we may, from time to time, undertake sales of our interests
when we believe them to be in our best interests.
Management of Venture Capital Funds
Big Shoulders interTech Fund. We have organized the Big Shoulders interTech
Fund, L.P., and our wholly-owned subsidiary serves as its general partner. As
general partner, we have exclusive control over the management and operations
of the fund. The fund primarily will invest in start-up and early-stage
companies located in Illinois and generally will make investments of $2,000,000
or less. On February 10, 2000, we became general partner and were admitted as a
limited partner, and one other investor, an affiliate of Mesirow Financial, was
admitted as a limited partner. The two initial investors in the fund committed
to contribute a total of $8,000,000 to the fund, of which we have committed to
contribute $3,920,000 as a limited partner and $80,000 as general partner. We
are obligated to contribute 1% of the total commitments to the fund as general
partner. The fund is seeking $75,000,000 to $125,000,000 in total commitments
and may admit additional limited partners for a period of nine months from the
date the initial partner was admitted. During this period, we may commit to
contribute up to an additional $6,000,000 to the fund. We believe that our
management of this fund will enable us to develop relationships with new
companies early in their development cycle and provide us with a pipeline of
potential new partner companies.
Platinum Venture Partnerships. On August 4, 1999, we became the general
partner of Platinum Venture Partners I and Platinum Venture Partners II. We
manage the operations of these venture capital funds and provide strategic and
operational support to the funds' portfolio companies. However, because these
funds have raised and invested substantially all of their authorized capital,
we only devote a limited amount of resources to managing their operations.
For more information on the management fees we receive from these funds, see
"Management Discussion and Analysis of Financial Condition--Overview."
Competition
Competition for Partner Companies
We face competition from numerous other capital providers seeking to acquire
interests in Internet-related businesses, including:
. publicly-traded Internet companies;
. traditional venture capital firms, including those that have invested in
us and those that we manage;
58
<PAGE>
. large corporations, including those that have invested in us;
. other capital providers that also offer support services to companies;
and
. our partner companies.
Traditionally, venture capital and private equity firms have dominated
investments in emerging technology companies, and many of these types of
competitors may have greater experience and financial resources than we do. In
addition to competition from venture capital and private equity firms, several
public companies such as CMGI, Internet Capital Group and Safeguard
Scientifics, as well as private companies such as Idealab!, devote significant
resources to providing capital together with other resources to Internet
companies. We may also face competition from an emerging group of online
service providers that facilitate relationships between entrepreneurs and
venture capitalists, such as vcapital.com and Garage.com. Further, several
professional service firms have recently announced their intention to provide
capital and service to e-commerce companies. Corporate strategic investors,
including Fortune 500 and other major companies, are also developing Internet
strategies and capabilities. Many of these competitors have greater financial
resources and brand name recognition than we do, and the barriers to entry for
companies wishing to provide capital and other resources to entrepreneurs and
their emerging technology companies are minimal. We expect that competition
from both private and public companies with business models similar to our own
will intensify. Moreover, private venture capital firms and other capital and
support service providers which do not plan to go public can avoid regulation
under the Investment Company Act either by having no more than 100 beneficial
owners of their securities, other than short-term paper, or by limiting the
owners of their securities to certain qualified purchasers. These exemptions
from the Investment Company Act will provide these competitors with more
flexibility regarding their investment strategies, allowing them to take
advantage of more opportunities or, in some cases, permitting them to invest in
companies on more favorable terms to the companies than we are able to offer.
Any of these competitors could limit our opportunities to acquire interests in
new partner companies. If we cannot acquire controlling interests in attractive
companies, our strategy to build a collaborative network of partner companies
will not succeed.
Competition Facing our Partner Companies
Competition for Internet products and services is intense. As the market for
business-to-business e-commerce grows, we expect that competition will
intensify. Barriers to entry are minimal, and competitors can offer products
and services at a relatively low cost. Our partner companies will compete for a
share of a customer's:
. purchasing budget for services, materials and supplies with other online
providers and traditional distribution channels;
. dollars spent on consulting services with many established information
systems and management consulting firms; and
. advertising budget with online services and traditional off-line media,
such as print and trade associations.
Our partner companies will encounter competition from existing companies
that offer competitive solutions and additional companies that develop
competitive solutions in the future. Our partner companies' competitors may
develop Internet products or services that are superior to, or have greater
market acceptance than, the solutions offered by our partner companies. If our
partner companies are unable to compete successfully against their competitors,
our partner companies will fail. In addition, our partner companies may compete
with each other for business-to-business e-commerce opportunities. If this type
of competition develops, it may deter companies from partnering with us and
limit our business opportunities.
Many of our partner companies will have to compete against companies with
greater brand recognition and greater financial, marketing and other resources.
Our partner companies may be at a disadvantage in responding to their
competitors' pricing strategies, technological advances, advertising campaigns,
strategic partnerships and other initiatives.
59
<PAGE>
Government Regulations and Legal Uncertainties
Investment Company Act of 1940
Companies that are, or hold themselves out to be, engaged primarily in the
business of investing, reinvesting or trading of securities are regulated under
the Investment Company Act of 1940. Although we believe that we are actively
engaged in business-to-business e-commerce and are not an investment company,
we also rely on an SEC rule that allows us to avoid investment company
regulation so long as at least 55% of our total assets are represented by, and
at least 55% of our income is derived from, majority-owned subsidiaries,
primarily controlled companies and other assets that meet the requirements of
that rule. A committee of our Board of Directors will determine the value of
our assets and of our interests in our partner companies, and the income or
losses attributable to them, for purposes of determining compliance with this
rule on at least a quarterly basis. To maintain compliance with this rule, we
may be unable to sell assets which we would otherwise want to sell and may need
to sell assets which we would otherwise want to retain. In addition, we may
have to acquire additional income or loss generating assets that we might not
otherwise have acquired and may need to forego opportunities to acquire
interests in attractive companies that might be important to our business
strategy. In addition, because our partner companies may not be majority-owned
subsidiaries or primarily controlled companies either when we acquire interests
in them or at later dates, changes in the value of our interests in our partner
companies and the income/loss and revenue attributable to our partner companies
could require us to register as an investment company. Investment Company Act
regulations are inconsistent with our strategy of actively managing, operating
and promoting collaboration among our network of partner companies, and it is
not feasible for us to operate our business as a registered investment company.
We believe that because of the planned structure of our interests in our
partner companies and our business strategy, we will not be regulated under the
Investment Company Act. However, we cannot assure you that the structure of our
partner company interests and our business strategy will preclude regulation
under the Investment Company Act, and we may need to take specific actions
which would not otherwise be in our best interests to avoid such regulation.
If we fall under the definition of an investment company, and are unable to
rely on an SEC rule that would allow us to avoid investment company regulation
so long as at least 55% of our total assets are represented by, and at least
55% of our income is derived from, assets that meet the requirements of that
rule, we can rely on another SEC rule that would exempt us from the requirement
of registering as an investment company for up to one year. After that one-year
period, we must either register under the Investment Company Act or seek an
administrative exemption from regulation under the Investment Company Act. We
intend to seek this exemptive relief even while we are in compliance with the
SEC rule in order to obtain greater assurance that we will not be regulated
under the Investment Company Act.
The SEC has recently granted special exemptive relief to a company that
operates a business that is, in many respects, similar to ours. We currently
intend to also apply for an exemption. Although we believe that the facts
surrounding our exemption request would be similar to those submitted by that
other company, the granting of such an exemption is a matter of SEC discretion
and, therefore, we cannot assure you that, if requested, an exemption of this
type would be granted to us.
If, despite our efforts, we were required to register as an investment
company, we would have to comply with substantive requirements under the
Investment Company Act applicable to registered investment companies. These
requirements include:
. limitations on our ability to borrow;
. limitations on our capital structure;
. restrictions on acquisitions of interests in partner companies;
. prohibitions on transactions with affiliates;
. restrictions on specific investments; and
. compliance with reporting, record keeping, voting, proxy disclosure and
other rules and regulations.
These rules and regulations would significantly change our operations and
prevent us from executing our business model.
60
<PAGE>
Other Regulations and Legal Uncertainties
As of the date of this prospectus, there were few laws or regulations
directed specifically at e-commerce. However, because of the Internet's
popularity and increasing use, new laws and regulations may be adopted. These
laws and regulations may cover issues such as the collection and use of data
from web site visitors and related privacy issues, pricing, content,
copyrights, promotions, distribution and quality of goods and services,
registration of domain names and use, and export and distribution of encryption
technology. The enactment of any additional laws or regulations may impede the
growth of the Internet and business-to-business e-commerce, which could
decrease the revenues of our partner companies and place additional financial
burdens on them.
E-commerce businesses are subject to the same numerous laws affecting
interstate commerce in general. However, the application of these laws to
online business is sometimes unclear. Laws and regulations directly applicable
to e-commerce and Internet communications are becoming more prevalent. For
example, Congress recently enacted laws regarding online copyright
infringement. Other specific areas of legislative activity include:
. Taxes. Congress has enacted a three-year moratorium, ending on October
21, 2001, on the application of discriminatory, multiple or special
taxes by the states on Internet access or on products and services
delivered over the Internet. Additionally, the moratorium prevents the
states from creating new collection obligations with respect to
otherwise valid taxes in the context of e-commerce. Congress further
declared that there will be no federal taxes on e-commerce until the end
of the moratorium. However, this moratorium does not prevent states from
taxing activities or goods and services that the states would otherwise
have the power to tax. Furthermore, the moratorium does not apply to
some state taxes that were in place before the moratorium was enacted.
The moratorium also does not affect federal and state income taxes on
the taxable income of e-commerce businesses.
. Online Privacy. Both Congress and the Federal Trade Commission are
considering regulating the extent to which companies should be able to
use and disclose information they obtain online. If any regulations are
enacted, business-to-business e-commerce companies may find their
marketing activities restricted. In addition, the European Union has
directed its member nations to enact much more stringent privacy
protection laws than are generally found in the United States and has
threatened to prohibit the export of certain personal data to United
States companies if similar measures are not adopted by the United
States. More stringent privacy prohibitions of this type could limit the
growth of foreign markets for United States business-to-business e-
commerce companies. The Department of Commerce is negotiating with the
European Union to provide exemptions from the European Union
regulations, but the outcome of these negotiations is uncertain. Private
industry initiatives and standards may also develop concerning privacy
issues. In addition to compliance with governmental regulation, we and
our partner companies may decide that it is in our best interest to
comply with industry standards or public opinion regarding privacy
issues voluntarily.
. Regulation of Communications Facilities. To some extent, the rapid
growth of the Internet in the United States has been due to the relative
lack of government intervention in the marketplace for Internet access.
This lack of intervention may not continue in the future. For example,
several telecommunications carriers are seeking to have
telecommunications over the Internet regulated by the Federal
Communications Commission in the same manner as other telecommunications
services. Additionally, local telephone carriers have petitioned the
Federal Communications Commission to regulate Internet service providers
in a manner similar to long distance telephone carriers and to impose
access fees on the providers. Some Internet service providers are
seeking to have broadband Internet access over cable systems regulated
in much the same manner as telephone services, which could slow the
deployment of broadband Internet access services. Because of these
proceedings or others, new laws or regulations could be enacted which
could burden the companies that provide the infrastructure on which the
Internet is based, slowing the rapid expansion of the medium and its
availability to new users.
. Domain Names. The acquisition and maintenance of web site addresses
generally is regulated by governmental agencies and their designees. The
regulation of web site addresses in the United States
61
<PAGE>
and in foreign countries is subject to change. As a result, our partner
companies may not be able to acquire or maintain relevant web site
addresses in all countries where they conduct business.
In addition to the specific issues outlined above, other generally
applicable laws may also affect our partner companies and us. The exact
applicability of many of these laws to Internet e-commerce is, however,
uncertain.
Proprietary Rights
Our partner companies have copyrights and patents with respect to software
applications, web sites and other works of authorship or invention. These
materials may constitute an important part of our partner companies' assets
and competitive strengths. Federal law generally protects our partner
companies' copyrights for a period ending on the earlier of 100 years from the
creation of the underlying work or 75 years from the publication of the
underlying work. "divine interVentures" and "Internet Zaibatsu" are our
trademarks. We have applied to register these marks with the United States
Patent and Trademark Office. All other brand, product or company names in this
prospectus are trade names, trademarks or service marks of their respective
owners.
Properties
Our corporate headquarters and principal operational facilities are
currently located in leased space in two buildings in Lisle, Illinois. We also
lease additional office space in Chicago, Illinois and a small office in
Austin, Texas.
We also have an option to lease a 300,000 square foot facility located in
Chicago, and expect to enter into a long-term lease for the facility by
February 28, 2000. We expect that this facility will serve as the headquarters
of some of our partner companies, as well as other non-affiliated entities. We
are working with a real estate development team that has previously developed
other parcels in that area of Chicago. An architectural firm has begun to
design this high-tech facility designed to hold between 20 and 30 e-commerce
businesses. We anticipate that the facility could be ready for occupancy in
the second half of 2000. However, we are not obligated to proceed with the
development of the facility.
Employees
As of January 31, 2000, we had 351 employees, including 146 employees of
majority-owned subsidiaries. We believe that our relations with our employees
are generally good.
Legal Proceedings
We are not currently a party to any legal or administrative proceedings.
62
<PAGE>
MANAGEMENT
Executive Officers and Directors
The table below contains information about our executive officers and
directors as of February 14, 2000. Our Board of Directors is divided into three
classes with staggered three-year terms. The terms of our Class I directors
will expire at our annual meeting of stockholders in 2000; the terms of our
Class II directors will expire at our annual meeting of stockholders in 2001;
and the terms of our Class III directors will expire at our annual meeting of
stockholders in 2002. At each annual meeting of our stockholders, the
successors to the directors whose terms expire will be elected for three-year
terms.
<TABLE>
<CAPTION>
Name Age Position with Company Director Class
---- --- --------------------- --------------
<C> <C> <S> <C>
Chairman of the Board and Chief
Andrew J. Filipowski 49 Executive Officer Class I
President, Chief Operating
Scott A. Hartkopf 42 Officer and Director Class I
Michael P. Cullinane 50 Executive Vice President, Chief
Financial Officer,
Treasurer and Director Class II
Paul L. Humenansky 42 Executive Vice President and
Director Class II
Larry S. Freedman 36 Executive Vice President, General
Counsel
and Secretary
Robert Bernard 38 Director Class II
Michael J. Birck 62 Director Class III
James E. Cowie 44 Director Class I
Andrea Lee Cunningham 43 Director Class II
Thomas P. Danis 53 Director Class III
Michael H. Forster 57 Director Class III
Arthur P. Frigo 58 Director Class I
Gian M. Fulgoni 52 Director Class II
George Garrick 47 Director Class I
Craig D. Goldman 55 Director Class III
Arthur W. Hahn 55 Director Class II
David D. Hiller 46 Director Class III
Jeffrey D. Jacobs 49 Director Class I
Gregory K. Jones 38 Director Class II
Steven Neil Kaplan 40 Director Class III
Richard P. Kiphart 58 Director Class II
Ronald D. Lachman 42 Director Class III
Eric C. Larson 45 Director Class I
William A. Lederer 38 Director Class I
Michael E. Leitner 32 Director Class I
Lawrence F. Levy 56 Director Class II
Thomas J. Meredith 49 Director Class III
Teresa L. Pahl 40 Director Class II
John Rau 51 Director Class III
Bruce V. Rauner 43 Director Class I
</TABLE>
63
<PAGE>
<TABLE>
<CAPTION>
Position
with
Name Age Company Director Class
---- --- -------- --------------
<C> <C> <S> <C>
Andre Rice 42 Director Class I
Mohanbir S. Sawhney 36 Director Class III
Alex C. Smith 40 Director Class II
Timothy Stojka 33 Director Class I
Aleksander Szlam 48 Director Class II
Mark A. Tebbe 38 Director Class III
James C. Tyree 42 Director Class I
William Wrigley, Jr. 36 Director Class I
Robert Jay Zollars 42 Director Class III
</TABLE>
Mr. Filipowski, one of our founders, has been Chairman of our Board of
Directors and our Chief Executive Officer since our inception and was our
President from our inception until October 1999. He is also Chairman and Chief
Executive Officer of Platinum Venture Partners, Inc., the previous general
partner of the Platinum Venture Partners limited partnerships. Mr. Filipowski
was a founder of PLATINUM technology International inc. and served as the
Chairman of its Board of Directors, Chief Executive Officer and President from
its inception in 1987 until it was acquired by Computer Associates in June
1999. Mr. Filipowski is currently a director of eShare technologies, Inc.,
System Software Associates, Inc., Blue Rhino Corporation, Bluestone Software
Inc. and Platinum Entertainment, Inc.
Mr. Hartkopf has been our President and Chief Operating Officer since
October 1999. From 1993 until October 1999, Mr. Hartkopf was the President and
Chief Executive Officer of Brayton International, a wholly-owned subsidiary of
Steelcase, Inc. From 1991 until 1993, Mr. Hartkopf was President of Rucker
Fuller, an office furnishings company. Prior to joining Rucker Fuller, Mr.
Hartkopf was the Vice President of Marketing Strategies for the Management
Horizons consulting practice within PricewaterhouseCoopers.
Mr. Cullinane, one of our founders, has been our Chief Financial Officer and
Treasurer since our inception and our Executive Vice President since August
1999. He is also a principal officer of Platinum Venture Partners, Inc. Mr.
Cullinane served as Executive Vice President and Chief Financial Officer of
PLATINUM from its inception in 1987 until it was acquired in June 1999. Mr.
Cullinane is currently a director of VASCO Data Security International Inc.,
Made2Manage Systems, Inc., Platinum Entertainment, Inc. and Interactive
Intelligence, Inc.
Mr. Humenansky, one of our founders, has been our Executive Vice President
since August 1999. He is also a principal officer of Platinum Venture Partners,
Inc. Mr. Humenansky was a founder of PLATINUM, and served as its Executive Vice
President--Product Development from its inception in 1987 until its acquisition
in June 1999. Mr. Humenansky also served as Chief Operations Officer of
PLATINUM from January 1993 until its acquisition. Mr. Humenansky is currently a
director of Platinum Entertainment, Inc.
Mr. Freedman, one of our founders, has been our Executive Vice President,
Secretary and General Counsel since our inception. Mr. Freedman was Vice
President and Associate General Counsel of PLATINUM from December 1995 until
October 1997 and served as its Senior Vice President and General Counsel from
November 1997 until its acquisition by Computer Associates in June 1999.
Following the acquisition, Mr. Freedman was retained by Computer Associates, in
its legal department, to provide transition services for a period of six
months. Prior to joining PLATINUM, Mr. Freedman was associated with the law
firms of Katten Muchin Zavis, from August 1994 to November 1995, and Rudnick &
Wolfe, from May 1993 to August 1994.
Mr. Bernard is the founder of Whittman-Hart, Inc., an information technology
company, and has served as its Chairman and Chief Executive Officer since its
inception in 1984. From 1984 to August 1997, Mr. Bernard also served as
Whittman-Hart's President. Mr. Bernard serves as Chairman of the subcommittee
on education, skill and workforce development for the Chicago Mayor's Council
of Technology Advisors and is currently a director of Web Street, Inc.
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<PAGE>
Mr. Birck is a founder of Tellabs, Inc., a communications products and
services provider, and has been its President and Chief Executive Officer since
its inception in 1975. He currently serves as a director of Tellabs, Molex
Incorporated and Illinois Tool Works Inc.
Mr. Cowie has been a General Partner of Frontenac Company, a Chicago-based
private equity investment firm, since February 1989. Mr. Cowie is currently a
director of 3Com Corporation and Lante Corporation. Mr. Cowie was elected to
our Board of Directors as a representative of Frontenac under the stockholders
agreement with the holders of our series D and D-1 preferred stock.
Ms. Cunningham founded, and has been the Chief Executive Officer of,
Cunningham Communication, Inc., a public relations and strategic communication
consulting firm serving high-technology companies, since 1985.
Mr. Danis has been the President and Chief Executive Officer of Aon Risk
Services of Missouri since 1992. He has also served as the Managing Director of
the Mid-Rivers Market Area for Aon Corporation since 1997 and has been Co-Chair
of the Merger and Acquisition Practice at Aon Corporation with responsibilities
for international markets since 1996. Mr. Danis has over 20 years experience in
the insurance industry, including as a co-founder of Corroon & Black of
Missouri, a joint venture with Corroon & Black, which he operated for 16 years.
Mr. Danis is currently a director of International Wire Group, Inc.
Mr. Forster has served as one of the Senior Partners of Operations of
Internet Capital Group, Inc., a provider of capital and services to Internet
businesses, since June 1998. From April 1996 to March 1999, Mr. Forster served
as Senior Vice President of Worldwide Field Operations for Sybase, Inc., a
database management solutions company. From April 1994 to March 1996, Mr.
Forster was Sybase's Senior Vice President and President of Sybase's
Information Connection Division. Mr. Forster has over 30 years of sales,
marketing and general management experience in the information technology
industry. Mr. Forster is currently a director of Tangram Enterprise Solutions,
Inc.
Mr. Frigo has been the Chairman of the Board of Lucini Italia Company, a
consumer products company, since 1997. He was formerly the Chief Executive
Officer and owner of M.B. Walton, a consumer products company, and served as
its Chief Executive Officer from 1987 until its sale in January 1998.
Mr. Fulgoni is a founder of comScore, Inc., one of our partner companies,
and has served as its Chairman since its inception in August 1999. Mr. Fulgoni
also founded Lancaster Enterprises, LLC, which provides investment and
counseling services to emerging growth companies, and has served as its
Chairman since February 1999. From 1986 through 1998, Mr. Fulgoni served as
Chief Executive Officer of Information Resources, Inc., which provides a
variety of information and computer decision support services to the consumer
packaged goods industry. From 1981 through 1998, Mr. Fulgoni served as IRI's
President, and, from 1991 to 1995, he was its Chairman. Mr. Fulgoni is also
currently a director of yesmail.com, inc.
Mr. Garrick has served as Chief Executive Officer and President of Flycast
Communications Corporation, an Internet marketing and advertising network,
since April 1998 and as its Chairman since January 1999. From September 1997
until May 1998, Mr. Garrick owned and operated his own private Internet venture
and consulting company, G2 Ventures, inc. From April 1997 until September 1997,
Mr. Garrick served as Chief Marketing Officer for PowerAgent, Inc., an Internet
media and marketing company. From March 1996 until April 1997, Mr. Garrick
founded and operated NetROI LLC, an Internet audience measurement software
company. From November 1993 until March 1996, Mr. Garrick served as the
President and Chief Executive Officer of Information Resources, Inc.-North
America, a marketing measurement company. Other than the period from July 1993
through October 1993, when Mr. Garrick served as President and Chief Executive
Officer of Nielsen Marketing Research U.S.A., a unit of A.C. Nielsen Co., Mr.
Garrick served Information Resources, Inc. in various capacities, including
President, European Information Services, and President, Syndicated Information
Division, from 1981 until his departure in March 1996.
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<PAGE>
Mr. Goldman has served as President and Chief Executive Officer of Cyber
Consulting Services Corp., a technology consulting firm, since March 1996. Mr.
Goldman was Senior Vice President--Technology and Operations at The Chase
Manhattan Bank from March 1988 until October 1991 and was a Senior Vice
President and Chief Information Officer for The Chase Manhattan Bank from
October 1991 until March 1996. Mr. Goldman is currently a director of CMGI,
Inc., Engage Technologies, Inc., NaviSite, Inc., PRT Group Inc. and MangoSoft,
Inc.
Mr. Hahn has been a partner with the law firm of Katten Muchin Zavis since
1984 and is a member of the firm's executive committee. Mr. Hahn is Chairman of
the faculty of the Illinois Institute of Technology Chicago-Kent College of Law
Graduate School of Financial Services Law.
Mr. Hiller has served as Senior Vice President--Development of the Tribune
Company since 1993. Mr. Hiller is currently a director of the Lightspan
Partnership, Inc.
Mr. Jacobs has been the President of HARPO Entertainment Group, which
produces The Oprah Winfrey Show, since 1988. In 1993, Mr. Jacobs founded
CIVITAS Initiative, a national communications foundation serving the field of
child development.
Mr. Jones has been the President and Chief Executive Officer of uBid, Inc.
since November 1997 and its Chairman since July 1998. From October 1995 to
November 1997, Mr. Jones was Senior Vice President of Strategic Markets at APAC
TeleServices, Inc., a provider of outsourced telephone-based marketing, sales
and customer management solutions. From October 1990 to October 1995, Mr. Jones
served as the President and Chief Operating Officer of The Reliable
Corporation/Office 1, a Chicago-based direct mail and retailer of office
products. Mr. Jones is currently a director of D.I.Y. Home Warehouse, Inc. and
uBid.
Professor Kaplan is the Neubauer Family Professor of Entrepreneurship and
Finance at the University of Chicago Graduate School of Business, where he has
taught since 1988. Professor Kaplan is the director of the American Finance
Association and a Research Associate at the National Bureau of Economic
Research. He is a principal at Michigan & Oak, LLC, a venture advisory firm,
and serves as a director of ImageMax, Inc.
Mr. Kiphart has been a General Partner and the head of the Corporate Finance
Department of William Blair & Company since 1995 and a member of its corporate
finance department since 1980. Mr. Kiphart joined William Blair in 1965, served
in the U.S. Navy as Junior Officer in 1966, then rejoined William Blair. In
1972, he became a General Partner of the firm and was promoted to head of
Equity Trading, where he served from 1972 to 1980. Mr. Kiphart is currently a
director of Concord EFS, Inc.
Mr. Lachman is the co-founder of Lachman Goldman Ventures, which funds and
builds management teams for networking and software related companies, and has
served as its President since 1995. In 1992, Mr. Lachman founded Lachman
Technology, which was acquired by Legent Corporation in 1994. Mr. Lachman
served as Vice President for Open Systems Strategy of Legent from 1994 until
1995. Mr. Lachman currently serves in a senior advisory board member capacity
to many different technology companies in the fields of distributed computing
and Internet commerce. Mr. Lachman is currently a director of The Santa Cruz
Operation, Inc., a software company.
Mr. Larson has been the Managing General Partner of Bank One Equity Capital,
the private equity investment unit of Bank One Corporation since December 1998.
Bank One Equity Capital is the successor to First Chicago Equity Capital, which
Mr. Larson co-founded in 1991 to make equity investments in middle market
companies. He has served as Senior Vice President since 1994 and has held a
variety of principal and advisory positions since joining First Chicago in
1984. Mr. Larson was elected to our Board of Directors as a representative of
First Chicago Equity Capital under the stockholders agreement with the holders
of our series D and D-1 preferred stock.
Mr. Lederer is the founder of Minotaur Capital Management and its fund,
Minotaur Partners, L.P., an Illinois-based investment firm, and has served as
its President since 1994. From 1997 until December 1999, Mr. Lederer served as
the Chief Executive Officer of Art.com Inc., an Internet-based art and framing
service, which he founded in 1987. Mr. Lederer currently serves as Governor of
the School of the Art Institute, Chicago.
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<PAGE>
Mr. Leitner has been a Senior Director of Corporate Development for
Microsoft Corporation since June 1998. Mr. Leitner manages Microsoft's
corporate investment strategy, acquisitions, joint ventures and alliances
across all of Microsoft's business units and customer channels. From 1994 until
June 1998, Mr. Leitner was a Vice President in the Technology Mergers and
Acquisitions group at Merrill Lynch & Co., Inc. Mr. Leitner was elected to our
Board of Directors as a representative of Microsoft under the stockholders
agreement with the holders of our series D and D-1 preferred stock.
Mr. Levy is a co-founder of Levy Restaurants, a nationwide food service
company, and has been its Chairman of the Board and the Chief Executive Officer
since 1978. Mr. Levy is currently a director of Chicago Title Corporation and
Il Fornaio America Corporation.
Mr. Meredith has been a Senior Vice President of the Dell Computer
Corporation since 1996, and has served as its Chief Financial Officer since
1992. Mr. Meredith is currently a director of i2 Technologies, Inc. and
FreeMarkets, Inc. Mr. Meredith was elected to our Board of Directors as a
representative of Dell under the stockholders agreement with the holders of our
Series D and D-1 preferred stock.
Ms. Pahl has been the President and Chief Executive Officer of Aon
Enterprise Insurance Services, Inc. since September 1997. From September 1990
until September 1997, she served as Executive Vice President of Aon. Ms. Pahl
has served on the Aon Risk Services U.S. operating board since 1997.
Mr. Rau has been the President and Chief Executive Officer of Chicago Title
Corporation and Chicago Title Company since January 1997. Before joining
Chicago Title, Mr. Rau was Dean of the School of Business at Indiana University
from 1993 through December 1996. Mr. Rau is currently a director of LaSalle
Bank N.A., First Industrial Realty Trust, Inc., Borg-Warner Automotive, Inc.
and Nicor Inc.
Mr. Rauner is Managing Principal of GTCR Golder Rauner, L.L.C., a private
equity and venture capital firm, which he joined in 1981. Mr. Rauner is
currently a director of Province Healthcare Company, Metamor Worldwide, Inc.
(formerly COREStaff), AppNet, Inc., Polymer Group, Inc., Coinmach Laundry
Corporation, Lason, Inc., AnswerThink Consulting Group, Inc. and Esquire
Communications Ltd.
Mr. Rice founded Rice Group, Ltd, an investment firm, and has served as its
President since 1986. From 1985 until 1986, Mr. Rice served as Senior Project
Manager in the Mergers and Acquisitions Department at Kraft Inc. From 1980
until 1985, Mr. Rice was a securities salesman at Goldman, Sachs & Co.
Professor Sawhney is the Tribune Professor of Electronic Commerce and
Technology at the Kellogg Graduate School of Management, Northwestern
University, where he has taught since November 1994. He is a Fellow of the
World Economic Forum, a Fellow of Diamond Technology Partners' Diamond
Exchange, a member of Merrill Lynch's Technology Advisory Board and a principal
at Michigan & Oak, LLC, a venture advisory firm.
Mr. Smith has served as Vice President of Dell Ventures, a division of Dell
USA L.P., since March 1999. From November 1995 until March 1999, Mr. Smith was
the Treasurer of Dell USA. From 1991 until November 1995, Mr. Smith held
various management positions within the Treasury Department of Dell USA. Mr.
Smith was elected to our Board of Directors as a representative of Dell under
the stockholders agreement with the holders of our Series D and D-1 preferred
stock.
Mr. Stojka is the founder of Commerx, Inc., one of our partner companies,
and has served as its Chairman and Chief Executive Officer since January 1999.
From 1991 through 1998, Mr. Stojka served as Chief Executive Officer of Fast
Heat Inc., a manufacturing company. Mr. Stojka holds positions with several
industry groups, including chairman of the International Division of Society of
the Plastics Industry, chairman of operations for the National Plastics
Exposition and member of the National Board in Washington, D.C.
Mr. Szlam founded Melita International, a call center application software
company, and has served as its Chairman and Chief Executive Officer, since
1983. In September 1999, Melita International acquired eShare Technologies,
Inc., an Internet software company, and adopted eShare's name. Mr. Szlam
continues to serve as Chairman and Chief Executive Officer of the combined
entity.
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<PAGE>
Mr. Tebbe is the founder of Lante Corporation, an Internet services company,
and has served as its Chairman since June 1999. Mr. Tebbe served as Lante's
President from 1984 to 1999. Mr. Tebbe currently serves as a director of ZixIt
Corporation, an Internet security technology company.
Mr. Tyree has served as Chairman and Chief Executive Officer of Mesirow
Financial, a diversified financial services firm, since 1994. Mr. Tyree joined
the firm in 1980 as a research associate. Mr. Tyree currently serves as a
director of Standard Bank and Trust Company.
Mr. Wrigley is President and Chief Executive Officer of William Wrigley Jr.
Company, a chewing gum manufacturer. He has been a director of William Wrigley
Jr. Company since 1988 and served as its Vice President from 1991 until 1998.
Mr. Wrigley is currently a director of The J.M. Smucker Company.
Mr. Zollars became the Chairman, President and Chief Executive Officer of
Neoforma.com, Inc., one of our partner companies, in July 1999. From 1997 until
July of 1999, Mr. Zollars was an Executive Vice President and Group President
at Cardinal Health, Inc., a pharmaceutical service provider. From 1992 until
1997, he served as Corporate Vice President and President of U.S. Distribution
at Baxter Healthcare, Inc. Mr. Zollars is currently a director of Epitope,
Inc., a medical device company.
Committees of the Board of Directors
Our Board of Directors has established an acquisition committee, audit
committee, compensation committee, conflicts committee, executive committee,
Internet economy strategy committee and Investment Company Act compliance
committee.
Our acquisition committee has responsibility for reviewing, approving and
authorizing significant transactions with partner companies and, to the extent
necessary, may administer the functions of our conflicts committee with respect
to these transactions. Our acquisition committee, consisting solely of non-
employee directors, is divided into three teams. The current members of team
one of our acquisition committee are Messrs. Frigo (co-chairman), Kaplan (co-
chairman), Cowie, Forster, Leitner, Rau and Zollars. The current members of
team two of our acquisition committee are Messrs. Goldman (co-chairman),
Sawhney (co-chairman), Fulgoni, Hahn, Jones, Kiphart and Szlam. The current
members of team three of our acquisition committee are Messrs. Smith
(chairman), Bernard, Danis, Garrick, Jacobs, Tebbe, Tyree and Wrigley.
Our audit committee recommends the independent public accountants to be
engaged by us, considering independence and effectiveness. It also reviews the
plan, scope and results of our annual audit, reviews our accounting and
financial controls and reviews our accounting principles and financial
disclosure practices with our independent public accountants. Our audit
committee consists solely of non-employee directors. The current members of the
audit committee are Messrs. Larson (chairman), Bernard, Birck, Danis, Frigo,
Garrick, Jones and Kiphart.
Our compensation committee reviews, monitors, administers and establishes or
recommends to our full Board of Directors compensation arrangements for our
Chief Executive Officer and other members of our senior management. Our
compensation committee also administers our incentive compensation plans and
determines the number of shares covered by, and terms of, options to be granted
to executive officers and other key employees under these plans. Our
compensation committee consists solely of non-employee directors. The current
members of the compensation committee are Messrs. Fulgoni (chairman), Levy,
Rice, Szlam, Tyree, Zollars and Ms. Pahl.
Our conflicts committee has principal responsibility for approving contracts
and transactions between us or any of our subsidiaries, on the one hand, and
any of our directors or officers or those of our subsidiaries or any other
corporation, partnership, association or other organization in which one or
more of our directors or officers are directors or officers or have financial
interests, on the other hand. Our conflicts committee consists solely of non-
employee directors. The current members of the conflicts committee are Messrs.
Goldman (chairman), Forster, Fulgoni and Garrick.
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<PAGE>
Our executive committee has responsibility for reviewing and generally
recommending matters to our full Board of Directors for approval. The current
members of the executive committee are Messrs. Filipowski (chairman), Cowie,
Cullinane, Forster, Goldman, Hahn, Hartkopf, Humenansky and Meredith.
Our Internet economy strategy committee assists our management in developing
our business strategy as it relates to the business-to-business Internet
economy and offers strategic guidance and industry expertise to us and our
partner companies. The current members of our Internet economy strategy
committee are Messrs. Garrick (co-chairman), Sawhney (co-chairman), Bernard,
Cunningham, Fulgoni, Jacobs, Kaplan, Lachman, Lederer, Rau, Rauner, Smith,
Stojka, Szlam, Tebbe, Wrigley and Zollars.
Our Investment Company Act compliance committee has the responsibility for
ensuring that we do not become required to register as an investment company
and subject to regulation under the Investment Company Act, including,
specifically, responsibility determining the value of our securities holdings,
total assets and net income after taxes, as required from time to time but not
less frequently than the end of each of our fiscal quarters. The current
members of our Investment Company Act compliance committee are Messrs. Frigo
(co-chairman), Goldman (co-chairman), Cowie, Forster, Fulgoni, Garrick, Jones
and Kiphart.
Arrangements for Nomination as Director and Committee Member
Under the stockholders agreement that we entered into with the holders of
our series D and D-1 preferred stock, (1) we, (2) Messrs. Filipowski,
Cullinane, Humenansky, Freedman, Kennedy, Santer, Slowey and Tatro and
affiliates of Messrs. Filipowski, Humenansky, Freedman and Tatro, who together
hold all of our class B common stock, and (3) the purchasers of our series D
and D-1 preferred stock, have agreed to take all necessary actions, so that:
. one member of our Board of Directors can be designated by each of the
following holders of our series D and D-1 preferred stock: (1) CBW/SK
divine Investments, (2) First Chicago Investment Corporation and Cross
Creek Capital Partners X, LLC, which we together refer to as First
Chicago Equity Capital, (3) Frontenac VII Limited Partnership and
Frontenac Masters VII Limited Partnership, which we together refer to as
Frontenac and (4) Microsoft Corporation; and
. Dell USA L.P., which also holds our series D preferred stock, can
designate two members of our Board of Directors.
Additionally, we have agreed to take all necessary actions so that one of
the directors designated by each of Frontenac and Dell is designated as a
member of our executive committee. However, none of CBW/SK divine Investments,
First Chicago Equity Capital, Frontenac, Microsoft or Dell will have any of
these rights if it does not continue to own least 25% of the capital stock
originally purchased by it.
Compensation of Directors
Our directors do not currently receive any cash compensation for their
service as members of our Board of Directors, although we may decide to provide
them with cash compensation in the future. We reimburse each director who is
not our officer or employee for reasonable out-of-pocket expenses incurred in
attending board and committee meetings. In September 1999, each of the persons
then serving as a non-employee director was given the opportunity to purchase
200,000 shares of our class A common stock at a price of $0.9375 per share. In
December 1999, each of the persons who was appointed as a non-employee director
after September 1999 was granted an option to purchase 40,000 shares of our
class A common stock at an exercise price of $0.9375 per share. In addition,
our 1999 stock incentive plan provides for the automatic grant on December 1 of
each year, commencing December 1, 1999, of an option to purchase 40,000 shares
of class A common stock to each of our non-employee directors. For more
information about these options and our stock incentive plan, see "--1999 Stock
Incentive Plan." Directors who are also our employees receive no additional
compensation from us for services they render in their capacity as directors.
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Executive Compensation
The following table contains information with respect to all compensation
paid by us during 1999 to our chief executive officer and our only other
executive officer whose combined salary and bonus exceeded $100,000 for 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
------------------------------------ ------------
Securities
Name and Principal Other Annual Underlying
Positions Salary($) Bonus($) Compensation($) Options(#)
------------------ --------- -------- --------------- ------------
<S> <C> <C> <C> <C>
Andrew J. Filipowski
Chairman and Chief Executive
Officer (1)................. $ -- $ -- 15,300(2) 1,100,000
Scott A. Hartkopf,
President................... 41,500(3) 200,000 -- 600,000
</TABLE>
- ---------------------
(1) Mr. Filipowski has agreed to waive all cash compensation through June 15,
2004.
(2) Represents personal travel for family members of Mr. Filipowski.
(3) Based on an annual rate of $239,778.
Each of Messrs. Cullinane and Humenansky has agreed to waive all cash
compensation through June 15, 2000. Mr. Freedman agreed to waive all cash
compensation through December 15, 1999. After that date, Mr. Freedman receives
a base salary at an annual rate of $200,000.
1999 Option Grants
The following table contains information regarding our grant of stock
options to our chief executive officer and our only other executive officer
whose combined salary and bonus exceeded $100,000 for 1999.
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------
Percentage Potential Realizable
Number of of Total Value at Assumed
Shares Options Annual Rates of Stock
Underlying Granted to Price Appreciation
Options Employees Exercise for Option Term (3)
Granted in Fiscal Price Expiration ---------------------
Name (#) (1) 1999 ($/Sh)(2) Date 5% ($) 10% ($)
- ---- ---------- ---------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Andrew J. Filipowski.... 1,100,000 5.1% $0.9375 11/5/2009 648,548 1,643,547
Scott A. Hartkopf....... 600,000 2.8% $0.9375 11/5/2009 353,753 896,480
</TABLE>
- ---------------------
(1) These options are immediately exercisable, but vest in equal annual
installments on the first four anniversaries of the grant date if the
executive continues to be employed by us on each of these anniversaries.
The shares of our class A common stock issuable upon exercise of these
options are subject to restrictions on transfer and a right of repurchase
by us at a price per share equal to the lower of the option exercise price
and the fair market value per share of our class A common stock. These
restrictions and repurchase right expire based on the option vesting
schedule.
(2) The exercise price of each of these options equals the fair market value
per share of our class A common stock on the grant date, as determined by
the compensation committee of our Board of Directors, based upon the most
recent price at which we sold our senior convertible preferred stock before
the grant date in capital raising transactions.
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(3) Potential realizable value is presented net of the option exercise price,
but before any federal or state income taxes associated with exercise. It
is calculated assuming that the fair market value of our class A common
stock on the date of grant appreciates at the indicated annual rates,
compounded annually, for the term of the option. The 5% and 10% assumed
rates of appreciation are mandated by the rules of the SEC and do not
represent our estimate or projection of future increases in the price of
our class A common stock. Using the assumed initial public offering price
of $7.00 for purposes of these calculations, the potential realizable
values of these options at the assumed annual rates of stock price
appreciation, would be as follows: Mr. Filipowski--$11,511,236 at 5% and
$18,940,564 at 10%; Mr. Hartkopf--$6,278,857 at 5% and $10,331,218 at 10%.
Actual gains will be dependent on the future performance of our class A
common stock and the option holder's continued employment through the
vesting periods.
Our other executive officers were granted options in 1999 to purchase the
following number of shares of class A common stock at an exercise price of
$0.9375 per share: Mr. Cullinane 500,000 shares; Mr. Humenansky 800,000 shares;
and Mr. Freedman 250,000 shares.
1999 Option Values
The following table shows information regarding the unexercised options, all
of which were immediately exercisable, held by our chief executive officer and
our only other executive officer whose combined salary and bonus exceeded
$100,000 for 1999 as of December 31, 1999. None of our executive officers
exercised any options during 1999.
<TABLE>
<CAPTION>
Number of
Shares
Underlying
Unexercised
Options as
of
December 31,
1999
------------
Name Exercisable
- ---- ------------
<S> <C>
Andrew J. Filipowski............................................... 1,100,000
Scott A. Hartkopf.................................................. 600,000
</TABLE>
None of the options held by Messrs. Filipowski and Hartkopf were in-the-
money as of December 31, 1999, because the exercise price of these options
equaled the fair market value of our class A common stock of $0.9375 per share
on December 31, 1999, as determined by the compensation committee of our Board
of Directors, based upon the most recent price prior to December 31, 1999 at
which we sold our senior convertible preferred stock in capital raising
transactions. Using the assumed initial public offering price of $7.00 for the
purpose of calculating the value of unexercised in-the-money options held by
Messrs. Filipowski and Hartkopf, as of December 31, 1999, the values would have
been as follows: Mr. Filipowski--$6,668,750; Mr. Hartkopf--$637,500.
Compensation Committee Interlocks and Insider Participation
Upon completion of this offering, our compensation committee will make all
compensation decisions and will administer our incentive compensation programs
and plans. Mr. Fulgoni, Mr. Levy, Ms. Pahl, Mr. Rice, Mr. Szlam, Mr. Tyree and
Mr. Zollars currently serve as the members of our compensation committee. None
of our executive officers, directors or compensation committee members
currently serve, or in the past served, on the compensation committee of any
other company the executive officers or directors of which serve on our
compensation committee.
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<PAGE>
The members of our compensation committee and their affiliates purchased
shares of our class A common stock for $0.001 per share and shares of series C
senior convertible preferred stock for $1.00 per share, as shown in the
following table:
<TABLE>
<CAPTION>
Class A Series C
Common Preferred
Committee Member Shares Shares
---------------- ------- ---------
<S> <C> <C>
Gian M. Fulgoni....................................... 250,000 1,100,000
Lawrence F. Levy...................................... -- 2,741,000
Teresa L. Pahl........................................ 250,000 100,000
Andre Rice............................................ 250,000 200,000
Aleksander Szlam...................................... -- 1,000,000(1)
James C. Tyree........................................ -- --
Robert J. Zollars..................................... 250,000 350,000
</TABLE>
---------------------
(1) Represents shares purchased by a family partnership controlled by
Mr. Szlam.
In addition, members of our compensation committee have management positions
with, and economic interests in, entities with which we have engaged in
transactions, as follows:
. Mr. Fulgoni is the founder and chairman of comScore. On October 29,
1999, we acquired approximately 0.9% of comScore for $200,208.
. Ms. Pahl is the President and Chief Executive Officer of Aon Enterprise
Insurance Services, Inc., an affiliate of Aon Risk Services of Missouri.
We owe Aon Risk Services of Missouri approximately $250,000 through
February 14, 2000 as broker with respect to our directors and officers
liability insurance.
. James C. Tyree is the Chairman and Chief Executive Officer of Mesirow
Financial. An affiliate of Mesirow has committed to invest $4,000,000 in
the Big Shoulders interTech Fund.
. Robert Jay Zollars is the Chairman, President and Chief Executive
Officer of Neoforma.com and beneficially owns approximately 9.3% of
Neoforma.com. On October 14, 1999, we acquired approximately 2.1% of
Neoforma.com. As a result of Neoforma.com's initial public offering, our
interest is approximately 1.9%.
Consulting and Noncompete Agreements
Andrew J. Filipowski, Michael P. Cullinane and Paul L. Humenansky have
entered into consulting and non-compete agreements under which each has agreed
to provide consulting services to PLATINUM for a two year period, in the case
of Mr. Filipowski, beginning on June 29, 1999 and, in the case of each of
Messrs. Cullinane and Humenansky, beginning on the later of June 29, 1999 and
the end of his employment period with PLATINUM.
The consulting agreements contain non-compete provisions that prohibit Mr.
Filipowski until June 29, 2007, and each of Messrs. Cullinane and Humenansky
until June 29, 2004 from participating or engaging, directly or indirectly, on
their own behalf or on behalf of others in any activities or business
developing, manufacturing, marketing or distributing any products or services
offered by PLATINUM on March 29, 1999, or any products or services offered by
PLATINUM after that date and in which the consultant had actively participated.
PLATINUM is engaged principally in the businesses of developing, marketing and
supporting software products for managing information technology
infrastructures and providing related professional services. Its products are
designed to assist in the management and operation of large, complex,
distributed environments by performing fundamental functions such as automating
operations, maintaining the operating efficiency of systems and applications
and ensuring data access and integrity. Additionally, PLATINUM's products
provide support for certain multiple database management systems and packaged
applications. As of March 29, 1999, PLATINUM also offered products and services
for the creation, deployment and management of web content.
Under the agreements, competitive activities which Messrs. Filipowski,
Cullinane and Humenansky are prohibited from conducting include:
. selling goods or rendering services, or assisting another person to sell
goods or render services or attempt to sell goods or render services, of
the type, or similar to the type, sold or rendered by PLATINUM; and
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. soliciting or assisting another person to solicit or attempt to solicit
persons or entities that were customers as of March 29, 1999 or in the
three years before that date or are or were prospective customers of
PLATINUM or its affiliates before the end of the respective employment
periods of Messrs. Filipowski, Cullinane and Humenansky, unless the
solicitation of these customers is for goods or services unrelated to
any activity which competes with PLATINUM.
The agreements also prohibit each of Messrs. Filipowski, Cullinane and
Humenansky from performing any action, activity or course of conduct that is
detrimental in any material respect to the businesses or business reputation of
PLATINUM or any of its affiliates, such as soliciting, recruiting or hiring any
employees of PLATINUM or any of its affiliates or persons who have worked for
PLATINUM or any of its affiliates at any time since January 1, 1998 and
soliciting or encouraging any employees of PLATINUM or any of its affiliates to
leave their employment, except that the consultants may hire, but not solicit
or recruit, (1) any terminated employees of PLATINUM or (2) employees of
PLATINUM (a) in connection with a business that is not an activity that
competes with PLATINUM or (b) to work in a venture capital business, but not in
a company in which a venture capital business invests or acquires an interest.
In addition, each consultant may not disclose to any other person or use any
confidential information relating to, or used by, PLATINUM or any of its
affiliates, except in connection with the performance of the consultant's
duties under the agreement.
Each of Messrs. Filipowski, Cullinane and Humenansky is permitted (1) to
remain as a director of those companies of which each was a director as of June
29, 1999, (2) to engage in venture capital activities so long as he does not
invest through any venture in any company whose primary business is an activity
which competes with PLATINUM, (3) to engage in competitive activities, as
described above, after receiving written permission of PLATINUM, which
permission will not be unreasonable withheld or delayed after June 29, 2004, in
the case of Mr. Filipowski, and June 29, 2002, in the cases of Messrs.
Cullinane and Humenansky, as long as the consultant's activities would not have
a material adverse impact on any of PLATINUM's lines of business and (4) to
engage in activities that Computer Associates has confirmed are not
inconsistent with the prohibitions of the non-competition provisions of the
consulting agreements.
Additionally, other of our key employees, including Larry S. Freedman, our
Executive Vice President, General Counsel and Secretary, have entered into
consulting and non-compete agreements with Computer Associates containing
substantially the same terms as those of Messrs. Filipowski, Cullinane and
Humenansky. All of these agreements with Computer Associates terminate on June
29, 2001.
Incentive Program
We intend to implement an incentive program for our employees. We expect
that among the components of this program will be a plan under which our
employees earn stock bonuses based upon any increases in the value of a
portfolio that consists of our interests in partner companies that have
completed initial public offerings and in any public companies into which our
partner companies have been merged or sold. We will allocate 12.5% of these
increases to a pool in which our employees will share, as determined by our
management. We will periodically distribute to each participating employee a
number of shares of class A common stock equal in value to a portion of that
employee's share of the pool.
1999 Stock Incentive Plan
Effective October 1, 1999, we adopted our 1999 stock incentive plan. Our
officers, employees, directors, consultants and advisors are eligible to
participate in this plan. The purpose of this plan is to attract and retain
persons eligible to participate in the plan, motivate participants to achieve
our long-term goals and further align the interest of participants with those
of our stockholders through compensation that is directly linked to the
profitability of our business and increases in stockholder value. We have made
available 52,000,000 shares of our class A common stock for issuance under the
plan. The maximum number of shares available for delivery under the plan
automatically increases on January 1 of each year, beginning on January 1,
2001, by a number
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of shares of class A common stock equal to the lesser of (1) 10% of the total
number of shares of class A common stock then outstanding, assuming for that
purpose the conversion into class A common stock of all then outstanding
convertible securities, or (2) 240,000,000 shares. Our compensation committee
will administer the 1999 stock incentive plan. This plan provides our
compensation committee with broad discretion to select the officers, employees,
directors, consultants and advisors to whom awards may be granted, as well as
the type, size and terms and conditions of each award. The 1999 stock incentive
compensation plan will permit grants of the following types of awards:
. non-qualified and incentive stock options;
. stock appreciation rights; and
. other stock-based awards.
Options granted will provide for the purchase of class A common stock at
prices determined by our compensation committee. Options granted under the plan
become fully exercisable and vested upon a change in control of us.
The 1999 stock incentive plan provides for the automatic grant on December 1
of each year, beginning on December 1, 1999, of an option to purchase
40,000,000 shares of class A common stock to each of our non-employee
directors. Options granted to non-employee directors will have an exercise
price equal to the fair market value of our class A common stock on the date of
grant. Stock options granted to non-employee directors will expire on the
earliest of (1) ten years after their date of grant, (2) one year after the
termination of the non-employee director's service as our director because of
death, disability or retirement at or after age 65 or (3) 90 days after the
termination of the non-employee director's service as our director for any
other reason. In the event that a non-employee director's service as a director
is terminated before the first anniversary of the grant date of any stock
option for any reason other than death, disability or retirement at or after
age 65, we have the right to re-purchase the shares obtained upon exercise of
the stock option at a price per share equal to the lesser of (1) the exercise
price per share under the stock option or (2) the fair market value per share
as of the date the shares are repurchased.
As of January 15, 2000, 20,044,420 shares of our class A common stock had
been issued upon exercise of outstanding options under our 1999 stock incentive
plan at a price of $0.9375 per share, and we had outstanding options to
purchase 3,509,900 shares of class A common stock under our 1999 stock
incentive plan, each with an exercise price of $0.9375 per share. Each of the
outstanding options is, and each of the exercised options was, immediately
exercisable in full, but vests in equal annual installments on the first four
anniversaries of the grant date if the option recipient continues to be
employed by us on each of these anniversaries. The shares of our class A common
stock issuable or issued upon exercise of each of these options are subject to
restrictions on transfer and a right of repurchase by us at a price per share
equal to the lower of the option exercise price and the fair market value per
share of our class A common stock. These restrictions on transfer and
repurchase right expire based on the option vesting schedule.
Equity Compensation Loan Program
In accordance with our 1999 stock incentive plan, we offered to loan each
employee who has been awarded a non-qualified stock option under our 1999 stock
incentive plan an amount necessary to pay the exercise price of their
outstanding options. Under this program, we have loaned a total of $ to a
total of employees through January 15, 2000. The outstanding loans are
full recourse, bear interest at the rate of 6.21% and have five-year terms.
Each employee receiving a loan has pledged the number of shares acquired with
loan proceeds upon exercise of the applicable option as collateral for the
loan. If the employee sells any of these shares, the employee will be obligated
under the terms of the loan to use the proceeds of the sale to repay the
outstanding balance of the loan related to the shares sold. If the employee's
employment with us terminates for any reason, the employee must repay the full
outstanding loan balance to us within 90 days of this termination.
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2000 Employee Stock Purchase Plan
In January 2000, we adopted, subject to stockholder approval, our 2000
employee stock purchase plan, under which a total of 20,000,000 shares of class
A common stock are available for sale to our employees. Through this plan, our
eligible employees can purchase class A common stock through payroll deductions
and other cash contributions.
Initially, this stock purchase plan will operate over two-year plan periods,
except that the first plan period will be shorter as described below. The stock
purchase plan generally will be implemented in a series of offering periods,
beginning, in each case, on the first day of the two-year plan period and
ending every six months during this plan period. Accordingly, the offering
periods will be six, 12, 18 and 24 months long. The first plan period, however,
will begin on the date of this prospectus and end on February 28, 2002, and the
first offering period will begin on the date of this prospectus and end on
February 28, 2001. There will be only three offering periods during the first
plan period.
Each participant will be granted an option to purchase our class A common
stock on the first day of the plan period, and the option will be automatically
exercised on the last day of each offering period. The purchase price of each
share of class A common stock under the stock purchase plan will equal 85% of
the lesser of (1) the fair market value of our class A common stock on the
first day of the plan period or (2) the fair market value on the date of
purchase. Accordingly, the fair market value of our class A common stock on the
first day of the first plan period will equal our initial public offering
price. Our Board of Directors and compensation committee can change the length
of the plan periods and offering periods and the other terms described above.
Payroll deductions may not exceed $25,000 for any employee in any offering
period. Further, no participating employee may purchase more than that number
of shares which is equal to $25,000 divided by 85% of the fair market value of
our class A common stock on the first day of the plan period. In addition, no
employee can purchase class A common stock under the stock purchase plan if
that person, immediately after the purchase, would own stock possessing 5% or
more of the total combined voting power or value of all outstanding shares of
all classes of our capital stock.
Limitation of Liability of Directors and Officers
As permitted by the Delaware General Corporation Law, our certificate of
incorporation provides that our directors will not be personally liable to us
or our stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability for:
. any breach of the director's duty of loyalty to us or our stockholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. unlawful dividends or unlawful stock purchases or redemptions; or
. any transaction from which the director derives an improper personal
benefit.
As a result of this provision, we and our stockholders may be unable to obtain
monetary damages from a director for breach of the director's duty of care.
However, these provisions do not affect a director's responsibilities under any
other laws, including federal securities laws.
Indemnification
Our certificate of incorporation provides for the indemnification of our
directors, to the fullest extent authorized by the Delaware General Corporation
Law, and of selected officers, employees and agents, to the extent determined
by our Board of Directors, except that we will generally not be obligated to
indemnify a person in connection with an action initiated by that person
without our prior written consent. The indemnification provided under our
certificate of incorporation obligates us to pay the expenses of a
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director, or an officer who is entitled to indemnification, in advance of the
final disposition of any proceeding for which indemnification may be had,
provided that the payment of these expenses incurred by a director or officer
may be made only upon delivery to us of an undertaking by or on behalf of the
director or officer to repay all amounts paid in advance if ultimately the
director or officer is not entitled to indemnification. We have entered into
indemnification agreements with each of our directors and executive officers
providing for the indemnification described above.
Insurance
Under our certificate of incorporation, we have the power to purchase and
maintain insurance on behalf of any person who is or was one of our directors,
officers, employees or agents, or who is or was serving at our request as a
director, officer, employee or agent of another corporation, partnership, joint
venture, limited liability company, trust or other enterprise, against any
liability asserted against the person or incurred by the person in any of these
capacities, or arising out of the person's fulfilling one of these capacities,
whether or not we would have the power to indemnify the person against the
claim under the provisions of our certificate of incorporation. We have
purchased director and officer liability insurance on behalf of our directors
and officers.
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RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS
The following is a description of the relationships and transactions to
which we have been a party since our inception, in which the amount involved
exceeded $60,000 and in which any director, executive officer or holder of more
than 5% of our class A common stock or class B common stock has or will have a
direct or indirect material interest, other than compensation arrangements
which are described under "Management." Our class A common stock is entitled to
one vote per share and our class B common stock is entitled to 10 votes per
share.
Our Organization
Andrew J. Filipowski, our Chairman and Chief Executive Officer, was involved
in our founding and organization and may be considered our promoter. At our
inception in June 1999, we issued 1,000 shares of common stock to Mr.
Filipowski, who contributed a nominal amount of capital for our initial
capitalization. These shares of common stock were converted into 10,000 shares
of our class B common stock.
Recent Financings
Since our inception, we have funded our growth primarily through the sale of
common stock and convertible preferred stock. Unless otherwise indicated, the
information below regarding our financings does not assume the reverse stock
split of our class A common stock and class B common stock or the conversion of
our convertible preferred stock, each to be effected before the completion of
this offering. We have issued the following shares:
Common Stock Financing
In August 1999, we sold a total of 20,700,000 shares of class A common stock
at a purchase price of $0.001 per share to a group of 77 persons and a total of
12,250,000 shares of class B common stock at a purchase price of $0.001 per
share to a group of six persons. We raised a total of $32,950 through our sale
of these shares. Based on the mid-point of the estimated price range for this
offering, $7.00, these shares will have a total market value of $184,520,000
upon the completion of this offering.
The following directors, executive officers and beneficial owners of more
than five percent of either our class A or class B common stock (assuming the
conversion of all shares of our convertible preferred stock into common stock)
directly or indirectly acquired beneficial ownership of class A common stock
and class B common stock in our common stock financing:
<TABLE>
<CAPTION>
Directors, Executive Officers and 5%
Stockholders Class A Shares Class B Shares
------------------------------------ -------------- --------------
<S> <C> <C>
Andrew J. Filipowski..................... -- 5,500,000
Michael P. Cullinane..................... -- 2,500,000
Larry S. Freedman........................ -- 1,250,000
Scott A. Hartkopf........................ 1,500,000 --
Paul L. Humenansky....................... -- 1,000,000
Michael J. Birck......................... 250,000 --
James E. Cowie........................... 250,000 --
Andrea Lee Cunningham.................... 250,000 --
Michael H. Forster....................... 250,000 --
Arthur P. Frigo.......................... 250,000 --
Gian M. Fulgoni.......................... 250,000 --
George Garrick........................... 250,000 --
Craig D. Goldman......................... 250,000 --
Arthur N. Hahn........................... 250,000 --
Jeffrey D. Jacobs........................ 250,000 --
Gregory K. Jones......................... 250,000 --
Brian Kennedy............................ 1,000,000 --
Teresa L. Pahl........................... 250,000 --
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Directors, Executive Officers and 5%
Stockholders Class A Shares Class B Shares
------------------------------------ -------------- --------------
<S> <C> <C>
John Rau................................. 250,000 --
Andre Rice............................... 250,000 --
Michael Santer........................... 1,000,000 --
Paul Tatro............................... -- 1,000,000
William Wrigley, Jr...................... 250,000 --
Robert Jay Zollars....................... 250,000 --
</TABLE>
Series A Preferred Financing
In September 1999, we sold a total of 9,236,600 shares of our series A-1
junior convertible preferred stock at a purchase price of $0.25 per share to a
group of 51 persons and a total of 37,750,000 shares of our series A-2 junior
convertible preferred stock at a purchase price of $0.25 to a group of seven
persons. We raised a total of $11,721,650, after estimated expenses, through
our sales of these shares. Each share of our series A-1 preferred stock will
convert into 0.8 of a share of our class A common stock upon the completion of
this offering, and each share of our series A-2 preferred stock will convert
into 0.8 of a share of our class B common stock upon completion of this
offering. Based on the mid-point of the estimated price range for this
offering, $7.00, these shares of common stock will have a total market value of
$263,124,960 upon the completion of this offering.
The following directors, executive officers and beneficial owners of more
than five percent of either our class A or class B common stock (assuming the
conversion of all shares of preferred stock into common stock) directly or
indirectly acquired beneficial ownership of series A-1 preferred stock and
series A-2 preferred stock in our series A preferred stock financing:
<TABLE>
<CAPTION>
Directors, Executive Officers and 5% Series A-1 Series A-2
Stockholders Preferred Shares Preferred Shares
------------------------------------ ---------------- ----------------
<S> <C> <C>
Andrew J. Filipowski(1).............. -- 19,950,000
Michael P. Cullinane................. -- 3,000,000
Larry S. Freedman(2)................. -- 400,000
Scott A. Hartkopf.................... 200,000 --
Paul L. Humenansky................... -- 3,000,000
Paul A. Tatro........................ -- 10,000,000
</TABLE>
- ---------------------
(1) Includes 320,000 shares held in trust for the benefit of Mr. Filipowski's
children.
(2) Represents shares held by a partnership that Mr. Freedman controls.
Series B Preferred Financing
In September 1999, we sold a total of 2,712,000 shares of our series B-1
convertible preferred stock at a purchase price of $0.50 per share to a group
of 35 persons and a total of 20,100,000 shares of our series B-2 convertible
preferred stock at a purchase price of $0.50 per share to a group of two
persons. We raised a total of $11,381,000, after estimated expenses, through
our sales of the stock. Each share of our series B-1 preferred stock will
convert into 0.8 of a share of our class A common stock upon the completion of
this offering, and each share of our series B-2 preferred stock will convert
into 0.8 of a share of our class B common stock upon the completion of this
offering. Based on the mid-point of the estimated price range for this
offering, $7.00, these shares of common stock will have a total market value of
$127,747,200 upon the completion of this offering.
The following directors, executive officers and beneficial owners of more
than five percent of either our class A or class B common stock (assuming the
conversion of all shares of preferred stock into common stock) acquired
beneficial ownership of series B-2 preferred stock in our series B preferred
stock financing:
<TABLE>
<CAPTION>
Series B-2
Directors, Executive Officers and 5% Stockholders Preferred Shares
------------------------------------------------- ----------------
<S> <C>
Andrew J. Filipowski..................................... 20,000,000
</TABLE>
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<PAGE>
Series C Financing
From September through December 1, 1999, we sold a total of 190,062,125
shares of our series C senior convertible preferred stock at a purchase price
of $1.00 per share to a group of 473 persons. We raised a total of
$189,220,906, after estimated expenses, through our sale of these shares. Each
share of our series C preferred stock will convert into 0.8 of a share of our
class A common stock upon the completion of this offering. Based on the mid-
point of the estimated price range for this offering, $7.00, these shares will
have a market value of $1,064,347,900 upon the completion of this offering.
The following directors, executive officers and beneficial owners of more
than five percent of either our class A or class B common stock (assuming the
conversion of all shares of preferred stock into common stock), and family
members of these persons, acquired beneficial ownership of series C preferred
stock in the series C preferred stock financing:
<TABLE>
<CAPTION>
Series C
Directors, Executive Officers and 5% Stockholders Preferred Shares
------------------------------------------------- ----------------
<S> <C>
Andrew J. Filipowski (1)................................. 1,180,000
Michael P. Cullinane (2)................................. 275,000
Robert A. Bernard (3).................................... 2,000,000
Michael J. Birck (4)..................................... 5,000,000
Thomas P. Danis (5)...................................... 850,000
Arthur Frigo, Sr. (6).................................... 5,000,000
Gian M. Fulgoni.......................................... 1,100,000
George Garrick........................................... 100,000
Craig D. Goldman......................................... 200,000
Arthur W. Hahn........................................... 360,000
Jeffrey D. Jacobs........................................ 1,000,000
Richard P. Kiphart....................................... 1,000,000
Ronald D. Lachman (7).................................... 510,000
William A. Lederer....................................... 300,000
Michael Leitner.......................................... 100,000
Lawrence F. Levy......................................... 2,741,000
Teresa L. Pahl........................................... 100,000
William D. Prim.......................................... 1,020,000
John Rau................................................. 1,000,000
Bruce V. Rauner.......................................... 550,000
Andre Rice............................................... 200,000
Tim J. Stojka (8)........................................ 1,000,000
Aleksander Szlam (9)..................................... 1,000,000
Paul A. Tatro (10)....................................... 205,000
Mark A. Tebbe............................................ 250,000
William J. Wrigley, Jr................................... 17,000,000
Robert Jay Zollars....................................... 350,000
</TABLE>
- ---------------------
(1) Represents 160,000 shares held by a corporation controlled by Mr.
Filipowski and 1,020,000 shares held by Mr. Filipowski's brother-in-law.
(2) Represents 200,000 shares purchased by Mr. Cullinane's brother, 15,000
purchased by Mr. Cullinane's father and his wife and 60,000 shares held by
Mr. Cullinane's father- and mother-in-law.
(3) Represents shares purchased by Whittman-Hart, Inc. Mr. Bernard is the
Chairman of the Board and Chief Executive Officer of Whittman-Hart.
(4) Represents shares purchased by Tellabs, Inc. Mr. Birck is the President and
Chief Executive Officer and a director of Tellabs.
(5) Includes 500,000 shares purchased by a partnership controlled by Mr. Danis
and his two brothers.
(6) Includes a total of 100,000 shares held by Mr. Frigo's son and 200,000
shares purchased by Mr. Frigo's two daughters.
(7) Includes a total of 450,000 shares purchased by three trusts for the
benefit of Mr. Lachman's children.
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(8) Represents shares purchased in a family partnership owned 25% by Mr. Stojka
and 25% by each of three of Mr. Stojka's brothers.
(9) Represents 1,000,000 shares purchased by a family partnership controlled by
Mr. Szlam.
(10) Represents 35,000 shares purchased by Mr. Tatro's father, a total of
75,000 shares purchased by Mr. Tatro's two brothers, and a total of 95,000
shares purchased by Mr. Tatro's three brothers and sisters-in-law.
Series D Preferred Financing
On January 19, 2000, we sold a total of 191,830,300 shares of our series D
senior participating convertible redeemable preferred stock at a purchase price
of $1.00 per share to a group of 11 persons and a total of 5,169,700 shares of
our series D-1 senior participating convertible redeemable (non-voting)
preferred stock to two entities at a purchase price of $1.00 per share. We
raised $196,900,000, after estimated expenses, in our series D preferred
financing. Each share of our series D and D-1 preferred stock will convert into
0.8 shares of our class A common stock upon the completion of this offering.
Based on the mid-point of the estimated price range for this offering, $7.00,
these shares of common stock will have a market value of $1,103,200,000 upon
the completion of this offering.
The following beneficial owner of more than five percent of either our class
A or class B common stock (assuming the conversion of all shares of preferred
stock into common stock) acquired beneficial ownership of series D preferred
stock in the series D preferred stock financing:
<TABLE>
<CAPTION>
Series D
Directors, Executive Officers and 5% Stockholders Preferred Shares
------------------------------------------------- ----------------
<S> <C>
Dell USA L.P............................................. 100,000,000
</TABLE>
Beneficial Ownership and Voting Power
The table below shows, for each officer or director who beneficially owns 1%
or more of either our class A or class B common stock before this offering and
for each beneficial owner of more than 5% of either our class A or class B
common stock, the percentage of our capital stock beneficially owned, and
percentage of voting power of our common stock held, by that holder after each
of our private financings, assuming the conversion of all our preferred stock
into common stock. The table does not reflect our issuance of series E and
series F preferred stock, which were not issued to any of these parties.
<TABLE>
<CAPTION>
Common Stock Series A Series B Series C Series D
Financing Financing Financing Financing Financing
----------------- ----------------- ----------------- ----------------- -----------------
Directors, Executive
Officers and 1% Beneficial Voting Beneficial Voting Beneficial Voting Beneficial Voting Beneficial Voting
Stockholders Ownership Power Ownership Power Ownership Power Ownership Power Ownership Power
-------------------- ---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Andrew J. Filipowski.... 16.7% 38.4% 31.8% 48.0% 44.2% 62.0% 15.6% 49.2% 9.3% 40.8%
Michael P. Cullinane.... 7.6 17.5 6.9 18.9 5.4 7.5 1.9 6.0 1.1 4.9
Paul Humenansky......... 3.0 7.0 5.0 7.5 3.9 5.5 1.4 4.3 * 3.6
Larry S. Freedman....... 3.8 8.7 2.1 3.1 1.6 2.2 1.0 1.8 * 1.5
Dell USA L.P............ -- -- -- -- -- -- -- -- 20.4 8.9
Paul A. Tatro........... 3.0 7.0 13.8 20.8 10.7 15.0 3.8 11.9 2.2 9.8
William Wrigley, Jr..... * * * * * * 5.8 1.8 3.5 1.5
</TABLE>
Stockholders Agreement
Under the stockholders agreement we entered into with the holders of our
series D and D-1 preferred stock, (1) we, (2) Messrs. Filipowski, Cullinane,
Humenansky, Freedman, Kennedy, Santer, Slowey and Tatro and affiliates of
Messrs. Filipowski, Humenansky, Freedman and Tatro, who hold all of our class B
common stock, and (3) the purchasers of our series D and D-1 preferred stock,
who, collectively, hold 71.7% of the voting power of our capital stock, have
agreed take all necessary actions, so that:
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. each of the following purchasers of our series D and D-1 preferred stock
can designate one member of our Board of Directors: (1) CBW/SK divine
Investments, (2) First Chicago Investment Corporation and Cross Creek
Capital Partners X, LLC, (3) Frontenac VII Limited Partnership and
Frontenac Masters VII Limited Partnership, which we together refer to as
Frontenac, and (4) Microsoft Corporation has the right to designate one
member of our Board of Directors; and
. Dell USA L.P., which also purchased our series D preferred stock, can
designate two members of our Board of Directors.
Additionally, we have agreed to take all necessary actions so that one of
the directors designated by each of Frontenac and Dell is designated as a
member of our executive committee. However, none of CBW/SK divine Investments,
First Chicago Equity Capital, Frontenac, Microsoft or Dell will have any of
these rights if it does not continue to own at least 25% of the capital stock
originally purchased by it. The entities hold the number of shares and have
designated the members of our Board of Directors shown across from their names
below.
<TABLE>
<CAPTION>
Shares of class A Designated
Investor common stock board members
-------- ----------------- ---------------------------------
<S> <C> <C>
CBW/SK divine
Investments............ (1)
Dell.................... Alex C. Smith, Thomas J. Meredith
First Chicago Equity
Capital................ Eric C. Larson
Frontenac............... James E. Cowie
Microsoft............... Michael E. Leitner
</TABLE>
- ---------------------
(1) CBW/SK divine Investments has the right to designate one member to our
Board of Directors, but has not currently done so.
Under this stockholders agreement, Mr. Filipowski has agreed that, for a
period of one year from the consummation of this offering, he will not transfer
more than 10% of the capital stock that he owns, other than to family members,
family trusts, family-owned corporations or partnerships or his estate, without
first giving notice to the purchasers of our series D and D-1 preferred stock
and giving these parties the right to participate pro rata in the sale.
Registration Rights
At any time after six months following the completion of this offering, the
purchasers of our series D and D-1 preferred stock, including CBW/SK divine
Investments, Dell, First Chicago Equity Capital, Frontenac and Microsoft, who
will hold a total of 157,600,000 shares of our class A common stock after this
offering, will be entitled to demand registration rights, allowing them to
require us to file a registration statement covering all or part of their
shares for registration under the Securities Act, subject to limitations. We
are required to pay the expenses of no more than two demand registrations on
Form S-1 and unlimited demand registrations on Form S-3 for these holders. In
addition, at any time after 12 months following the consummation of this
offering, the purchaser of our series E preferred stock, CMGI, which will hold
a total of 21,445,254 shares of our class A common stock, will be entitled to
unlimited demand registrations on Form S-3 for which we will be required to pay
the expenses. In the event that a registration statement filed pursuant to
these demand registration rights is an underwritten offering, and the managing
underwriter advises us that the number of shares to be included in the offering
exceeds the number of shares which can be sold in an orderly manner, we will
include shares in the offering as follows: first, shares of stockholders
requesting the demand registration and other shares with equivalent rights, on
a pro rata basis, and second, other securities requested to be included. These
stockholders have agreed not to sell their shares or exercise any demand
registration rights for the period ending 180 days after the date of this
prospectus.
In addition, holders of 413,285,834 shares of our class A common stock,
including 56,080,000 shares of our class A common stock issuable upon
conversion of our class B common stock, will be entitled to request that we
register their shares under the Securities Act for resale to the public in the
event that we initiate a
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public offering. We propose to register any shares of class A common stock
under the Securities Act either for our account or for the account of our other
security holders, the holders of shares having piggyback rights are entitled to
receive notice of the registration and are entitled to include their shares in
the registration.
These piggyback registration rights are subject to limitations, including
the right of the underwriters of an offering to limit the number of shares
included in a registration. If the number of shares is so limited, we will
include shares with piggyback registration rights in the registration statement
in accordance with their priority level. If the registration is not an
underwritten demand registration under an agreement with us, first, shares of
class A common stock that we propose to sell will be included in the
registration, and second, shares of our class A common stock issued upon
conversion of our series D and D-1 and series E preferred stock and other
shares with equivalent rights will be included. If the registration is an
underwritten demand registration under an agreement with us, first, the shares
for which the registration has been requested and shares of class A common
stock issued upon conversion of our series D and D-1 and series E preferred
stock and other shares with equivalent rights will be included in the
registration, and, second, shares of class A common stock that we propose to
sell will be included. In either case, third, shares of our class A common
stock issued directly or indirectly upon conversion of our series C senior
preferred stock, series B preferred stock and series A preferred stock will be
included in the registration, pro rata, on the basis of shares which are owned
by these security holders and requested to be included. Finally, shares of our
class A common stock which were sold by us in August 1999 or were issued upon
conversion of class B common stock sold by us in August 1999 will be included
in the registration, but only if all other shares with piggyback registration
rights requested to be included are permitted to be included.
We are generally required to bear all of the expenses of all these
registrations, except underwriting discounts, selling commissions, applicable
transfer taxes and fees of counsel retained by any stockholder. If we register
shares of class A common stock held by security holders with registration
rights, these holders would be able to publicly sell those shares immediately
upon effectiveness of the registration statement and as long as the
registration statement remains effective.
Partner Company Transactions
. Mr. Filipowski, our Chairman and Chief Executive Officer, has personally
loaned iGive.com $800,000, under notes which are convertible into
iGive.com's stock. Mr. Filipowski beneficially owns approximately 14.2%
of iGive.com. On February 11, 2000, we acquired approximately 31.1% of
iGive.com for $4,000,000.
. Mr. Filipowski and Paul L. Humenasky, our Executive Vice President and a
director, are directors of OpinionWare and beneficially own a total of
approximately 12.6% of the equity of OpinionWare. In addition, Mr.
Filipowski's son beneficially owns less than 1% of its equity. On
December 8, 1999, we acquired approximately 44.1% of OpinionWare for
$2,000,000.
. Mr. Fulgoni is the founder and chairman of comScore and beneficially
owns approximately 20.7% of comScore. Mr. Garrick beneficially owns
approximately 1.2% of comScore. On October 29, 1999 we acquired
approximately 0.9% of comScore for $200,208. Mr. Fulgoni became a member
of our Board of Directors before this transaction.
. Steven Kaplan and Mohanbir Sawhney, two of our directors, are members of
CapacityWeb.com's Advisory Board. Michigan & Oak, LLC, a venture
advisory firm of which Messrs. Kaplan and Sawhney are principals,
beneficially owns approximately 3.8% of CapacityWeb.com. On February 11,
2000, we acquired approximately 44.5% of CapacityWeb.com for $4,500,000.
In addition, Michigan & Oak is entitled to a finders fee of
approximately $225,000, 5% of the amount paid by us for our interest in
CapacityWeb.com. Michigan & Oak will be entitled to similar fees on
other transactions which it brings to us. Messrs. Kaplan and Sawhney
became members of our Board of Directors before this transaction.
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. Timothy Stojka, one of our directors, is the Chief Executive Officer of
Commerx and beneficially owns approximately 17.1% of Commerx. On
November 19, 1999, we acquired approximately 1.1% of Commerx for
$2,500,000 . Mr. Stojka became a member of our Board of Directors after
this transaction.
. Robert Jay Zollars, one of our directors, is the Chairman, President and
Chief Executive Officer of Neoforma.com and beneficially owns
approximately 9.3% of Neoforma.com. On October 14, 1999, we acquired
approximately 2.1% of Neoforma.com. As a result of Neoforma.com's
initial public offering, our interest has been reduced to approximately
1.9%. Mr. Filipowski is a director of Neoforma and beneficially owns
less than 1% its equity. Mr. Zollars became a member of our Board of
Directors before this transaction.
Real Estate Transactions
Mr. Filipowski is a manager of Blackhawk, LLC. He also owns 3% of Blackhawk
and has the right to acquire an additional 30.3% of Blackhawk. Since July 1999,
we have paid, and continue to pay, Blackhawk $50,000 per month for an option to
lease a 300,000 square foot facility in Chicago expected to open the second
half of 2000, which, along with the underlying property, is owned by Blackhawk.
We expect to enter into a long-term lease with Blackhawk for this facility by
February 28, 2000. If we do not purchase or enter into a lease for the property
by that date, we are responsible for a $200,000 building material loss fee, a
$100,000 design supervision fee and all design and reengineering costs incurred
in the renovation of the facility. We believe that our lease with Blackhawk
will be on terms no less favorable to us than those terms that would be
available in an arm's-length transaction with an unaffiliated third party.
Mr. Filipowski owns 33.3% and is a manager of Habitat-Kahney, LLC. On
January 7, 2000, we entered into a ten-year lease with Habitat-Kahney for our
new corporate headquarters in Chicago, Illinois. Our annual rent under this
lease is $730,080, with an annual 2% increase, and we are responsible for our
share of the building's utilities and operating expenses. We believe that our
lease with Habitat-Kahney is on terms no less favorable to us than those terms
that would be available in an arm's-length transaction with an unaffiliated
third party.
Venture Capital Transactions
Effective August 4, 1999, Platinum Venture Partners, Inc. withdrew, and we
were substituted, as the general partner of each of Platinum Venture Partners I
L.P. and Platinum Venture Partners II L.P. Messrs. Filipowski, Humenansky and
Cullinane are principal shareholders and officers of Platinum Venture Partners,
Inc. Mr. Filipowski beneficially owns approximately 22.5%, and each of Messrs.
Cullinane and Humenansky beneficially owns less than 5%, of the equity of
Platinum Venture Partners, Inc. Platinum Venture Partners, Inc. beneficially
owns a 2.67% limited partnership interest in Platinum Venture Partners I and a
1.0% limited partnership interest in Platinum Venture Partners II.
Additionally, each of Messrs. Filipowski, Humenansky, Cullinane, Cowie, Danis,
Frigo, Fulgoni, Jacobs and Levy owns a limited partnership interest in Platinum
Venture Partners I and/or Platinum Venture Partners II.
As general partner of Platinum Venture Partners I, we receive an annual
management fee, payable in advance in quarterly installments of 2 1/2% of the
fair value of the partnership, adjusted annually by the increase in a consumer
price index during the preceding calendar year. As general partner of Platinum
Venture Partners II, we receive an annual management fee, payable in advance in
quarterly installments, of 2 1/2% of the aggregate partner commitments,
adjusted annually by the percentage increase in a consumer price index during
the preceding calendar year. We received a total of $275,000 from Platinum
Venture Partners I and II on October 1, 1999 for fourth quarter 1999 management
fees and $193,051 on January 1, 2000 for first quarter 2000 management fees. We
expect to receive a total of approximately $815,000 in additional management
fees from Platinum Venture Partners I and II for the remainder of 2000.
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Other Transactions
Robert Bernard, one of our directors, is the Chairman and Chief Executive
Officer of Whittman-Hart, Inc. On January 21, 2000, we entered into a contract
under which Whittman-Hart provides us with information technology consulting
services when we need them. We owe Whittman-Hart approximately $900,000 for
consulting services through January 31, 2000. We expect to incur approximately
$900,000 of additional expenses for Whittman-Hart consulting services through
July 2000.
Mr. Danis is the President and Chief Executive Officer of Aon Risk Services
of Missouri. Ms. Pahl is the President and Chief Executive Officer of Aon
Enterprise Insurance Services, Inc., an affiliate of Aon Risk Services of
Missouri. We owe Aon Risk Services of Missouri approximately $250,000 through
February 14, 2000 as broker with respect to our directors and officers
liability insurance.
Arthur Hahn, one of our directors, is a partner in the law firm of Katten
Muchin Zavis, our legal counsel. Katten Muchin Zavis has provided us with legal
services since our inception . The cost of these services through December 31,
1999 was approximately $2,400,000. We paid $400,000 of this total billed amount
by issuing 400,000 shares of our series C senior preferred stock to Katten
Muchin Zavis. Additionally, partners in Katten Muchin Zavis, including Mr.
Hahn, purchased a total of 2,360,000 shares of our series C preferred stock
before this offering.
Richard Kiphart, one of our directors, is a principal of William Blair &
Company, one of the underwriters of this offering. William Blair is also
receiving a fee as agent of the Big Shoulders interTech Fund in connection with
its capital raising efforts. This fee will be equal to 1.75% of the total
capital raised for the fund by William Blair.
Michael Leitner, one of our directors, is a Director of Corporate
Development of Microsoft Corporation. Microsoft purchased 25,000,000 shares of
our series D preferred stock on January 19, 2000 for $25,000,000. On January
28, 2000, we entered into an Alliance Agreement with Microsoft Corporation.
Under this agreement, we have agreed to incorporate Microsoft products,
technologies and services into our systems and the web application hosting
services that we provide to our partner companies. In connection with this
agreement, we are obligated to purchase approximately $15,000,000 of Microsoft
software and services over the next four years. This agreement allows us and
our partner companies to be preferred providers of outsourced Microsoft
software solutions and allows Microsoft to be our preferred platform. In
connection with the agreement, we have committed to use commercially reasonable
efforts to encourage our partner companies to migrate to Microsoft software
solutions.We have also agreed with Microsoft to create a digital feedback loop
between us to create joint intelligence about the marketplace, Microsoft
software, new product development and customer satisfaction. We have developed
a joint board with Microsoft that will meet quarterly to evaluate the digital
feedback loop and discuss cooperation in additional areas. Further, under with
this agreement, we have agreed to use commercially reasonable efforts to
develop a Seattle-based Internet incubator habitat based on our current
business model by April 2001.
Alex Smith, one of our directors, is the Vice-President of Dell Ventures.
Dell Ventures is a Venture Capital division of Dell USA L.P. , a subsidiary of
Dell Computer Corporation. Thomas J. Meredith, another of our directors, is the
Senior Vice President and Chief Financial Officer of Dell Computer Corporation.
Dell USA purchased 100,000,000 shares of our series D preferred stock on
January 19, 2000 for $100,000,000. We have paid approximately $1,200,000 to
Dell Computer Corporation for computers and servers through December 31, 1999.
We expect similar purchases to continue as we grow.
James C. Tyree, one of our directors, is the Chairman and Chief Executive
Officer of Mesirow Financial. An affiliate of Mesirow Financial has committed
to invest $4,000,000 in the Big Shoulders interTech Fund.
On December 7, 1999, we entered into a Business Opportunities Agreement with
CBW/SK divine Investments, Dell USA, First Chicago Equity Capital, Frontenac
Mesirow Capital Partners VII, L.P. and Microsoft, each of which purchased
shares of our Series D or D-1 preferred stock in our Series D financing
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described above and each of which is entitled to at least one representative on
our Board of Directors. Under this agreement, neither these stockholders nor
their director representatives will have any obligation to us, our stockholders
or any other party to present business opportunities to us before presenting
them to other entities, other than opportunities that are presented to
directors solely in, and as a direct result of, their capacity as our
directors.
Company Policy
We intend that any future transactions between us and our officers,
directors and affiliates will be on terms no less favorable to us than can be
obtained on an arm's length basis from unaffiliated third parties. Further, any
of these transactions which we do not consider to be in the ordinary course of
business will be approved by the conflicts committee or the acquisition
committee of our Board of Directors. Each of the transactions described under
"--Partner Company Transactions" was approved or ratified by our acquisition
committee or conflicts committee. Members of our acquisition committee and
conflicts committee recuse themselves from votes on matters in which they have
an interest.
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PRINCIPAL STOCKHOLDERS
The following table contains information regarding the beneficial ownership
of our common stock as of February 14, 2000 and as adjusted to reflect the sale
of the shares of class A common stock in this offering, assuming the conversion
into common stock of all of our outstanding preferred stock, by:
. each person or group of affiliated persons known by us to beneficially
own more than 5% of the outstanding shares of either our class A or
class B common stock;
. each of our directors and executive officers; and
. all of our directors and executive officers as a group.
Unless otherwise indicated below, the persons in the table have sole voting
and investment power with respect to all shares shown as beneficially owned by
them. Beneficial ownership is determined in accordance with the rules of the
SEC. The number of shares and percent of class beneficially owned by a person
and the percentage ownership of that person include all shares of common stock
subject to options held by that person, because all of our options are
immediately exercisable in full. The percent of total voting power held by a
person is based on the percent of each class of our common stock beneficially
owned by that person. Where the percent of class or percent of total voting
power is represented by an asterisk (*), the person owns less than one percent
beneficial ownership interest. Unless we indicate otherwise, the address of
each person who beneficially owns 5% or more of the outstanding shares of our
common stock is c/o divine interVentures, inc., 4225 Naperville Road, Suite
400, Lisle, Illinois 60532.
<TABLE>
<CAPTION>
Class A Class B Percent of Total
Common Stock Common Stock Voting Power
------------------ ------------------ -----------------
Percent Percent Before After
Number of of Number of of the the
Name of Beneficial Owner Shares Class Shares Class Offering Offering
------------------------ --------- ------- ---------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Andrew J. Filipowski(1). 1,300,000 * 36,360,000 64.8% 38.5% 36.3%
Michael P. Cullinane.... 500,000 * 4,400,000 7.8 4.7 4.4
Scott A. Hartkopf....... 1,960,000 * -- -- * *
Paul L. Humenansky...... 800,000 * 3,200,000 5.7 3.5 3.3
Larry S. Freedman(2).... 250,000 * 1,320,000 2.4 1.4 1.3
Robert Bernard(3)....... 240,000 * -- -- * *
Michael J. Birck(4)..... 240,000 * -- -- * *
James E. Cowie.......... 240,000 * -- -- * *
Andrea Lee Cunningham... 240,000 * -- -- * *
Thomas P. Danis(3)(5)... 640,000 * -- -- * *
Dell USA L.P.(6)........ 80,000,000 18.3 -- -- 8.5 8.1
Michael H. Forster...... 240,000 * -- -- * *
Arthur P. Frigo(4)...... 4,000,000 * -- -- * *
Gian M. Fulgoni......... 1,120,000 * -- -- * *
George Garrick.......... 320,000 * -- -- * *
Craig D. Goldman........ 400,000 * -- -- * *
Arthur W. Hahn(4)....... 528,000 * -- -- * *
David D. Hiller......... -- -- -- -- -- --
Jeffrey D. Jacobs(4).... 1,040,000 * -- -- * *
Gregory K. Jones........ 240,000 * -- -- * *
Steven Neil Kaplan(3)... 240,000 * -- -- * *
Richard P. Kiphart...... 1,040,000 * -- -- * *
Ronald D. Lachman(3).... 288,000 * -- -- * *
Eric C. Larson(3)....... 240,000 * -- -- * *
William A. Lederer...... 240,000 * -- -- * *
Michael Leitner......... 320,000 * -- -- * *
Lawrence F. Levy........ 2,432,800 * -- -- * *
</TABLE>
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<TABLE>
<CAPTION>
Class A Class B Percent of Total
Common Stock Common Stock Voting Power
------------------ ------------------ -----------------
Percent Percent Before After
Number of of Number of of the the
Name of Beneficial Owner Shares Class Shares Class Offering Offering
------------------------ --------- ------- ---------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Thomas J. Meredith...... -- -- -- -- -- --
Teresa L. Pahl.......... 320,000 * -- -- * *
John Rau................ 1,040,000 * -- -- * *
Bruce V. Rauner(3)...... 680,000 * -- -- * *
Andre Rice.............. 240,000 * -- -- * *
Mohanbir S. Sawhney(3).. 240,000 * -- -- * *
Alex C. Smith(3)........ 240,000 * -- -- * *
Tim J. Stojka(3)(7)..... 1,040,000 * -- -- * *
Aleksander Szlam........ 1,040,000 * -- -- * *
Paul A. Tatro(9)........ -- * 8,800,000 15.7 9.3 8.8
Mark A. Tebbe........... 240,000 * -- -- * *
James C. Tyree(3)....... 240,000 * -- -- * *
William Wrigley,
Jr.(4)(11)............. 13,840,000 3.2 -- -- 1.5 1.4
Robert Jay Zollars(4)... 240,000 * -- -- * *
Our executive officers
and directors as a
group (39 persons)(11). 38,498,800 8.8 45,280,000 80.7 51.8 48.9
</TABLE>
- ---------------------
(1) The Shares of class A common stock include 200,000 shares held by a
corporation controlled by Mr. Filipowski, and the shares of class B common
stock include 256,000 shares held in trust for the benefit of Mr.
Filipowski's children.
(2) The class B common stock held by Mr. Freedman includes 320,000 shares held
by a partnership controlled by Mr. Freedman.
(3) Includes 240,000 shares of class A common stock issuable upon exercise of
currently exercisable stock options.
(4) Includes 40,000 shares of class A common stock issuable upon exercise of
currently exercisable stock options.
(5) Includes 400,000 shares held by a partnership controlled by Mr. Danis and
his two brothers.
(6) The address of Dell USA L.P. is 1 Dell Way, Round Rock, TX 78682.
(7) Includes 800,000 shares held by a partnership controlled by Mr. Stojka and
his three brothers.
(8) Includes 800,000 shares held by a partnership controlled by Mr. Szlam.
(9) Includes 640,000 shares of class B common stock held in trust for the
benefit of Mr. Tatro's children.
(10) Includes 13,600,000 held in trust for the benefit of Mr. Wrigley.
(11) Includes 2,640,000 shares of class A common stock issuable upon exercise
of currently exercisable stock options.
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DESCRIPTION OF CAPITAL STOCK
General
The following summary describes the material terms of our capital stock. It
also summarizes material provisions of our Certificate of Incorporation, as it
will be amended and restated by our Third Amended and Restated Certificate of
Incorporation, and our bylaws, as amended and restated. We will file our Third
Amended and Restated Certificate of Incorporation with the Secretary of State
of Delaware before the completion of this offering. We will file a form of our
Third Amended and Restated Certificate of Incorporation and a copy of our
Amended and Restated By-laws as exhibits to the registration statement of which
this prospectus is a part. See "Where You Can Find More Information."
Our certificate of incorporation authorizes us to issue 870,000,000 shares
of capital stock, of which 720,000,000 shares will be designated class A common
stock, $0.001 par value per share, 80,000,000 shares will be designated class B
common stock, $0.001 par value per share and 700,000,000 shares will be
designated preferred stock, $0.001 par value per share. Upon completion of this
offering, our outstanding convertible preferred stock will convert into
344,236,042 shares of our class A common stock and 46,280,000 shares of our
class B common stock, and we will have no outstanding shares of our preferred
stock. Of our authorized class A and class B common stock, upon completion of
this offering:
. 437,658,254 shares of our class A common stock will be issued and
outstanding;
. 56,080,000 shares of our class B common stock will be issued and
outstanding;
. 3,509,900 shares of our class A common stock will be reserved for
issuance upon exercise of currently outstanding options under our 1999
Stock Incentive Plan;
. 28,445,680 shares of our class A common stock will be reserved for
future awards under our 1999 Stock Incentive Plan; and
. 20,000,000 shares of our class A common stock will be reserved for
issuance under our 2000 Employee Stock Purchase Plan.
Additionally, the number of shares reserved for grant under our stock incentive
plan automatically increases on January 1 of each year, beginning on January 1,
2001, by a number of shares of class A common stock equal to the lesser of (1)
10% of the total number of shares of our class A common stock then outstanding,
assuming for that purpose the conversion into class A common stock of all then
outstanding convertible securities, or (2) 240,000,000 shares.
Common Stock
We have two classes of common stock: class A common stock and class B common
stock. Except as set forth below, our class A common stock and class B common
stock have identical rights.
Voting
Holders of our class A common stock are entitled to one vote per share.
Holders of class B common stock are entitled to ten votes per share. All
actions submitted to a vote of stockholders will be voted on by holders of
class A common stock and class B common stock voting together as a single
class, except as discussed below or provided by law.
Conversion
Our class A common stock has no conversion rights. Holders of our class B
common stock may convert their class B common stock into class A common stock,
in whole or in part, at any time and from time to time on a share-for-share
basis. If any shares of class B common stock are beneficially owned by any
person other than Mr. Filipowski, Mr. Humenansky, Mr. Cullinane, Mr. Freedman,
Mr. Slowey or Mr. Tatro, or their family members, descendants or trusts for
their benefit, entities or organizations controlled by these persons or
foundations or charitable organizations established by these persons, these
shares of class B common stock will automatically convert into an equal number
of shares of class A common stock. If at any time the number of outstanding
shares of class B common stock, plus the number of shares of class B common
stock obtainable by
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conversion of other outstanding securities, represents less than 10% of the
total number of outstanding shares of both classes of common stock, then, at
that time, all outstanding shares of class B common stock will automatically
convert into an equal number of shares of class A common stock.
Dividends
Holders of class A common stock and class B common stock are entitled to
receive cash dividends equally on a per share basis if and when the dividends
are declared by our Board of Directors from legally available funds. We will
only be able to pay a dividend on our common stock when all accrued and unpaid
dividends on our preferred stock have been paid or declared and set apart for
payment. In the case of any dividend paid in common stock, holders of class A
common stock are entitled to receive the same percentage dividend payable in
shares of class A common stock that the holders of class B common stock receive
payable in shares of class B common stock.
Liquidation
After satisfaction of the liquidation preferences of all securities ranking
senior to the class A and class B common stock, the holders of class A common
stock and class B common stock will share with each other on an equal basis as
a single class in any net assets available for distribution to holders of
shares of common stock upon liquidation.
Other Terms
We will not be able to reclassify, subdivide or combine shares of one class
of common stock without at the same time proportionately reclassifying,
subdividing or combining shares of the other class of common stock.
In any merger, consolidation or business combination, the consideration to
be received per share by holders of either class A common stock or class B
common stock must be identical to that received by holders of the other class
of common stock, except that in any transaction in which shares of capital
stock are distributed, the shares may differ as to voting rights only to the
extent that voting rights currently differ between class A common stock and
class B common stock.
The rights, preferences and privileges of holders of class A common stock
and class B common stock will be subject to, and may be adversely affected by,
the rights of the holders of shares of any series of preferred stock which we
may designate and issue in the future. Holders of class A common stock and
class B common stock have no preemptive, subscription, redemption or conversion
rights, except as described above. The outstanding shares of class A common
stock and class B common stock are, and the shares of class A common stock
offered by us in this offering will be, when issued and paid for, fully paid
and nonassessable.
Preferred Stock
Under the terms of our certificate of incorporation, our Board of Directors
is authorized to designate and issue shares of preferred stock in one or more
series without stockholder approval. The Board of Directors has discretion to
determine the rights, preferences, privileges and restrictions, including
voting rights, dividend rights, conversion rights, redemption privileges and
liquidation preferences, of each series of preferred stock.
The purpose of authorizing our Board of Directors to issue preferred stock
and determine its rights and preferences is to eliminate delays associated with
a stockholder vote on specific issuances, providing desirable flexibility in
connection with possible acquisitions and other corporate purposes. Our
issuance of preferred stock could make it more difficult for a third party to
acquire, or could discourage a third party from attempting to acquire, a
majority of our outstanding voting stock. We have no present plans to issue any
shares of preferred stock.
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Delaware Anti-Takeover Law and Certain Charter and Bylaw Provisions
Section 203 of Delaware General Corporate Law
We are subject to the provisions of Section 203 of the General Corporation
Law of Delaware. In general, the statute prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved by our Board of Directors and/or our stockholders in a
prescribed manner. A "business combination" includes a merger, asset sale or
other transaction resulting in a financial benefit to the interested
stockholder. Subject to certain exceptions, an "interested stockholder" is a
person who, together with affiliates and associates, owns, or within three
years did own, 15% or more of the corporation's voting stock.
Classified Board of Directors
Our certificate of incorporation and bylaws provide for the division of our
Board of Directors into three classes as nearly equal in size as possible with
staggered three-year terms. Directors may only be removed for cause by the
holders of at least 66 2/3% of the voting power of our outstanding capital
stock. Any vacancy on the Board of Directors, including a vacancy resulting
from an enlargement of the Board of Directors, may only be filled by vote of a
majority of the directors then in office. The classification of the Board of
Directors and the limitation on filling of vacancies could make it more
difficult for a third party to acquire, or discourage a third party from
attempting to acquire, control of us. In addition, our classified Board of
Directors could delay attempts by stockholders who do not approve of our
policies or procedures to elect a majority of our Board of Directors.
No Stockholder Action by Written Consent; Special Meetings
Our certificate of incorporation provides that our stockholders may not take
action by written consent instead of a meeting. Our bylaws provide that any
action required or permitted to be taken by our stockholders at an annual
meeting or special meeting of stockholders may only be taken if it is properly
brought before such meeting and that special meetings of our stockholders may
only be called by our Chairman of the Board of Directors or President or a
majority of our Board of Directors. In order for any matter to be considered
properly brought before a meeting, a stockholder must comply with certain
requirements regarding advance notice and provide certain information to us.
These provisions could have the effect of delaying until the next stockholders'
meeting stockholder actions which are favored by the holders of a majority of
our outstanding voting securities. These provisions could also discourage a
third party from making a tender offer for our common stock, because even if it
acquired a majority of our outstanding voting securities, it would only be able
to take action as a stockholder, such as electing new directors or approving a
merger, at a duly called stockholders' meeting and not by written consent.
Transfer Agent and Registrar
The transfer agent and registrar for the class A common stock is Harris
Trust and Savings Bank.
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SHARES ELIGIBLE FOR FUTURE SALE
When we complete the offering, we will have 437,658,254 outstanding shares
of class A common stock and 56,080,000 outstanding shares of class B common
stock convertible at any time into an equal number of shares of our class A
common stock. The 50,000,000 shares of our class A common stock sold in this
offering will be freely transferable, unless they are purchased by our
affiliates, as that term is defined in Rule 144 under the Securities Act. The
remaining total of 443,738,254 outstanding shares of our common stock will be
restricted, which means they were originally issued in offerings, or upon
conversion of convertible preferred stock issued in offerings, that were not
subject to a registration statement filed with the SEC. These 443,738,254
restricted shares may be resold only through registration under the Securities
Act or under an available exemption from registration, including the exemption
provided by Rule 144, and all of these restricted shares will be subject to the
180-day lock-up agreements described below.
In addition, upon completion of this offering, options to purchase 3,590,900
shares of class A common stock will be issued and outstanding, all of which
will be exercisable in full.
Lock-Up Agreements
Our directors, executive officers and all of our stockholders and option
holders have agreed with the underwriters that, for a period of 180 days from
the date of this prospectus, they will not, without the prior written consent
of Credit Suisse First Boston Corporation, directly or indirectly offer, sell,
transfer or dispose of any shares of our common stock, or any securities
convertible into or exercisable for shares of our common stock, or enter into a
transaction that would have the same effect, or publicly announce an intention
to effect any of these transactions. As a result of these contractual
restrictions, the shares subject to these lock-up agreements cannot be sold
until the agreements expire or unless prior written consent is received from
Credit Suisse First Boston Corporation, even if they are earlier eligible for
sale under Rule 144, 144(k) or 701 of the Securities Act discussed below. Any
early waiver of the lock-up agreements by the underwriters, which, if granted,
could permit sales of a substantial number of shares and could adversely affect
the trading price of our shares, may not be accompanied by an advance public
announcement by us. Credit Suisse First Boston Corporation may release all of a
portion of the shares subject to these lock-up agreements at any time without
notice. For a more detailed description of these lock-up arrangements relating
to this offering, see "Underwriting."
Rule 144
In general, under Rule 144, beginning 90 days after the date of this
prospectus, a person, or persons whose shares are aggregated, including a
person who may be deemed our affiliate, who has beneficially owned restricted
shares of class A common stock for at least one year (including any period in
which the person owned securities convertible into these shares), would be
entitled to sell publicly within any three-month period a number of shares that
does not exceed the greater of:
. 1% of the number of shares of our class A common stock then outstanding,
which will equal approximately 4,377,000 shares immediately after this
offering; or
. the average weekly trading volume of our class A common stock on The
Nasdaq Stock Market's National Market during the four calendar weeks
before the filing of a notice on Form 144 relating to the sale.
Sales under Rule 144 are also subject to manner of sale provisions and notice
requirements and to the availability of current public information about us. In
June 2000, 8,000 restricted shares of our class A common stock, and, from
September 2000 through March 2001, 402,678,042 restricted shares of our class A
common stock, including the 56,080,000 shares of our class A common stock
issuable upon conversion of our class B common stock, will become eligible for
sale pursuant to Rule 144, subject to these volume and manner of sale
limitations and the lock-up agreements described above. These shares exclude
the shares which will be eligible
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for sale under Rule 701 under the Securities Act, as described below. We are
unable to estimate accurately the number of restricted shares that will
actually be sold under Rule 144 because this will depend in part on the market
price of our common stock, the personal circumstances of the sellers and other
factors.
Rule 144(k)
Under Rule 144(k), a person who is not deemed to have been our affiliate at
any time during the 90 days preceding a sale, and who has beneficially owned
for at least two years the shares proposed to be sold, including the holding
period of any prior owner other than an affiliate, would be entitled to sell
these shares under Rule 144(k) without complying with the manner of sale,
public information, volume limitation or notice provisions of Rule 144.
Rule 701
Beginning 90 days after the date of this prospectus, 26,360,000 shares of
our common stock sold by us in August 1999, and 14,874,420 shares of our class
A common stock issuable upon exercise of options granted by us before the
effective date of the registration statement of which this prospectus is a
part, will be eligible for sale in the public market through Rule 701 under the
Securities Act, subject to the underwriters' lock-up agreements discussed
above. Rule 701 covers shares issued before an initial public offering under
compensatory benefit plans and contracts. In general, Rule 701 permits resales
of these shares beginning 90 days after the issuer becomes subject to the
reporting requirements of the Securities Exchange Act in reliance upon Rule
144, but without compliance with the holding period requirements and other
restrictions contained in Rule 144.
Restrictions on Sales of Securities
Under a stockholders agreement, Mr. Filipowski has agreed that, for a period
of one year from the consummation of this offering, he will not sell more than
10% of the capital stock that he owns, other than to family members, family
trusts, family-owned corporations or partnerships or his estate, without first
giving notice to stockholders who acquired class A common stock upon the
conversion of our series D and D-1 preferred stock in connection with the
completion of this offering and giving such parties the right to participate
pro rata in the sale. The purchasers of our Series D and D-1 preferred stock
include CBW/SK divine Investments, Dell, First Chicago Equity Capital,
Frontenac and Microsoft.
Registration Rights
At any time after six months following the consummation of this offering,
the purchasers of our series D and D-1 preferred stock, who will hold a total
of 157,600,000 shares of our class A common stock after this offering, will be
entitled to demand registration rights, allowing them to require us to file a
registration statement covering all or part of their shares for registration
under the Securities Act, subject to limitations. We are required to pay the
expenses of no more than two demand registrations on Form S-1 and unlimited
demand registrations on Form S-3 for these holders. In addition, at any time
after 12 months following the consummation of this offering, the purchaser of
our series E preferred stock, CMGI, which will hold a total of 21,445,254
shares of our class A common stock will be entitled to unlimited demand
registrations on Form S-3 for which we will be required to pay the expenses. In
the event that a registration statement filed pursuant to these demand
registration rights is an underwritten offering, and the managing underwriter
advises us that the number of shares to be included in the offering exceeds the
number of shares which can be sold in an orderly manner, we will include shares
in the offering as follows: first, shares of stockholders requesting the demand
registration and other shares with equivalent rights, on a pro rata basis, and
second, other securities requested to be included. These holders have agreed
not to sell their shares or exercise any demand registration rights through the
period ending 180 days after the date of this prospectus.
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In addition, after the completion of this offering, the holders of a total
of 413,285,834 shares of our class A common stock, including 56,080,000 shares
issuable upon conversion of our class B common stock and 179,045,245 shares as
to which holders are entitled to demand registration rights as discussed above,
will be entitled to request us to register their shares under the Securities
Act for resale to the public in the event that we propose to register our class
A common stock for ourself or upon demand of other stockholders. These rights,
commonly referred to as piggyback registration rights, are subject to
limitations, including the right of the underwriters to limit the number of
shares included in such registration. The holders of shares having piggyback
rights are entitled to receive notice of the registration and are entitled to
include their shares in the registration. These holders have agreed not to sell
their shares or exercise any demand registration rights for the period ending
180 days after the date of this prospectus.
These piggyback registration rights are subject to limitations, including
the right of the underwriters of an offering to limit the number of shares
included in a registration. If the number of shares is so limited, we will
include shares with piggyback registration rights in the registration statement
in accordance with their priority level. If the registration is not an
underwritten demand registration under an agreement with us, first shares of
class A common stock that we propose to sell will be included in the
registration, and, second, shares of our class A common stock issued upon
conversion of our series D and D-1 and series E preferred stock will be
included. If the registration is an underwritten demand registration under an
agreement with us, first, the shares for whom the registration has been
requested and shares of class A common stock issued upon conversion of our
series D and D-1 and series E preferred stock and other shares with equivalent
rights will be included in the registration, and, second, shares of class A
common stock that we propose to sell will be included. In either case, third,
shares of our class A common stock issued upon conversion of our series C
senior preferred stock, series B preferred stock and series A preferred stock
will be included in the registration, pro rata, on the basis of shares which
are owned by such security holders and requested to be included. Finally,
shares of our class A common stock which were sold by us in August 1999, or
which were issued upon conversion of class B common stock sold in August 1999,
will be included in the registration, but only if all other shares with
piggyback registration rights requested to be included are permitted to be
included.
We are generally required to bear all of the expenses of all these
registrations, except underwriting discounts, selling commissions, applicable
transfer taxes and fees of counsel retained by any stockholder. If we register
shares of class A common stock held by security holders with registration
rights, those holders would be able to publicly sell those shares immediately
upon effectiveness of the registration statement and as long as the
registration statement remains effective.
Registration Statements on Form S-8
After the effective time of the registration statement of which this
prospectus is a part, we intend to file a registration statement on Form S-8
under the Securities Act to register:
. 3,509,900 shares of class A common stock issuable upon exercise of
outstanding options under our 1999 stock incentive plan;
. 28,445,680 shares of class A common stock reserved for future grants
under our 1999 stock incentive plan; and
. 20,000,000 shares of class A common stock issuable under our 2000
employee stock purchase plan.
We expect this registration statement to become effective upon filing with the
SEC. Shares covered by these registration statements will be freely tradeable,
subject to exercise of options and vesting provisions and, in the case of
affiliates only, to the restrictions of Rule 144, other than the holding period
requirement. These shares will also be subject to the underwriter's lock-up
agreements described above.
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UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
dated , we have agreed to sell to the underwriters named below,
for whom Credit Suisse First Boston Corporation, Bear, Stearns & Co. Inc.,
Donaldson, Lufkin & Jenrette Securities Corporation, FleetBoston Robertson
Stephens Inc., William Blair & Company, L.L.C. and DLJdirect Inc. are acting as
representatives, the number of shares of class A common stock set forth
opposite each name below:
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ----------
<S> <C>
Credit Suisse First Boston Corporation............................
Donaldson, Lufkin & Jenrette Securities Corporation...............
Bear, Stearns & Co. Inc...........................................
FleetBoston Robertson Stephens Inc................................
William Blair & Company, L.L.C....................................
DLJdirect Inc. ...................................................
----------
Total......................................................... 50,000,000
==========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of class A common stock in this offering if any are
purchased, other than those shares covered by the over-allotment option
described below. The underwriting agreement also provides that, if an
underwriter defaults, the purchase commitments of non-defaulting underwriters
may be increased or the offering of class A common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to 7,500,000 additional shares at the initial public offering
price less the underwriting discounts and commissions. The option may be
exercised only to cover any over-allotments of class A common stock.
The underwriters propose to offer the shares of class A common stock
initially at the public offering price on the cover page of this prospectus and
to selling group members at that price less a concession of $ per share.
The underwriters and selling group members may allow a discount of $
per share on sales to other broker/dealers. After the initial public offering,
the public offering price and concession and discount to broker/dealers may be
changed by the representatives.
Underwriting compensation will consist of the underwriting discount and
reimbursement of expenses described below. The underwriting discount consists
of the difference between the amount paid by the underwriters to purchase the
shares of class A common stock from us and the offering price of the shares to
the public. The underwriting discount is expected to represent approximately 7%
of the public offering price per share of class A common stock. The following
table summarizes the underwriting discount and estimated expenses of $ we
will pay.
<TABLE>
<CAPTION>
Per Share Total
------------------------- -------------------------
Without With Without With
Over- Over- Over- Over-
allotment allotment allotment allotment
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Underwriting discounts and
commissions paid by us... $ $ $ $
Expenses payable by us.... $ $ $ $
</TABLE>
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<PAGE>
The underwriters have informed us that they do not expect sales to accounts
over which any underwriter exercises discretionary authority to exceed 5% of
the shares of class A common stock being offered.
From September through November 1999, Peter Pond, Brian Webber, Chad Schultz
and Chris Baldwin, affiliates of Donaldson, Lufkin & Jenrette Securities
Corporation and DLJdirect Inc., purchased a total of 425,000 shares of our
series C preferred stock; Willblairco Associates, an affiliate of William Blair
& Company, purchased 1,000,000 shares of our series C preferred stock; and
Richard P. Kiphart, one of our directors and an affiliate of William Blair &
Company, purchased 1,000,000 shares of our series C preferred stock. Each of
these purchases was made on the same terms and conditions as the other
investors in the private placement, including price per share. Each share of
series C preferred stock will automatically convert into 0.8 shares of class A
common stock upon the closing of this offering.
We and each of our executive officers, directors, stockholders and option
holders have agreed not to offer, sell, pledge or otherwise dispose of,
directly or indirectly, or file with the SEC a registration statement under the
Securities Act of 1933 relating to, any shares of our common stock or
securities convertible into or exchangeable or exercisable for shares of our
common stock, or enter into a transaction that would have the same effect, or
publicly disclose the intention to make any such offer, sale, pledge,
disposition or filing, without the prior written consent of Credit Suisse First
Boston Corporation for a period of 180 days after the date of this prospectus
except, in our case, issuances pursuant to the exercise of employee stock
options outstanding on the date of this prospectus or pursuant to our stock
incentive plans.
An electronic prospectus is available on the web site maintained by
DLJdirect Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation and a representative of the underwriters. Other than the prospectus
in electronic format, the information on this web site relating to our offering
is not part of this prospectus and has not been approved or endorsed by us or
any underwriter, and should not be relied on by prospective investors.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be
required to make in that respect.
We have applied to list the shares of class A common stock on The Nasdaq
Stock Market's National Market under the symbol "DVIN."
Prior to this offering, there has been no public market for our class A
common stock. The initial public offering price will be determined by
negotiation between us and the representatives. The principal factors
considered in determining the public offering price will include:
. the information set forth in this prospectus and otherwise available to
the representatives;
. the history of, and the prospects for, us and the industry in which we
compete;
. an assessment of our management;
. the prospects for, and the timing of, our future earnings;
. the present state of our development and our current financial
condition;
. the general condition of the securities markets at the time of this
offering;
. the recent market prices of, and the demand for, publicly-traded common
stock of generally comparable companies; and
. market conditions for initial public offerings.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation
M under the Securities Exchange Act of 1934.
. Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
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. Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
. Syndicate covering transactions involve purchases of the class A common
stock in the open market after the distribution has been completed in
order to cover syndicate short positions.
. Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the class A common stock originally sold by
that syndicate member is purchased in a stabilizing transaction or in a
syndicate covering transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the class A common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on The Nasdaq Stock Market's National Market or otherwise and, if
commenced, may be discontinued at any time.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of the class A common stock for employees,
directors and certain other persons associated with us who have expressed an
interest in purchasing class A common stock in the offering. The number of
shares available for sale to the general public in this offering will be
reduced to the extent those persons purchase reserved shares. Any reserved
shares not so purchased will be offered by the underwriters to the general
public on the same terms as the other shares.
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NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the class A common stock in Canada is being made only on
a private placement basis exempt from the requirement that we prepare and file
a prospectus with the securities regulatory authority in each province where
trades of class A common stock are effected. Accordingly, any resale of the
class A common stock in Canada must be made in accordance with applicable
securities laws which will vary depending on the relevant jurisdiction, and
which may require resales to be made in accordance with available statutory
exemptions or pursuant to a discretionary exemption granted by the applicable
Canadian securities regulatory authority. Purchasers are advised to seek legal
advice prior to any resale of the class A common stock.
Representations of Purchasers
Each purchaser of class A common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that the purchaser is entitled under
applicable provincial securities law to purchase the class A common stock
without the benefit of a prospectus qualified under the securities laws; where
required by law, that such purchaser is purchasing as principal and not as
agent; and the purchaser has reviewed the text above under "Resale
Restrictions."
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or such persons. All or a substantial portion of the assets of
the issuer and such persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or such persons
in Canada or to enforce a judgment obtained in Canada courts against such
issuer or persons outside of Canada.
Notice to British Columbia Residents
A purchaser of class A common stock to whom the Securities Act (British
Columbia) applies is advised that such purchaser is required to file with the
British Columbia Securities Commission a report within ten days of the sales of
any class A common stock acquired by the purchaser pursuant to this offering.
Such report must be in the form attached to British Columbia Securities
Commission Blanker Order BOR #95/17, a copy of which may be obtained from us.
Only one such report must be filed in respect of class A common stock acquired
on the same date and under the same prospectus exemption.
Taxation and Eligibility for Investment
Canadian purchasers of class A common stock should consult their own legal
and tax advisors with respect to the tax consequences of an investment in the
class A common stock in their particular circumstances and with respect to the
eligibility of the class A common stock for investment by the purchaser under
relevant Canadian legislation.
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LEGAL MATTERS
Katten Muchin Zavis, Chicago, Illinois, will pass upon the validity of the
class A common stock offered in this offering for us. Arthur W. Hahn, a partner
in Katten Muchin Zavis is one of our directors. Mr. Hahn and several other
partners of Katten Muchin Zavis have purchased a total of 2,360,000 shares of
our series C preferred stock, which will convert into 1,888,000 shares of our
class A common stock upon completion of this offering. Based on the mid-point
of the estimated price range, $7.00, these shares will have a market price of
$13,216,000 upon completion of this offering. In addition, as consideration for
legal services, we issued 400,000 shares of our series C preferred stock, which
will convert into 320,000 shares of our class A common stock upon completion of
this offering. Based on the mid-point of the estimated price range for this
offering, $7.00, these shares will have a market price of $2,240,000 upon
completion of this offering. Shearman & Sterling, New York, New York, will pass
upon selected legal matters in connection with this offering for the
underwriters.
EXPERTS
The financial statements of divine interVentures, inc. as of December 31,
1999 and for the period from May 7, 1999 (date of inception) through December
31, 1999 have been included herein and in the registration statement in
reliance upon the report of KPMG LLP, independent certified public accountants,
appearing elsewhere herein, and upon authority of said firm as experts in
auditing and accounting.
The financial statements of Blueridge Technologies, Incorporated as of March
31, 1998 and 1999, and November 19, 1999 and for the years ended March 31, 1998
and 1999 and the period from April 1, 1999 through November 19, 1999 have been
included herein and in the registration statement in reliance upon the report
of KPMG LLP, independent certified public accountants, appearing elsewhere
herein, and upon authority of said firm as experts in auditing and accounting.
The financial statements of BeautyJungle.com, Inc. as of September 30, 1999
and for the period from May 11, 1999 (date of inception) through September 30,
1999 have been included herein and in the registration statement in reliance
upon the report of KPMG LLP, independent certified public accountants,
appearing elsewhere herein, and upon authority of said firm as experts in
auditing and accounting.
The financial statements of bid4real.com, inc. as of December 31, 1999 and
for the period from December 13, 1999 (date of inception) through December 31,
1999 have been included herein and in the registration statement in reliance
upon the report of KPMG LLP, independent certified public accountants,
appearing elsewhere herein, and upon authority of said firm as experts in
auditing and accounting.
The financial statements of Bid4Real.com LLC as of December 31, 1999 and for
the period from July 15, 1999 (date of inception) through December 31, 1999
have been included herein and in the registration statement in reliance upon
the report of KPMG LLP, independent certified public accountants, appearing
elsewhere herein, and upon authority of said firm as experts in auditing and
accounting.
The financial statements of BidBuyBuild, Inc. as of December 31, 1999 and
for the period from November 9, 1999 (date of inception) through December 31,
1999 have been included herein and in the registration statement in reliance
upon the report of Grant Thronton LLP, independent certified public
accountants, appearing elsewhere herein, and upon authority of said firm as
experts in auditing and accounting.
The financial statements of eFiltration.com, Inc. as of December 31, 1999
and for the period from September 7, 1999 (date of inception) through December
31, 1999 have been included herein and in the registration statement in
reliance upon the report of KPMG LLP, independent certified public accountants,
appearing elsewhere herein, and upon authority of said firm as experts in
auditing and accounting.
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The balance sheet of i-Fulfillment, Inc. as of June 30, 1999, and the
related statements of operations, stockholders' (deficit) equity and cash flows
for the period from October 6, 1998 (Inception) through June 30, 1999, included
in this S-1 Registration Statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included in reliance upon the authority of said firm as
experts in giving said report.
The financial statements of iGive.com, inc. as of December 31, 1997 and 1998
and for the years then ended have been included herein and in the registration
statement in reliance upon the report of KPMG LLP, independent certified public
accountants, appearing elsewhere herein, and upon authority of said firm as
experts in auditing and accounting.
The financial statements of i-Street, Inc. as of December 31, 1998 and
September 30, 1999 and for the period from September 15, 1998 (date of
inception) through December 31, 1998 and for the nine months ended September
30, 1999 have been included herein and in the registration statement in
reliance upon the report of KPMG LLP, independent certified public accountants,
appearing elsewhere herein, and upon authority of said firm as experts in
auditing and accounting.
The financial statements of LiveOnTheNet.com, Inc. as of January 3, 1998 and
January 2, 1999 and for the years then ended included in this registration
statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing.
The financial statements of Martin Partners, L.L.C. as of December 31, 1998
and 1999 and for the years then ended have been included herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon authority of
said firm as experts in auditing and accounting.
The financial statements of Mercantec, Inc. as of December 31, 1998 and 1999
and for the years then ended have been included herein and in the registration
statement in reliance upon the report of KPMG LLP, independent certified public
accountants, appearing elsewhere herein, and upon authority of said firm as
experts in auditing and accounting.
The financial statements of OpinionWare.com, Inc. as of September 30, 1999
and for the period from April 1, 1999 (date of inception) through September 30,
1999 have been included herein and in the registration statement in reliance
upon the report of KPMG LLP, independent certified public accountants,
appearing elsewhere herein, and upon authority of said firm as experts in
auditing and accounting.
The financial statements of OUTTASK.COM, Inc. as of September 30, 1999 and
for the period from April 6, 1999 (date of inception) through September 30,
1999 have been included herein and in the registration statement in reliance
upon the report of KPMG LLP, independent certified public accountants,
appearing elsewhere herein, and upon authority of said firm as experts in
auditing and accounting.
The financial statements of Perceptual Robotics, Inc. as of December 31,
1998 and 1999 and for the years then ended have been included herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon authority of
said firm as experts in auditing and accounting.
The financial statements of PocketCard Inc. as of December 31, 1998 and
September 30, 1999 and for the period from September 3, 1998 (date of
inception) through December 31, 1998 and for the nine months ended September
30, 1999 have been included herein and in the registration statement in
reliance upon the report of KPMG LLP, independent certified public accountants,
appearing elsewhere herein, and upon authority of said firm as experts in
auditing and accounting.
The financial statements of Whiplash, Inc. as of December 31, 1997 and 1998
and for the years then ended have been included herein and in the registration
statement in reliance upon the report of KPMG LLP, independent certified public
accountants, appearing elsewhere herein, and upon authority of said firm as
experts in auditing and accounting.
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WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 under the Securities Act
with the SEC in connection with this offering. This prospectus is part of the
registration statement and does not contain all of the information contained in
the registration statement and all of the exhibits filed with the registration
statement. For further information about us and our class A common stock,
please see the registration statement and the exhibits filed with the
registration statement. Summaries in this prospectus of the contents of any
agreement or other document filed as an exhibit to this registration statement
are not necessarily complete. In each instance, please refer to the copy of the
agreement or other document filed as an exhibit to the registration statement.
After we complete this offering, we will be required to file annual,
quarterly and current reports, proxy statements and other information with the
SEC. You may read any document we file with the SEC, including the registration
statement and the exhibits filed with the registration statement, without
charge, at the following SEC public reference rooms:
450 Fifth Street, N.W. Seven World Trade Center Citicorp Center
Judiciary Plaza Suite 1300 500 West Madison Street
Room 1024 New York, New York 10048 Suite 1400
Washington, D.C. 20549 Chicago, Illinois 60661
You may copy all or any part of our SEC filings from these offices upon
payment of the fees charged by the SEC. You may obtain information on the
operation of the public reference room in Washington, D.C. by calling the SEC
at 1-800-SEC-0330.
Our SEC filings, including the registration statement and the exhibits filed
with the registration statement, are available from the SEC's web site at
http://www.sec.gov, which contains reports, proxy and information statements
and other information regarding issuers that file electronically with the SEC.
100
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
DIVINE INTERVENTURES, INC.
Independent Auditors' Report............................................. F-4
Balance Sheet............................................................ F-5
Statement of Operations.................................................. F-6
Statement of Stockholders' Equity........................................ F-7
Statement of Cash Flows.................................................. F-8
Notes to Financial Statements............................................ F-9
DIVINE INTERVENTURES, INC. UNAUDITED PRO FORMA INFORMATION
Unaudited Pro Forma Financial Information Basis of Presentation.......... F-22
Unaudited Pro Forma Condensed Combined Balance Sheet..................... F-24
Unaudited Pro Forma Condensed Combined Statement of Operations........... F-26
Notes to Unaudited Pro Forma Condensed Combined Financial Statements..... F-28
BLUERIDGE TECHNOLOGIES, INCORPORATED
Independent Auditors' Report............................................. F-31
Balance Sheets........................................................... F-32
Statements of Operations................................................. F-33
Statements of Net Investment by Parent................................... F-34
Statements of Cash Flows................................................. F-35
Notes to Financial Statements............................................ F-36
BEAUTYJUNGLE.COM, INC.
Independent Auditors' Report............................................. F-42
Balance Sheet............................................................ F-43
Statement of Operations.................................................. F-44
Statement of Stockholders' Equity........................................ F-45
Statement of Cash Flows.................................................. F-46
Notes to Financial Statements............................................ F-47
BID4REAL.COM, INC. AND BID4REAL.COM LLC
Independent Auditors' Report............................................. F-53
Balance Sheet............................................................ F-54
Statement of Operations.................................................. F-55
Statement of Stockholders' Deficit....................................... F-56
Statement of Cash Flows.................................................. F-58
Notes to Financial Statements............................................ F-60
BIDBUYBUILD, INC.
Independent Auditors' Report............................................. F-64
Balance Sheet............................................................ F-65
Statement of Operations.................................................. F-66
Statement of Shareholders' Deficit....................................... F-67
Statement of Cash Flows.................................................. F-68
Notes to Financial Statements............................................ F-69
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
Page
-----
<S> <C>
EFILTRATION, INC.
Independent Auditors' Report............................................ F-72
Balance Sheet........................................................... F-73
Statement of Operations................................................. F-74
Statement of Stockholders' Deficit...................................... F-75
Statement of Cash Flows................................................. F-76
Notes to Financial Statements........................................... F-77
I-FULFILLMENT, INC.
Independent Auditors' Report............................................ F-80
Balance Sheet........................................................... F-81
Statement of Operations................................................. F-82
Statement of Shareholders' (Deficit) Equity............................. F-83
Statement of Cash Flows................................................. F-84
Notes to Financial Statements........................................... F-85
IGIVE.COM, INC.
Independent Auditors' Report............................................ F-88
Balance Sheets.......................................................... F-89
Statements of Operations................................................ F-90
Statements of Unitholders' Deficit...................................... F-91
Statements of Cash Flows................................................ F-92
Notes to Financial Statements........................................... F-93
I-STREET, INC.
Independent Auditors' Report............................................ F-98
Balance Sheets.......................................................... F-99
Statements of Operations................................................ F-100
Statements of Stockholders' Equity (Deficit)............................ F-101
Statements of Cash Flows................................................ F-102
Notes to Financial Statements........................................... F-103
LIVEONTHENET.COM, INC.
Report of Independent Public Accountants................................ F-106
Balance Sheets.......................................................... F-107
Statements of Operations................................................ F-108
Statements of Shareholders' Investment.................................. F-109
Statements of Cash Flows................................................ F-110
Notes to Financial Statements........................................... F-111
MARTIN PARTNERS, L.L.C.
Independent Auditors' Report............................................ F-117
Balance Sheets.......................................................... F-118
Statements of Operations................................................ F-119
Statements of Cash Flows................................................ F-120
Statements of Members' Equity........................................... F-121
Notes to Financial Statements........................................... F-122
MERCANTEC, INC.
Independent Auditors' Report............................................ F-124
Balance Sheets.......................................................... F-125
Statements of Operations................................................ F-126
Statements of Stockholders' Equity (Deficit)............................ F-127
Statements of Cash Flows................................................ F-128
Notes to Financial Statements........................................... F-129
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
Page
-----
<S> <C>
OPINIONWARE.COM, INC.
Independent Auditors' Report............................................ F-135
Balance Sheet........................................................... F-136
Statement of Operations................................................. F-137
Statement of Shareholders' Deficit...................................... F-138
Statement of Cash Flows................................................. F-139
Notes to Financial Statements........................................... F-140
OUTTASK.COM, INC.
Independent Auditors' Report............................................ F-144
Balance Sheet........................................................... F-145
Statement of Operations................................................. F-146
Statement of Stockholders' Deficit...................................... F-147
Statement of Cash Flows................................................. F-148
Notes to Financial Statements........................................... F-149
PERCEPTUAL ROBOTICS, INC.
Independent Auditors' Report............................................ F-153
Balance Sheets.......................................................... F-154
Statements of Operations................................................ F-155
Statements of Stockholders' Equity (Deficit)............................ F-156
Statements of Cash Flows................................................ F-157
Notes to Financial Statements........................................... F-158
POCKETCARD INC.
Independent Auditors' Report............................................ F-163
Balance Sheets.......................................................... F-164
Statements of Operations................................................ F-165
Statements of Stockholders' Deficit..................................... F-166
Statements of Cash Flows................................................ F-167
Notes to Financial Statements........................................... F-168
WHIPLASH, INC.
Independent Auditors' Report............................................ F-173
Balance Sheet........................................................... F-174
Statement of Operations................................................. F-175
Statement of Stockholders' Deficit...................................... F-176
Statement of Cash Flows................................................. F-177
Notes to Financial Statements........................................... F-178
</TABLE>
F-3
<PAGE>
When the corporate action referred to in Note 13 of the Notes to Consolidated
Financial Statements has been consummated, we will be in a position to render
the following report.
/s/ KPMG LLP
The Board of Directors
divine interVentures, inc.
We have audited the accompanying consolidated balance sheet of divine
interVentures, inc. and subsidiaries as of December 31, 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the period from May 7, 1999 (inception) through December 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of divine
interVentures, inc. and subsidiaries as of December 31, 1999, and the results
of their operations and their cash flows for the period from May 7, 1999
(inception) through December 31, 1999, in conformity with generally accepted
accounting principles.
Chicago, Illinois
February 14, 2000, except as to Note 13, which is as of . . .
F-4
<PAGE>
DIVINE INTERVENTURES, INC.
CONSOLIDATED BALANCE SHEET
December 31, 1999
Assets
<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents...................................... $162,840,846
Accounts receivable, less allowance for doubtful accounts of
$586,511...................................................... 2,628,718
Notes receivable............................................... 4,075,000
Prepaid expenses and other current assets...................... 1,391,100
------------
Total current assets....................................... 170,935,664
Property and equipment, net of accumulated depreciation.......... 3,926,816
Goodwill, net of accumulated amortization of $312,128............ 18,122,621
Ownership interests in partner companies......................... 44,752,056
Deferred offering costs.......................................... 1,612,500
Other noncurrent assets.......................................... 101,894
------------
Total assets............................................... $239,451,551
============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable............................................... $ 3,523,756
Accrued expenses and other current liabilities................. 6,096,355
Notes payable to partner companies............................. 22,500,000
Deferred revenue............................................... 536,217
------------
Total current liabilities.................................. 32,656,328
Other noncurrent liabilities..................................... 281,118
Minority interest................................................ 700,430
Stockholders' equity:
Series D senior convertible preferred stock, $.001 par value;
197,000,000 shares authorized; no shares issued and
outstanding................................................... --
Series E senior convertible preferred stock, $.001 par value;
20,000,000 shares authorized, no shares issued and
outstanding................................................... --
Series F senior convertible preferred stock, $.001 par value;
13,000,000 shares authorized, no shares issued and
outstanding................................................... --
Series C senior convertible preferred stock, $.001 par value;
200,000,000 shares authorized; 190,062,125 shares issued and
outstanding................................................... 190,062
Series B-1 junior convertible preferred stock, $.001 par value;
25,000,000 shares authorized; 2,712,000 shares issued and
outstanding................................................... 2,712
Series B-2 junior convertible preferred stock, $.001 par value;
21,000,000 shares authorized; 20,100,000 shares issued and
outstanding................................................... 20,100
Series A-1 junior convertible preferred stock, $.001 par value;
48,000,000 shares authorized; 9,236,600 shares issued and
outstanding................................................... 9,237
Series A-2 junior convertible preferred stock, $.001 par value;
39,000,000 shares authorized; 37,750,000 shares issued and
outstanding................................................... 37,750
Class A common stock, $.001 par value; 720,000,000
shares authorized; 18,200,000 shares issued and outstanding... 18,200
Class B common stock, $.001 par value; 80,000,000
shares authorized; 9,800,000 shares issued and outstanding.... 9,800
Additional paid-in capital..................................... 213,606,142
Accumulated deficit............................................ (8,080,328)
------------
Total stockholders' equity................................. 205,813,675
------------
Total liabilities and stockholders' equity................. $239,451,551
============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
DIVINE INTERVENTURES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Period from May 7, 1999 (inception) through December 31, 1999
<TABLE>
<S> <C>
Revenues.......................................................... $ 1,036,619
-----------
Operating expenses:
Cost of revenues................................................ 818,849
Selling, general and administrative expenses.................... 8,616,352
-----------
Total operating expenses...................................... 9,435,201
-----------
Operating loss................................................ (8,398,582)
-----------
Interest income................................................... 1,588,863
Interest expense.................................................. (204,817)
-----------
Loss before minority interest and equity loss................. (7,014,536)
Minority interest................................................. 51,277
Equity in losses of partner companies............................. (1,117,069)
-----------
Net loss...................................................... $(8,080,328)
===========
Basic and diluted net loss per share.......................... $ (0.86)
Shares used in computing basic and diluted net loss per share. 13,517,155
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
DIVINE INTERVENTURES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Period from May 7, 1999 (inception) through December 31, 1999
<TABLE>
<CAPTION>
Preferred stock Common stock Additional Total
-------------------- ------------------ paid-in Accumulated stockholders'
Shares Amount Shares Amount capital deficit equity
----------- -------- ---------- ------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at May 7, 1999
(inception)............ -- $ -- -- $ -- -- -- --
Issuance of Class A
common stock........... -- -- 16,560,000 16,560 4,140 -- 20,700
Issuance of Class B
common stock........... -- -- 9,800,000 9,800 2,450 -- 12,250
Issuance of Series A-1
preferred stock........ 9,236,600 9,237 -- -- 2,287,413 -- 2,296,650
Issuance of Series A-2
preferred stock........ 37,750,000 37,750 -- -- 9,387,250 -- 9,425,000
Issuance of Series B-1
preferred stock........ 2,712,000 2,712 -- -- 1,340,788 -- 1,343,500
Issuance of Series B-2
preferred stock........ 20,100,000 20,100 -- -- 10,017,400 -- 10,037,500
Issuance of Series C
preferred stock........ 190,062,125 190,062 -- -- 189,030,841 -- 189,220,903
Exercise of stock
options--Class A common
stock.................. -- -- 1,640,000 1,640 1,535,860 -- 1,537,500
Net loss................ -- -- -- -- -- (8,080,328) (8,080,328)
----------- -------- ---------- ------- ----------- ---------- -----------
Balance at December
31, 1999............... 259,860,725 $259,861 28,000,000 $28,000 213,606,142 (8,080,328) 205,813,675
=========== ======== ========== ======= =========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
DIVINE INTERVENTURES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the period from May 7, 1999 (inception) through December 31, 1999
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss....................................................... $ (8,080,328)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization................................ 410,249
Equity in losses of partner companies........................ 1,117,069
Minority interest............................................ (51,277)
Changes in assets and liabilities, excluding effects from
acquisitions:
Accounts receivable........................................ (577,266)
Deferred offering costs.................................... (1,612,500)
Prepaid expenses and other assets.......................... (488,550)
Accounts payable........................................... 2,640,822
Accrued expenses and other liabilities..................... 5,816,420
Deferred revenue........................................... 121,753
------------
Net cash used in operating activities.................... (703,608)
------------
Cash flows from investing activities:
Additions to property and equipment............................ (2,636,365)
Acquisitions of ownership interests in partner companies, net
of cash acquired.............................................. (43,238,184)
Issuance of notes receivable................................... (4,075,000)
------------
Net cash used in investing activities.................... (49,949,549)
------------
Cash flows from financing activities:
Proceeds from the issuance of common stock..................... 32,950
Proceeds from the exercise of stock options.................... 1,537,500
Proceeds from the issuance of preferred stock, net of issuance
costs......................................................... 211,923,553
------------
Net cash provided by financing activities................ 213,494,003
------------
Net increase in cash and cash equivalents........................ 162,840,846
Cash and cash equivalents at beginning of period................. --
------------
Cash and cash equivalents at end of period....................... 162,840,846
============
Supplemental disclosures:
Interest paid.................................................. $ 26,543
Noncash financing activities:
Issuance of preferred stock in exchange for professional
services.................................................... 400,000
Issuance of notes payable for ownership interests in partner
companies................................................... 22,500,000
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
DIVINE INTERVENTURES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
(a) Description of Business
divine interVentures, inc. (Company) was incorporated in the State of
Delaware on May 7, 1999 and commenced operations on June 30, 1999. The Company
is actively engaged in business-to-business e-commerce through its community of
partner companies. The Company fosters collaboration among the partner
companies, many of which are located together in the Company's facilities, to
provide cross-selling and marketing opportunities and support business growth
and the sharing of information and business expertise. The Company manages,
finances, operates and provides services to its partner companies.
(b) Principles of Consolidation
The various interests that the Company acquires in its partner companies are
accounted for under three methods: consolidation, equity, or cost method. The
Company determines the method of accounting for its partner companies on a
case-by-case basis based upon its ownership percentage in each partner company,
as well as its degree of influence over each partner company.
Consolidation. Partner companies in which the Company owns, directly or
indirectly, more than 50% of the outstanding voting power are generally
accounted for under the consolidation method of accounting. Under this method,
a partner company's results of operations are reflected within the Company's
consolidated statement of operations. Earnings or losses attributable to other
stockholders of a consolidated partner company are identified as "minority
interest" in the Company's consolidated statement of operations. Minority
interest adjusts the Company's consolidated net results of operations to
reflect only its share of the earnings or losses of a partner company.
Transactions between the Company and its consolidated partner companies are
eliminated in consolidation.
Equity Method. Partner companies in which the Company owns 50% or less of
the outstanding voting power, but over which the Company exercises significant
influence, are generally accounted for under the equity method of accounting.
Whether or not the Company exercises significant influence with respect to a
partner company depends on an evaluation of several factors including, among
other things, representation on the partner company's board of directors,
ownership percentage and voting rights associated with the Company's holdings
in the partner company. Generally, if the Company owns at least 20%, but not
more than 50%, of the outstanding voting power of a partner company, the
Company accounts for its interests under the equity method. Under the equity
method of accounting, partner companies' results of operations are not
reflected within the Company's consolidated operating results. However, the
Company's share of the earnings or losses of that partner company is identified
as "equity in earnings (losses) of partner companies" in the Company's
consolidated statement of operations.
The amount by which the Company's carrying value exceeds its share of the
underlying net assets of partner companies accounted for under the
consolidation or equity method of accounting is amortized on a straight-line
basis over five years, which adjusts the Company's share of the partner
company's earnings or losses.
Cost Method. Partner companies not accounted for under either the
consolidation or the equity method of accounting are accounted for under the
cost method of accounting. Under this method, the Company's share of the
earnings and losses of these companies is not included in the Company's
consolidated statement of operations.
The Company records its ownership interest in equity securities of its
partner companies accounted for under the cost method at cost, unless the
securities have readily determinable fair values based on quoted market prices,
in which case these interests would be accounted for in accordance with
Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for
Certain Investments in Debt and Equity Securities.
F-9
<PAGE>
DIVINE INTERVENTURES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(c) Cash Equivalents
The Company considers all highly liquid instruments with an original
maturity of three months or less at the time of purchase to be cash
equivalents. Cash and cash equivalents at December 31, 1999 are invested
principally in money market accounts.
(d) Concentration of Credit Risk
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash equivalents. The Company maintains all of
its cash accounts with Bank of America. The total cash balances of the Company
are insured by the Federal Deposit Insurance Corporation (FDIC) up to $100,000.
The Company had cash balances on deposit with Bank of America at December 31,
1999 that exceeded the balance insured by the FDIC by approximately
$162,741,000.
(e) Financial Instruments
Cash equivalents, accounts receivable, notes receivable, accounts payable
and notes payable to partner companies are carried at cost which approximates
fair value due to the short-term maturity of these instruments.
(f) Property and Equipment
Property and equipment are carried at cost and depreciated using the
straight-line method over the estimated useful lives of the related assets,
which range from three to seven years. Amortization of leasehold improvements
is computed over the shorter of the lease term or estimated useful life of the
assets.
(g) Software Development Costs
Product development costs are expensed as incurred. SFAS No. 86, Accounting
for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed,
does not materially affect the Company.
(h) Revenue Recognition
Software transactions are accounted for in accordance with Statement of
Position (SOP) 97-2, Software Revenue Recognition. SOP 97-2 generally requires
revenue earned on software arrangements involving multiple elements, such as
software products, upgrades/enhancements, post-contract customer support,
installation and training to be allocated to each element based on the relative
fair values of the elements. The revenue allocated to software licenses where
the separate service elements are not essential to functionality of the other
elements is generally recognized when persuasive evidence of an arrangement
exists, delivery of the product has occurred, the fee is fixed or determinable,
and collectibility is probable. When the separate service elements are
essential to the functionality of the other elements, software license revenues
are recognized according to the contract accounting provisions outlined in SOP
81-1, Accounting for Performance of Construction-Type and Certain Performance-
Type Contracts, specifically the percentage-of-completion method. The revenue
allocated to post-contract customer support is recognized ratably over the term
of the support, and revenue allocated to service elements such as training,
installation and customization is recognized as the services are performed.
Revenue earned from webcasting and Web page development, hosting and
advertising are generally recognized in the month in which services are
performed, provided that no significant obligations remain. Webcasting revenues
are recognized when events are cast. Web advertising revenues are recognized in
the period in which the advertising is displayed. One-time fees earned from web
page development is recognized upon completion of the work. Revenues for Web
hosting and advertising are recognized in the period the services are provided.
Amounts received in advance of meeting the revenue recognition criteria are
deferred.
F-10
<PAGE>
DIVINE INTERVENTURES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Consulting revenue is recognized as the services are performed.
Revenue from equipment sales is recognized upon shipment.
Management fees are recognized as revenue over the period of the management
service.
(i) Goodwill
Goodwill represents the excess of cost over net assets of businesses
acquired and is amortized on a straight-line basis over five years.
(j) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(k) Stock Options
SFAS No. 123, Accounting for Stock-Based Compensation, encourages, but does
not require, companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company accounts for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25 (APB 25), Accounting for Stock Issued to
Employees, and related interpretations. Accordingly, compensation cost of stock
options is measured as the excess, if any, of the fair value of the Company's
stock at the date of grant over the option exercise price and is charged to
operations over the vesting period. Income tax benefits attributable to stock
options exercised are credited to additional paid in capital.
(l) Net Loss Per Share
Net loss per share is computed using the weighted average number of common
shares outstanding during the period and the net loss available to common
stockholders of $11,600,380, which includes preferred stock dividends of
$3,520,052. Because the Company reported a net loss for the period ended
December 31, 1999, potentially dilutive securities have not been included in
the shares used to compute net loss per share.
Had the Company reported net income for the period ended December 31, 1999,
the weighted average number of shares outstanding would have potentially been
diluted by approximately 71,964,000 common equivalent shares, assuming the
conversion of preferred stock and an additional 2,971,000 common equivalent
shares, assuming the exercise of stock options.
(m) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
F-11
<PAGE>
DIVINE INTERVENTURES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(n) Recent Accounting Pronouncements
The Company does not expect the adoption of recently issued accounting
pronouncements to have a significant impact on its results of operations,
financial position or cash flows.
(2) Revenue From Equity Method Investees
Consolidated revenue for the period from May 7, 1999 (inception) through
December 31, 1999 includes $292,893 of revenue generated from the Company's
equity-method partner companies.
(3) Property and Equipment
Property and equipment, at cost, less accumulated depreciation and
amortization, are summarized as follows at December 31, 1999:
<TABLE>
<S> <C>
Computer equipment and software............................... $3,739,362
Office equipment and furniture................................ 194,054
Construction in progress...................................... 32,564
Leasehold improvements........................................ 62,922
----------
4,028,902
Less accumulated depreciation and amortization................ (102,086)
----------
$3,926,816
==========
</TABLE>
(4) Business Combinations
On October 14, 1999, the Company acquired 1.9% of Neoforma.com, Inc.
(Neoforma) for $6,000,000. Neoforma provides business-to-business e-commerce
services in the medical products market.
On October 29, 1999, the Company acquired 2.1% of The National
Transportation Exchange, Inc. (NTE) for $750,000. NTE offers an electronic
marketplace that aggregates suppliers and buyers of freight transportation
capacity.
On October 29, 1999, the Company acquired 0.9% of comScore, Inc., (comScore)
for $200,208. ComScore is a company that provides online consumer behavior data
and related consulting services.
On November 8, 1999, the Company paid $2,000,000 and issued a promissory
note for $4,000,000 for 26.5% of Whiplash, Inc. (Whiplash), which provides a
web-based global distribution system that improves the efficiency and
profitability of sellers in the leisure travel market space. The promissory
note carries interest at 6% and is payable in a $2,000,000 final installment on
March 31, 2000. The first $2,000,000 installment was paid on December 31, 1999.
On November 19, 1999, the Company acquired 1.1% of Commerx, Inc. for
$2,500,000. Commerx provides vertical online marketplaces for industrial
markets.
On November 19, 1999, the Company paid $4,905,275 for 100% of Blueridge
Technologies, Incorporated and their OPTIX software, which provides document
imaging, management and control to laser disk technology.
On November 23, 1999, the Company paid $5,000,000 and issued a promissory
note for $10,000,000 for 37.4% of PocketCard Inc., which provides businesses
and individuals with debit cards that allow real-time funding over the
Internet. The promissory note carries interest at 8% and is payable in equal
installments on February 20, 2000 and March 22, 2000.
F-12
<PAGE>
DIVINE INTERVENTURES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On November 23, 1999, the Company acquired 8.3% of Sequoia Software
Corporation (Sequoia) for $5,000,000. Sequoia provides Internet infrastructure
software to proprietary web sites designed as market makers.
On November 23, 1999, the Company paid $500,000 for 63.8% of i-Street, Inc.,
which is a business-to-business media company and news portal focused on the
Internet and technology businesses in Chicago and the Midwest.
On November 23, 1999, the Company paid $867,000 for a 43.0% interest in
TheExecClub.com, Inc., which is an on-line recruiting service provider.
On December 8, 1999, the Company paid $7,500,000 and issued a promissory
note for $7,500,000 to purchase 76.9% of LiveOnTheNet.com, Inc., which offers
proprietary technology for webcasting live events online. This promissory note
carries interest at the prime rate as recorded in the Wall Street Journal (8.5%
at December 31, 1999) and is payable in full on June 30, 2000, or the
consummation of an initial public offering by the Company, whichever is sooner.
On December 8, 1999, the Company acquired 44.1% of OpinionWare.com, Inc. for
$2,000,000. OpinionWare.com provides technology that allows businesses to
gather and analyze the opinions of large public and private online communities.
On December 10, 1999, the Company acquired 31.8% of OUTTASK.COM, Inc.
(OUTTASK) for $4,000,000 and a promissory note for $3,000,000. The promissory
note is payable on March 1, 2000 and carries an interest rate of 8.5%. OUTTASK
provides business-to-business e-commerce applications and services to
technology and Internet companies.
The following unaudited pro forma financial information presents the
consolidated operations of the Company and the acquired companies for the
period ended December 31, 1999 as if the acquisitions had occurred as of May 7,
1999 (the Company's inception), after giving effect to certain adjustments
including increased amortization of goodwill related to the acquisitions. The
unaudited pro forma financial information is provided for informational
purposes only and should not be construed to be indicative of the Company's
consolidated results of operations had the acquisitions been consummated May 7,
1999 and do not project the Company's results of operations for any future
period:
<TABLE>
<S> <C>
Revenues.......................................................... $ 3,908,000
Net loss.......................................................... (11,833,000)
Basic and diluted net loss per share.............................. (1.14)
</TABLE>
(5) Ownership Interests in Partner Companies
The following summarizes the Company's ownership interests in partner
companies accounted for under the equity method or cost method of accounting.
The ownership interests are classified according to applicable accounting
methods at December 31, 1999. Cost basis represents the Company's original
acquisition cost.
<TABLE>
<CAPTION>
December 31, 1999
--------------------------
Carrying value Cost basis
-------------- -----------
<S> <C> <C>
Equity method.................................. $30,299,931 $31,417,000
Cost method.................................... 14,452,125 14,452,125
----------- -----------
$44,752,056 $45,869,125
=========== ===========
</TABLE>
F-13
<PAGE>
DIVINE INTERVENTURES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At December 31, 1999, the Company's carrying value in its partner companies
accounted for under the equity method exceeded its share of the underlying
equity in the net assets of such companies by $21,275,604. This excess is being
amortized over a five-year period. Amortization expense of $443,136 is included
in "Equity in losses of partner companies" in the accompanying Consolidated
Statement of Operations.
The following summarized financial information for partner companies
accounted for under the equity method of accounting at December 31, 1999 has
been compiled from the financial statements of the respective partner
companies:
Balance Sheet
<TABLE>
<CAPTION>
December 31,
1999
------------
<S> <C>
Current assets..................................................... $25,012,095
Noncurrent assets.................................................. 13,327,778
-----------
Total assets................................................... 26,339,873
===========
Current liabilities................................................ 1,713,148
Non-current liabilities............................................ 375,000
Stockholders' equity............................................... 24,251,725
-----------
Total liabilities and stockholders' equity..................... $26,339,873
===========
</TABLE>
Results of Operations
<TABLE>
<CAPTION>
May 7, 1999
(inception) to
December 31,
1999
--------------
<S> <C>
Revenues......................................................... $ 34,092
Net loss......................................................... $(4,784,780)
</TABLE>
Three of the companies in which the Company acquired an interest in 1999
have been accounted for using the consolidation method. The purchase prices
have been allocated to the identifiable net assets based upon their book
values, which approximate fair values, at the dates of acquisition. The
portions of the purchase prices allocated to goodwill are being amortized
on a straight-line basis over five years. These companies are included in
the Company's consolidated financial statements from the dates of
acquisition. The purchase prices for 1999 acquisitions were allocated as
follows:
<TABLE>
<CAPTION>
Blueridge i-
Technologies, LiveOnTheNet.com, Street,
Incorporated Inc. Inc.
------------- ----------------- -------
<S> <C> <C> <C>
Identifiable net assets
(liabilities assumed)........ (26,843) 1,941,063 298,054
Goodwill...................... 4,932,118 13,058,937 201,946
--------- ---------- -------
Purchase price................ 4,905,275 15,000,000 500,000
========= ========== =======
</TABLE>
F-14
<PAGE>
DIVINE INTERVENTURES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(6) Lease Commitments
The Company has noncancelable operating lease commitments for office space
and equipment. The future minimum lease payments as of December 31, 1999 are as
follows:
<TABLE>
<S> <C>
2000.......................................................... $1,010,059
2001.......................................................... 1,157,606
2002.......................................................... 776,677
2003.......................................................... 613,329
2004.......................................................... 631,657
Thereafter.................................................... 1,209,267
----------
Total minimum lease payments.............................. $5,398,595
==========
</TABLE>
Rental expense under operating leases was approximately $200,000 for the
period ended December 31, 1999.
(7) Income Taxes
The reconciliation of income tax expense (benefit) computed using the
Federal statutory rate of 34% to the Company's income tax expense (benefit) is
as follows:
<TABLE>
<S> <C>
Federal income tax benefit at the statutory rate............ $(2,747,312)
State income tax benefit, net............................... (329,274)
Equity in losses of partner companies....................... 379,803
Minority interest........................................... (17,434)
Nondeductible goodwill amortization......................... 105,512
Nondeductible meals and entertainment....................... 40,365
-----------
(2,568,340)
Effect of change in valuation allowance..................... 2,568,340
-----------
$ --
===========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1999 are as
follows:
<TABLE>
<S> <C>
Deferred tax assets:
Depreciation............................................... $ 3,171
State taxes................................................ 40,767
Accrued expenses........................................... 274,041
Net operating loss carryforward............................ 2,250,361
-----------
Total gross deferred tax assets.......................... 2,568,340
Less valuation allowance................................... (2,568,340)
-----------
Net deferred tax asset................................... --
===========
</TABLE>
No provision for federal or state income taxes has been recorded as the
Company incurred a net operating loss during the period presented. The Company
has recorded a full valuation allowance against its gross deferred tax assets
since management believes that it is more likely than not that these assets
will not be realized. No income tax benefit has been recorded for the period
presented because of the valuation allowance.
(8) Ownership Interest in Platinum Venture Partners I, L.P. and Platinum
Venture Partners II, L.P.
On August 4, 1999, the Company became the general partner of Platinum
Venture Partners I, L.P. (PVP I) and Platinum Venture Partners II, L.P. (PVP
II) pursuant to a vote by the limited partners of PVP I and PVP II, after
Platinum Venture Partners, Inc. withdrew as general partner. The Company
provides strategic and operations support to the portfolio companies of PVP I
and PVP II. These services are generally provided by the Company's employees,
members of its board of directors, and outside consultants. The costs related
to
F-15
<PAGE>
DIVINE INTERVENTURES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
employees are paid by the Company and are reflected by the Company in selling,
general and administrative expenses on the statement of operations.
As general partner of PVP I, the Company receives an annual management fee,
payable in advance in quarterly installments commencing on October 1, 1999, of
2 1/2% of the fair market value of the partnership, adjusted annually, by the
increase in the Consumer Price Index for All Urban Consumers, U.S. City Average
during the preceding calendar year. As general partner of PVP II, the Company
receives an annual management fee, payable in advance in quarterly installments
commencing on October 1, 1999, of 2 1/2% of the aggregate partner commitments,
adjusted annually, by the percentage increase in the Consumer Price Index for
All Urban Consumers, U.S. City Average during the preceding calendar year.
Under the terms of the PVP I and PVP II Agreements of Limited Partnership
(the Agreements), the Company may be removed as the general partner of PVP I
and PVP II upon the written request of those limited partners which have at
least two-thirds of the total limited partner interests as defined in the
Agreements.
(9) Capital Stock
Holders of Class A common stock are entitled to one vote per share. Holders
of class B common stock are entitled to 10 votes per share. Holders of series
A, series B, and series C preferred stock will vote on an as-converted basis
with the holders of class A and class B common stock as a single class on all
matters requiring stockholder approval.
The class A common stock has no conversion rights. A holder of class B
common stock is able to convert its class B common stock into class A common
stock, in whole or in part, at any time and from time to time on a share-for-
share basis.
Series A-1 and series B-1 shares are convertible at any time into class A
common stock on a share-for-share basis. Series A-2 and series B-2 shares are
convertible at any time into class B common stock (five preferred shares to
four common shares). Each share of series C preferred stock is convertible into
one share of class A common stock at any time.
The series C preferred stock will automatically convert into class A common
stock immediately before the completion of a firm commitment underwritten
public offering of the Company's class A common stock in which the aggregate
price paid for the shares by the public is at least $50,000,000 at a price per
share of class A common stock of no less than twice the effective conversion
price of the series C preferred stock.
Dividends on series A preferred stock are cumulative and accrue on a daily
basis at an annual rate of 5.0% of the series A liquidation value. Dividends on
series B preferred stock are cumulative and accrue on a daily basis at an
annual rate of 6.5% of the series B liquidation value. Dividends on series C
preferred stock are cumulative and accrue at an annual rate of 8.0% of the
$1.00 purchase price. No dividends will be paid on common stock until all
accrued but unpaid dividends on the series C, series B, and series A preferred
stock, in that order, are paid or declared and set apart for payment. Dividends
are payable only upon declaration by the Company's board of directors.
Common and preferred stockholders are entitled to receive cash dividends
equally on a per share basis, or on an as-converted basis for preferred
stockholders, if and when the dividends are declared by the board of directors
from legally available funds.
F-16
<PAGE>
DIVINE INTERVENTURES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In the case of any dividend paid in stock, holders of class A common stock
will be entitled to receive the same percentage dividend payable in shares of
class A common stock that the holders of class B common stock receive payable
in shares of class B common stock.
Preferred stock dividends in arrears as of December 31, 1999 are $169,513
for series A, $189,361 for series B, and $3,161,178 for series C.
Holders of the series C, series B, and series A preferred stock are paid, in
that order, upon the liquidation of the Company. Each series of preferred stock
is entitled to its liquidation value plus any accrued but unpaid dividends,
insofar as there are sufficient assets of the Company to be distributed. After
satisfaction of the liquidation preferences of all series of preferred stock,
any remaining assets will be distributed ratably among all holders of the
common stock.
Holders of series C preferred stock may choose to convert their shares into
common stock and participate ratably as common stockholders rather than receive
the liquidation preference as preferred stockholders. The Company is entitled
at any time, upon 30 days prior notice, to redeem all or any portion of the
series C preferred stock at a price per share equal to $1.00 plus all accrued
but unpaid dividends.
Dividends on series D preferred stock are cumulative, accrue on a daily
basis at an annual rate of 8.0% of the series D liquidation value and are
payable only upon declaration by the Company's board of directors. Series D
preferred stock votes together with the common stock as a single class and is
convertible into shares of class A common stock based upon the liquidation
value of the series D preferred stock, at any time by the stockholder. Series D
preferred stock ranks senior to all other classes and series of capital stock
in the Company with regard to dividends and distributions on liquidation.
(10) Stock Options
The Company, under the 1999 Stock Incentive Plan (Plan), which was adopted
on October 1, 1999, reserved 32,000,000 shares of common stock for issuance.
The maximum number of shares available for delivery under the Plan
automatically increases on January 1 of each year, beginning on January 1,
2001, by a number of shares of class A common stock equal to the lesser of (1)
10% of the total number of shares of class A common stock then outstanding,
assuming for that purpose the conversion into class A common stock of all then
outstanding convertible securities, or (2) 240,000,000 shares.
The stock is reserved for employees, directors, and consultants. The Company
applies APB 25 in accounting for the Plan. Accordingly, no compensation cost
has been recognized for the Plan.
Had compensation cost for the Plan been determined consistent with SFAS No.
123, the Company's net loss and net loss per share would have been the pro
forma amounts indicated below for the period from May 7, 1999 (inception) to
December 31, 1999:
<TABLE>
<S> <C>
Net loss:
As reported.................................................. $8,080,328
Pro forma.................................................... 8,312,328
Net loss per share.............................................
As reported.................................................. $ (0.86)
Pro forma.................................................... (0.88)
</TABLE>
The term of each option is stated in the option agreement and is not to
exceed 10 years after the grant date. Option pricing shall be determined by the
Plan Administrator. However, if the stock option is an incentive stock option,
then the price of the stock cannot be less than 100% of the fair value per
share on the date of the grant.
F-17
<PAGE>
DIVINE INTERVENTURES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Any option granted shall be exercisable at such times and under such
conditions as determined by the Plan Administrator. However, for most options,
25% of the shares subject to the option shall vest on each of the next four
anniversaries of the vesting commencement date. Options under the Plan are
exercisable immediately, subject to repurchase rights held by the Company,
which lapse over the vesting period.
The fair value of the stock option grants is estimated using the Black-
Scholes option-pricing model, with the following weighted-average assumptions
used for stock option grants in 1999: weighted average option price, which
equals the fair value at date of grant, of $0.9375; expected dividend yields of
0% for all years; expected volatility of 0%; risk-free interest rate of 6.42%;
and an expected life of four years.
Stock option plan activity during the period from May 7, 1999 (inception) to
December 31, 1999 was as follows:
<TABLE>
<CAPTION>
Weighted
Average
exercise
Shares price
----------- --------
<S> <C> <C>
Outstanding at May 7, 1999 (inception)............. --
Granted............................................ 17,178,840 $0.9375
Exercised.......................................... (1,640,000) 0.9375
-----------
Outstanding at December 31, 1999................... 15,538,840 0.9375
===========
Options exercisable at December 31, 1999........... 15,538,840
===========
Weighted-average fair value of options granted during the
period from
May 7, 1999 (inception) to December 31, 1999.................. $0.2066
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
------------------------------------------ -------------------------
Weighted-avg.
Number of remaining Weighted-avg. Number of Weighted-avg.
Exercise price Shares contractual life exercise price shares exercise price
- -------------- ---------- ---------------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
$0.9375 15,538,840 9.8 $0.9375 15,538,840 $0.9375
</TABLE>
(11) Related-party Transactions
The Company's Chief Executive Officer owns 3% of Blackhawk, LLC (Blackhawk)
and has the right to acquire an additional 30.3% of Blackhawk. The Company
entered into an agreement with Blackhawk whereby it was granted the option to
lease a planned office facility in Chicago, Illinois. The Company is required
to pay a monthly fee of $50,000 to maintain its option to lease the planned
facility. The option term expires on February 29, 2000. Should the Company not
exercise the option, it would have to pay a $200,000 building material loss fee
to Blackhawk. During the period from July 1, 1999 through December 31, 1999,
the Company paid Blackhawk, LLC $250,000.
The Company's Chief Executive officer owns 33.3% of Habitat-Kahney, LLC
(Habitat). In January 2000, the Company entered into a ten year facility lease
with Habitat. The Company's rent under this lease is $730,080 per year, with an
annual 2% increase.
F-18
<PAGE>
DIVINE INTERVENTURES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(12) Subsequent Events
Ownership Interests in Partner Companies
During the period from January 1, 2000 through February 12, 2000, the
Company acquired ownership interests in the following companies:
<TABLE>
<CAPTION>
Acquisition Purchase Equity
Company Date Price Interest
- ------- ----------- ---------- --------
<S> <C> <C> <C>
BeautyJungle.com, Inc........................... 1/11/00 10,000,000 51.3%
bid4real.com, inc............................... 1/24/00 7,000,000 54.3%
BidBuyBuild, Inc................................ 2/11/00 6,000,000 35.4%
CapacityWeb.com, Inc............................ 2/11/00 4,500,000 44.5%
closerlook, inc................................. 2/1/00 15,000,000 37.3%
eFiltration.com, Inc............................ 2/11/00 10,000,000 45.2%
i-Fulfillment, Inc.............................. 1/28/00 10,000,000 48.8%
iGive.com, inc.................................. 2/11/00 4,000,000 31.1%
iSalvage.com, Inc............................... 2/3/00 6,500,000 36.3%
Martin Partners, L.L.C.......................... 2/8/00 1,670,883 25.0%
Mercantec, Inc.................................. 2/11/00 23,500,000 40.4%
The National Transportation Exchange, Inc....... 1/5/00 5,112,665 5.3%*
Oilspot.com, Inc................................ 2/10/00 5,000,000 55.6%
Perceptual Robotics, Inc........................ 2/11/00 11,000,000 33.4%
ViaChange.com, Inc.............................. 1/31/00 5,000,000 70.0%
Web Design Group................................ 2/11/00 7,000,000 53.4%
Westbound Consulting, Inc....................... 2/11/00 1,000,000 52.0%
Xippix, Inc..................................... 2/4/00 9,000,000 32.3%
</TABLE>
- ---------------------
*Ownership percentage includes the effect of the Company's initial acquisition
of $750,000 on October 29, 1999.
On January 4, 2000, a subsidiary of the Company paid $1,800,000 to Platinum
Entertainment, Inc. for certain licensing rights of Platinum Entertainment,
Inc.
On February 11, 2000, the Company executed an agreement to acquire
collaboration and communication software for $15,000,000 in cash and the
issuance of 10,000,000 preferred shares of the Company. This software is the
basis for the products and services to be provided by divine interChange, inc.,
which was established by the Company on January 26, 2000.
Sale of Series D Preferred Stock
On January 19, 2000, the Company sold 197,000,000 shares of preferred stock
for net proceeds of approximately $196,900,000.
Authorization of Preferred Shares
On February 3, 2000, the Company designated 20,000,000 preferred shares as
series E senior participating convertible redeemable preferred stock. Series E
preferred stock is convertible into shares of class A common stock based upon
the liquidation value of the series E preferred stock, at any time by the
stockholder. Series E preferred stock is on an equal ranking with series D
senior convertible preferred stock with regard to dividends and distributions
on liquidation.
F-19
<PAGE>
DIVINE INTERVENTURES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On January 19, 2000, the Company designated 12,600,000 preferred shares as
series F senior convertible preferred stock. An additional 400,000 shares were
authorized in February, 2000. Series F preferred stock is convertible into
shares of class A common stock based upon the liquidation value of the series F
preferred stock, at any time by the stockholder. Series F preferred stock ranks
senior to class A common stock, class B common stock, series A preferred stock,
series B preferred stock, and series C preferred stock, and ranks junior to
series D preferred stock and series E preferred stock, with regard to dividends
and distributions on liquidation.
Microsoft Alliance Agreement
On January 28, 2000, the Company entered into a four-year agreement
(Agreement) with Microsoft Corporation (Microsoft) pursuant to which the
Company agreed to acquire at least $9,595,167 in desktop and server Microsoft
software products, and purchase a minimum of $4,660,174 in Microsoft Consulting
Services and a minimum of $1,067,430 in Microsoft product support services.
As a term of the Agreement, the Company shall exercise commercially
reasonable efforts to develop a Seattle-based facility that is anticipated to
be leased to various other companies, consistent with the Company's current
business model, within 15 months of the effective date of the Agreement.
CMGI Purchase Agreement
On February 3, 2000, the Company entered into an agreement whereby it
authorized the sale of 20,000,000 shares of its Series E Senior Participating
Convertible Redeemable Preferred Stock (Preferred Stock), with a par value of
$0.001 per share, to CMGI, Inc. (CMGI). These shares are convertible into
shares of the Company's Class A common stock (Common Stock), par value $0.001
per share. The sale will be consummated as follows:
. At the initial closing, CMGI will purchase 18,284,327 shares of the
Preferred stock for $18,284,327.
. Upon the consummation of a qualified initial public offering (IPO) of the
Company, CMGI will purchase the number of shares of Common Stock
necessary to make CMGI the beneficial owner of 4.9% of the Common Stock
of the Company. These shares will be purchased at the qualified IPO
price, and will be paid by the issuance to the Company of shares of CMGI
common stock.
2000 Employee Stock Purchase Plan
In January 2000, the Company adopted, subject to stockholder approval, its
2000 Employee Stock Purchase Plan (ESPP), under which a total of 20,000,000
shares of class A common stock are available for sale to the Company's
employees. Through this plan, the Company's eligible employees can purchase
class A common stock through payroll deductions and other cash contributions.
Initially, this ESPP will operate over two-year plan periods, except that
the first plan period will be shorter as described below. The ESPP generally
will be implemented in a series of offering periods, beginning, in each case,
on the first day of the two-year ESPP period and ending every six months during
this ESPP period. Accordingly, the offering periods will be six, 12, 18 and 24
months long. The first ESPP period, however, will begin on the date of the
Company's prospectus and end on February 28, 2002, and the first offering
period will begin on the date of the Company's prospectus and end on February
28, 2001. There will be only three offering periods during the ESPP period.
F-20
<PAGE>
DIVINE INTERVENTURES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Each participant will be granted an option to purchase the Company's class A
common stock on the first day of the ESPP period, and the option will be
automatically exercised on the last day of each offering period. The purchase
price of each share of class A common stock under the ESPP will equal 85% of
the lesser of (1) the fair market value of the Company's class A common stock
on the first day of the plan period or (2) the fair market value on the date of
purchase. Accordingly, the fair market value of the Company's class A common
stock on the first day of the first ESPP period will equal the Company's
initial public offering price. The Company's Board of Directors and
compensation committee can change the length of the plan periods and offering
periods and the other terms described above.
Payroll deductions may not exceed $25,000 for any employee in any offering
period. Further, no participating employee may purchase more than that number
of shares which is equal to $25,000 divided by 85% of the fair market value of
the Company's class A common stock on the first day of the ESPP period. In
addition, no employee can purchase class A common stock under the ESPP if that
person, immediately after the purchase, would own stock possessing 5% or more
of the total combined voting power or value of all outstanding shares of all
classes of the Company's capital stock.
Big Shoulders InterTech Fund
On February 10, 2000, the Company committed to fund $4,000,000 to the Big
Shoulders interTech Fund (Fund) that will invest in start-up and early-stage
companies located in Illinois. The Company serves as general partner of the
Fund. The $4,000,000 commitment consists of $80,000 as general partner and
$3,920,000 as a limited partner. As general partner, the Company will be
required to fund 1% of the total contributions to the Fund. The maximum total
contribution to the Fund is $125,000,000, resulting in a maximum future
contribution to the Fund by the Company as general partner of $1,170,000.
(13) Reverse Stock Split
On , the Company's Board of Directors and stockholders authorized
a four-for-five reverse stock split. The par value of the common stock was
maintained at the pre-split amount of $.001 per share. All references to share
and per share amounts in these consolidated financial statements and notes to
consolidated financial statements have been restated to reflect this expected
four-for-five common reverse stock split on a retroactive basis.
F-21
<PAGE>
DIVINE INTERVENTURES, INC.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
BASIS OF PRESENTATION
During the period from January 1, 2000 through February 14, 2000, the
Company acquired a controlling interest in ViaChange.com, Inc.,
BeautyJungle.com, Inc., bid4real.com, Inc., Westbound Consulting, Inc.,
Oilspot.com, Inc. and Web Design Group and significant minority ownership in
eleven equity method partner companies. The unaudited pro forma condensed
combined balance sheet as of December 31, 1999 reflects these acquisitions as
if they occurred on that date.
The unaudited pro forma condensed combined statement of operations for the
period from May 7, 1999 (Company's inception) through December 31, 1999
reflects these acquisitions, as well as acquisitions made during 1999, namely
Blueridge Technologies, Incorporated, LiveOnTheNet.com, Inc. and i-Street, Inc.
(consolidated entities) and five equity method partner companies, as if they
occurred on May 7, 1999.
Also during the first quarter of 2000, the Company sold an additional
197,000,000 shares of convertible preferred stock at $1.00 per share, par value
$.001. The unaudited pro forma condensed combined balance sheet as of December
31, 1999 reflects the sale of these shares.
Since the pro forma financial information is based upon the financial
condition and operating results of the acquired entities during periods when
they were not under the control, influence or management of the Company, the
information presented may not be indicative of the results which would have
actually been obtained had the acquisitions been completed as of the respective
periods presented, nor are they indicative of future financial or operating
results. The unaudited pro forma financial information does not give effect to
any synergies that may occur due to the integration of the Company with its
acquired entities. The unaudited pro forma condensed combined financial
statements should be read in conjunction with the historical audited financial
statements of the Company and the notes thereto as well as the audited
historical financial statements of Blueridge Technologies, Incorporated,
LiveOnTheNet.com, Inc., i-Street, Inc., ViaChange.com, Inc., BeautyJungle.com,
Inc., bid4real.com, Inc., Westbound Consulting, Inc., Oilspot.com, Inc. and Web
Design Group and certain equity method partner companies and the notes thereto
included elsewhere in this prospectus.
F-22
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
F-23
<PAGE>
DIVINE INTERVENTURES, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
divine ViaChange.com, BeautyJungle.com,
interVentures, Inc. Inc. Inc.
------------------- -------------- -----------------
<S> <C> <C> <C>
Assets:
Current assets:
Cash and cash
equivalents............. $162,840,846 -- 359,850
Accounts receivable...... 2,628,718 -- --
Note receivable.......... 4,075,000 -- --
Prepaid expenses and
other current assets.... 1,391,100 -- 1,141,486
------------ ------- ----------
Total current assets. 170,935,664 -- 1,501,336
Property and equipment,
net of accumulated
depreciation............ 3,926,816 -- 1,191,262
Ownership interests in
partner companies....... 44,752,056 -- --
Goodwill................. 18,122,621 -- --
Other assets............. 1,714,394 -- 80,420
------------ ------- ----------
Total Assets......... $239,451,551 -- 2,773,018
============ ======= ==========
Current Liabilities:
Accounts payable......... $ 3,523,756 -- 3,185,318
Accrued expenses......... 6,096,355 -- 15,000
Deferred revenue......... 536,217 -- --
Notes payable--current... 22,500,000 -- 2,121,038
Due to Parent............ -- 26,638 --
------------ ------- ----------
Total current
liabilities......... 32,656,328 26,638 5,321,356
------------ ------- ----------
Other long term
liabilities............. 281,118 -- 147,214
Minority interest........ 700,430 -- --
------------ ------- ----------
Total liabilities.... 33,637,876 26,638 5,468,570
------------ ------- ----------
Stockholders' equity:
Net investment by
parent.................. -- (26,638) (2,695,552)
Preferred stock.......... 259,861 -- --
Common stock............. 28,000 -- --
Additional paid-in
capital................. 213,606,142 -- --
Accumulated deficit...... (8,080,328) -- --
Notes receivable from
stock exercises.........
------------ ------- ----------
Total stockholders'
equity.............. 205,813,675 (26,638) (2,695,552)
------------ ------- ----------
Total liabilities &
stockholders'
equity.............. $239,451,551 -- 2,773,018
============ ======= ==========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
F-24
<PAGE>
DIVINE INTERVENTURES, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
Westbound Web Design Pro forma Pro forma
bid4real.com, Inc. Consulting, Inc. Oilspot.com, Inc. Group adjustments combined
- ------------------- ---------------- ----------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
390,682 384 -- 84,966 215,134,327 (a)
(4,000,000)(b)
(63,670,883)(c)
(15,000,000)(e) 296,140,172
-- 123,256 -- 912,858 -- 3,664,832
-- -- -- -- -- 4,075,000
57,498 35,935 -- -- -- 2,626,019
-------- -------- ------- --------- ----------- -----------
448,180 159,575 -- 997,824 132,463,444 306,506,023
84,185 167,238 -- 60,298 -- 5,429,799
-- -- -- -- 99,170,883 (c) 143,922,939
-- -- -- -- 18,788,412 (b) 36,911,033
-- 4,620 -- -- 25,000,000 (e) 26,799,434
-------- -------- ------- --------- ----------- -----------
532,365 331,433 -- 1,058,122 275,422,739 519,569,228
======== ======== ======= ========= =========== ===========
88,513 37,665 12,145 10,502 -- 6,857,899
81,975 215,665 37,056 27,656 -- 6,473,707
-- -- -- -- -- 536,217
614,796 -- -- -- 32,500,000 (c) 57,735,834
-- -- -- -- -- 26,638
-------- -------- ------- --------- ----------- -----------
785,284 253,330 49,201 38,158 32,500,000 71,630,295
-------- -------- ------- --------- ----------- -----------
-- 40,822 -- -- -- 469,154
-- 214,310 -- -- 12,607,037 (b) 13,521,777
-------- -------- ------- --------- ----------- -----------
785,284 508,462 49,201 38,158 45,107,037 85,621,226
-------- -------- ------- --------- ----------- -----------
(252,919) (177,029) (49,201) 1,019,964 2,181,375 (b) --
-- -- -- -- 215,284 (a)
3,000 (c)
10,000 (e) 488,145
-- -- -- -- 18,404 (d) 46,404
-- -- -- -- 214,919,043 (a)
2,997,000 (c)
17,235,740 (d)
9,990,000 (e) 458,747,925
-- -- -- -- -- (8,080,328)
(17,254,144)(d) (17,254,144)
-------- -------- ------- --------- ----------- -----------
(252,919) (177,029) (49,201) 1,019,964 230,315,702 433,948,002
-------- -------- ------- --------- ----------- -----------
532,365 331,433 -- 1,058,122 275,422,739 519,569,228
======== ======== ======= ========= =========== ===========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
F-25
<PAGE>
DIVINE INTERVENTURES, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS FOR THE
FOR THE PERIOD FROM MAY 7, 1999 (INCEPTION)
THROUGH DECEMBER 31, 1999
<TABLE>
<CAPTION>
(f) I-
divine LiveOnTheNet.com, Street, ViaChange.com,
interVentures, Inc. Blueridge Inc. Inc. Inc.
------------------- --------- ----------------- ------- --------------
<S> <C> <C> <C> <C> <C>
Revenues................ $ 626,406 3,430,638 3,146,889 -- --
Operating expenses:
Cost of revenue........ 1,025,544 1,353,235 3,668,222 -- --
Selling, general, and
administrative........ 7,024,261 2,387,846 1,480,133 29,175 27,638
----------- --------- ---------- ------- -------
Total operating
expenses............... 8,049,805 3,741,081 5,148,355 29,175 27,638
----------- --------- ---------- ------- -------
Net operating income
(loss)................. (7,423,399) (310,443) (2,001,466) (29,175) (27,638)
----------- --------- ---------- ------- -------
Other income (expense)
Interest income........ 1,588,863 1,311 6,044 -- --
Interest expense....... 204,816 9,562 12,089 -- --
----------- --------- ---------- ------- -------
Total other income
(expense).............. 1,384,047 (8,251) (6,045) -- --
----------- --------- ---------- ------- -------
Net income (loss) before
taxes, minority
interest and equity
income (loss).......... (6,039,352) (318,694) (2,007,511) (29,175) (27,638)
Income tax expense
(benefit).............. -- 91,839 -- -- --
Minority interest....... -- -- -- -- --
Equity income (loss).... (1,675,988) -- -- -- --
----------- --------- ---------- ------- -------
Net income (loss)....... $(7,715,340) (410,533) (2,007,511) (29,175) (27,638)
=========== ========= ========== ======= =======
Basic and diluted net
loss per share........
Shares used to compute
basic and diluted net
loss per share........
</TABLE>
F-26
<PAGE>
DIVINE INTERVENTURES, INC.
FOR THE PERIOD FROM MAY 7, 1999 (INCEPTION)
THROUGH DECEMBER 31, 1999
<TABLE>
<CAPTION>
BeautyJungle.com, bid4real.com, Westbound Web Design Pro Forma Pro Forma
Inc. Inc. Consulting, Inc. Oilspot.com, Inc. Group Adjustments Balances
- ----------------- ------------- ---------------- ----------------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
54,403 -- 226,313 -- 1,902,311 9,386,960
30,167 -- 5,610 -- 832,047 6,914,825
6,128,324 259,600 420,769 49,201 499,842 4,461,992 (g) 22,768,781
- ---------- -------- -------- ------- --------- ----------- -----------
6,158,491 259,600 426,379 49,201 1,331,889 4,461,992 29,683,606
- ---------- -------- -------- ------- --------- ----------- -----------
(6,104,088) (259,600) (200,066) (49,201) 570,422 (4,461,992) (20,296,646)
- ---------- -------- -------- ------- --------- ----------- -----------
-- -- -- -- 3,140 1,599,358
20,493 5,424 6,296 -- -- 258,680
- ---------- -------- -------- ------- --------- -----------
(20,493) (5,424) (6,296) -- 3,140 1,340,678
- ---------- -------- -------- ------- --------- -----------
(6,124,581) (265,024) (206,362) (49,201) 573,562 (4,461,992) (18,955,968)
-- -- -- -- -- -- 91,839
-- -- 45,355 -- -- 3,429,812 (h) 3,475,167
-- -- -- -- -- (13,368,606)(i) (15,044,594)
- ---------- -------- -------- ------- --------- ----------- -----------
(6,124,581) (265,024) (161,007) (49,201) 573,562 (14,400,786) (30,617,234)
========== ======== ======== ======= ========= =========== ===========
(2.53)
13,517,155
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
F-27
<PAGE>
DIVINE INTERVENTURES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. Basis of Presentation
The unaudited pro forma condensed combined statements of operations for the
period ended December 31, 1999 give effect to the acquisitions of Blueridge
Technologies, Incorporated, LiveOnTheNet.com, Inc., i-Street, Inc.,
ViaChange.com, Inc., BeautyJungle.com, Inc., bid4real.com, Inc. Westbound
Consulting, Inc., Oilspot.com, Inc. and Web Design Group and the acquisitions
of significant minority ownership interest in sixteen equity method partner
companies as if they had occurred on May 7, 1999 (Company's inception).
The following summarizes information concerning the estimated purchase price
allocation for the acquisitions of the Consolidated Companies.
<TABLE>
<CAPTION>
Fair value
of
tangible
Purchase net assets
price acquired Goodwill
----------- ---------- ----------
<S> <C> <C> <C>
1999 acquisitions....................... $20,405,275 2,212,274 18,193,001
2000 acquisitions....................... 35,000,000 16,211,588 18,788,412
</TABLE>
The effects of the acquisitions have been presented using the purchase
method of accounting and, accordingly, the purchase price has been allocated to
the assets and liabilities assumed based upon management's best preliminary
estimate of fair value with any excess purchase price being allocated to
goodwill. The preliminary allocation of the purchase price will be subject to
further adjustments, which are not anticipated to be material, as the Company
finalizes its allocation of purchase price in accordance with generally
accepted accounting principles. The pro forma adjustments related to the
purchase price allocation of the acquisitions represent management's best
estimate of the effects of the acquisitions.
2. Pro Forma Balance Sheet Adjustments
(a) Reflects the sale of an additional 197,000,000 shares of series D
senior convertible preferred stock at $1.00 per share, par value $0.001, in
the first quarter of 2000, and receipt of the net proceeds from these
sales, less approximately $100,000 of expenses associated with the
offerings.
Also reflects the sale of an additional 18,284,327 shares of series E
senior convertible preferred stock at $1.00 per share, par value $0.001, in
the first quarter of 2000, and receipt of the net proceeds from these
sales, less approximately $50,000 of expenses associated with the
offerings.
(b) Reflects the acquisition of ViaChange.com, BeautyJungle.com,
bid4real.com, Westbound Consulting, Oilspot.com and Web Design Group. The
total consideration for these acquisitions was $35,000,000. Of this amount,
$5,000,000 in notes were issued by the Company, which are not reflected in
the pro forma adjustments since they are eliminated upon consolidation. The
remaining $30,000,000 consideration was in the form of cash, of which
$26,000,000 was retained within the acquired companies and is therefore not
reflected as a reduction in consolidated cash balances.
Goodwill of $18,788,412 consists of the difference in the Company's
consideration for the acquired companies and the Company's ownership
interest in the underlying net equity of the acquired companies. The
acquisitions also reflect the minority interest ownership of $12,607,037
for the shareholders other than the Company.
(c) Reflects the acquisitions of significant minority ownership interest
in eleven equity method partner companies. The consideration consisted of
$63,670,883 in cash, notes payable of $32,500,000 and preferred stock
issuances of $3,000,000.
F-28
<PAGE>
The following table presents the purchase price paid by the Company for
each acquisition, as well as the Company's ownership percentage in and
interest in the net assets of each partner company.
<TABLE>
<CAPTION>
Interest
in
partner
company
Purchase Ownership net
Partner company price percentage assets
--------------- ---------- ---------- ---------
<S> <C> <C> <C>
BeautyJungle.com, Inc...................... 10,000,000 51.3% 3,732,573
bid4real.com, inc.......................... 7,000,000 54.3% 3,670,412
BidBuyBuild, Inc........................... 6,000,000 35.4% 2,073,763
CapacityWeb.com, Inc....................... 4,500,000 44.5% 2,056,500
closerlook, inc............................ 15,000,000 42.7% 1,887,162
efiltration.com, inc....................... 10,000,000 45.2% 4,511,418
i-Fullfillment, Inc........................ 10,000,000 48.8% 4,881,565
iGive.com, inc............................. 4,000,000 31.1% 937,837
iSalvage.com, Inc.......................... 6,500,000 36.3% 2,005,792
Martin Partners, L.L.C..................... 1,670,883 25.0% 769,241
Mercantec, Inc............................. 23,500,000 40.4% 8,891,390
Oilspot.com, Inc........................... 5,000,000 55.6% 2,752,644
Perceptual Robotics, Inc................... 11,000,000 33.4% 3,272,958
ViaChange.com, Inc......................... 5,000,000 70.0% 3,481,353
Web Design Group........................... 7,000,000 53.4% 2,146,661
Westbound Consulting, Inc.................. 1,000,000 52.0% 427,945
Xippix, Inc................................ 9,000,000 32.3% 2,908,279
</TABLE>
(d) Reflects the issuance of 18,404,420 shares of class A common stock
in January 2000 upon exercise of outstanding options at an exercise price
of $0.9375 per share. The individuals exercising these options have issued
notes to the Company in the amount of the exercise price of $17,254,144.
(e) Reflects the acquisition of collaboration and communication software
for $15,000,000 in cash and the issuance of 10,000,000 preferred shares of
the Company.
3. Pro Forma Statement of Operations Adjustments
The pro forma statement of operations adjustments for the period from May 7,
1999 (Company's inception) through December 31, 1999 consist of:
(f) The divine interVentures, inc. column has been adjusted to exclude
all operating activity from acquisitions which occurred through December
31, 1999 for Blueridge Technologies, Incorporated, LiveOntheNet.com, Inc.,
and i-Street, Inc.
(g) Selling, general and administrative expenses have been adjusted to
reflect the amortization of goodwill associated with acquisitions of
Blueridge Technologies, Incorporated, LiveOntheNet.com, Inc., i-Street,
Inc., ViaChange.com, Inc., BeautyJungle.com, Inc., bid4real.com, Inc.,
Westbound Consulting, Inc., Oilspot.com, Inc. and Web Design Group over an
estimated useful life of five years. The acquisitions are reflected as the
later of either May 7, 1999 (Company's inception) or each respective
company's inception date.
(h) Minority interest has been adjusted to reflect the minority interest
portion of the operating loss in LiveOntheNet.com, Inc., i-Street, Inc.,
ViaChange.com, Inc., BeautyJungle.com, Inc., bid4real.com, Inc., Westbound
Consulting, Inc., Oilspot.com, Inc. and Web Design Group.
F-29
<PAGE>
(i) Equity income (loss) has been adjusted to reflect the Company's
ownership interest in the income (loss) of the equity method partner
companies and the amortization of the difference in the Company's carrying
value in the partner company and the Company's ownership interest in the
underlying net equity of the partner company over an estimated useful life
of five years. The Company's equity income (loss) in each equity method
partner company is as follows:
<TABLE>
<CAPTION>
Partner company Equity income (loss)
--------------- --------------------
<S> <C>
BidBuyBuild,
Inc............ $ (235,928)
CapacityWeb.com,
Inc............ 0
closerlook,
inc............ (1,957,313)
efiltration.com,
inc............ (384,487)
i-Fullfillment,
Inc............ (703,705)
iGive.com, inc.. (698,757)
iSalvage.com,
Inc............ (842,129)
Martin Partners,
L.L.C.......... 263,955
Mercantec, Inc.. (3,263,570)
OpinionWare.com,
inc............ (493,100)
Outtask.com,
inc............ (705,568)
Perceptual
Robotics, Inc.. (1,059,963)
PocketCard,
inc............ (1,433,036)
The
ExecClub.com,
inc............ (68,209)
Whiplash, inc... (832,148)
Xippix, Inc..... (954,648)
</TABLE>
4.Pro Forma Net Loss Per Share
Shares used to compute basic and diluted net loss per share are based upon
the weighted average number of common shares outstanding by the Company for the
period from May 7, 1999 (inception) to December 31, 1999.
Net loss per share is computed using the weighted average number of common
shares outstanding during the period and the net loss available to common
stockholders of $34,137,286, which includes preferred stock dividends of
$3,520,052.
F-30
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Blueridge Technologies, Incorporated:
We have audited the accompanying balance sheets of Blueridge Technologies,
Incorporated (a wholly-owned subsidiary of Metters Industries, Inc.) as of
March 31, 1998 and 1999, and November 19, 1999, and the related statements of
operations, net investment by Parent, and cash flows for the years ended March
31, 1998 and 1999, and for the period from April 1, 1999 through November 19,
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 financial position of Blueridge Technologies,
Incorporated as of March 31, 1998 and 1999, and November 19, 1999, and the
results of its operations and its cash flows for the years ended March 31, 1998
and 1999, and for the period from April 1, 1999 through November 19, 1999, in
conformity with generally accepted accounting principles.
/s/ KPMG LLP
McLean, Virginia
January 21, 2000
F-31
<PAGE>
BLUERIDGE TECHNOLOGIES, INCORPORATED
(a wholly-owned subsidiary of Metters Industries, Inc.)
BALANCE SHEETS
March 31, 1998 and 1999, and November 19, 1999
<TABLE>
<CAPTION>
March 31,
-------------------- November 19,
ASSETS 1998 1999 1999
------ ---------- --------- ------------
<S> <C> <C> <C> <C>
Current assets:
Cash................................... $ 111,244 60,942 34,900
Accounts receivable.................... 955,863 542,545 628,773
Inventory.............................. 380,318 29,251 13,200
Deposits and prepaid expenses.......... 4,083 56,464 45,352
---------- --------- ---------
Total current assets................. 1,451,508 689,202 722,225
Property and equipment, net.............. 155,238 219,439 197,874
Goodwill, net of accumulated amortization
of $726,818, $1,114,454, and $1,331,947,
respectively............................ 1,211,343 823,707 469,934
---------- --------- ---------
Total assets......................... $2,818,089 1,732,348 1,390,033
========== ========= =========
<CAPTION>
LIABILITIES AND NET INVESTMENT BY PARENT
----------------------------------------
<S> <C> <C> <C> <C>
Current liabilities:
Accounts payable....................... $ 326,648 201,851 230,606
Accrued expenses....................... 241,934 258,003 234,188
Deferred revenue....................... 1,169,054 795,090 414,465
Current maturities of obligations under
capital leases........................ 34,002 44,790 51,872
Deferred taxes......................... 38,000 -- --
Due to Parent.......................... 203,146 414,582 402,000
---------- --------- ---------
Total current liabilities............ 2,012,784 1,714,316 1,333,131
---------- --------- ---------
Obligations under capital leases, net of
current portion......................... 66,470 762 21,257
---------- --------- ---------
Total liabilities.................... 2,079,254 1,715,078 1,354,388
Net investment by Parent................. 738,835 17,270 35,645
---------- --------- ---------
Total liabilities and net investment
by Parent........................... $2,818,089 1,732,348 1,390,033
========== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-32
<PAGE>
BLUERIDGE TECHNOLOGIES, INCORPORATED
(a wholly-owned subsidiary of Metters Industries, Inc.)
STATEMENTS OF OPERATIONS
Years ended March 31, 1998 and 1999, and the period from April 1, 1999 through
November 19, 1999
<TABLE>
<CAPTION>
Period from
Years ended March April 1,
31, 1999 through
--------------------- November 19,
1998 1999 1999
---------- --------- ------------
<S> <C> <C> <C>
Revenue..................................... $4,943,641 4,519,945 2,301,990
Operating expenses:
Costs of revenue.......................... 1,789,021 1,782,918 820,769
Selling, general and administrative....... 2,358,437 3,113,163 1,062,292
Research and development.................. 390,063 32,879 356,453
---------- --------- ---------
Operating income (loss)................. 406,120 (409,015) 62,476
Other income (expense):
Interest expense.......................... (21,296) (12,598) (5,907)
Interest income........................... 2,801 1,727 --
---------- --------- ---------
Total other income (expense)............ (18,495) (10,871) (5,907)
---------- --------- ---------
Income (loss) before income taxes........... 387,625 (419,886) 56,569
Provision for income taxes.................. (197,000) (121,000) (7,000)
---------- --------- ---------
Net income (loss)....................... $ 190,625 (540,886) 49,569
========== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-33
<PAGE>
BLUERIDGE TECHNOLOGIES, INCORPORATED
(a wholly-owned subsidiary of Metters Industries, Inc.)
STATEMENTS OF NET INVESTMENT BY PARENT
Years ended March 31, 1998 and 1999, and the
period from April 1, 1999 through November 19, 1999 [/R]
<TABLE>
<CAPTION>
Capital Retained
contributed Distributions earnings Net investment
by Parent to Parent (deficit) by Parent
----------- ------------- ---------- --------------
<S> <C> <C> <C> <C>
Balance at March 31, 1997. $2,389,925 -- (1,310,699) 1,079,226
Distribution to Parent.. -- (531,016) -- (531,016)
Net income.............. -- -- 190,625 190,625
---------- -------- ---------- ---------
Balance at March 31, 1998. 2,389,925 (531,016) (1,120,074) 738,835
Distribution to Parent.. -- (180,679) -- (180,679)
Net loss................ -- -- (540,886) (540,886)
---------- -------- ---------- ---------
Balance at March 31, 1999. 2,389,925 (711,695) (1,660,960) 17,270
Distribution to Parent.. -- (31,194) -- (31,194)
Net income.............. -- -- 49,569 49,569
---------- -------- ---------- ---------
Balance at November 19,
1999..................... $2,389,925 (742,889) (1,611,391) 35,645
========== ======== ========== =========
</TABLE>
See accompanying notes to financial statements.
F-34
<PAGE>
BLUERIDGE TECHNOLOGIES, INCORPORATED
(a wholly-owned subsidiary of Metters Industries, Inc.)
STATEMENTS OF CASH FLOWS
Years ended March 31, 1998 and 1999, and the period from April 1, 1999 through
November 19, 1999
<TABLE>
<CAPTION>
Period from
Years ended March April 1,
31, 1999 through
------------------- November 19,
1998 1999 1999
--------- -------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).......................... $ 190,625 (540,886) 49,569
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization............ 461,156 483,984 280,933
Deferred taxes........................... 38,000 (38,000) --
Changes in assets and liabilities:
Accounts receivable.................... (711,384) 413,318 (86,228)
Inventory.............................. (379,343) 351,067 16,051
Deposits and prepaid expenses.......... 45,458 (52,381) 11,112
Accounts payable....................... 241,602 (124,797) 28,755
Accrued expenses....................... 88,817 16,069 (23,815)
Deferred revenue....................... 859,893 (373,964) (380,625)
Due to Parent.......................... 10,146 211,436 (12,582)
--------- -------- --------
Net cash provided by (used in)
operating activities................ 844,970 345,846 (116,830)
--------- -------- --------
Cash flows from investing activities:
Purchases of equipment..................... (53,618) 160,549 --
Income tax refunds reducing goodwill....... -- -- 136,280
--------- -------- --------
Net cash provided by (used in)
investing activities................ (53,618) (160,549) 136,280
--------- -------- --------
Cash flows from financing activities:
Payments under capital lease obligations... (45,287) (54,920) (14,298)
Distributions to Parent.................... (531,016) (180,679) (31,194)
Proceeds from line of credit............... 175,000 -- --
Repayments on line of credit............... (375,000) -- --
--------- -------- --------
Net cash used in financing
activities.......................... (776,303) (235,599) (45,492)
--------- -------- --------
Net increase (decrease) in cash...... 15,049 (50,302) (26,042)
Cash, beginning of period.................... 96,195 111,244 60,942
--------- -------- --------
Cash, end of period.......................... $ 111,244 60,942 34,900
========= ======== ========
Supplemental disclosure of cash flow
information--
cash paid for interest..................... $ 20,222 13,672 4,882
========= ======== ========
Supplemental disclosure of noncash investing
activities--
capital lease obligations.................. $ 145,759 -- 41,875
========= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-35
<PAGE>
BLUERIDGE TECHNOLOGIES, INCORPORATED
(a wholly-owned subsidiary of Metters Industries, Inc.)
NOTES TO FINANCIAL STATEMENTS
(1) Organization and Business
Blueridge Technologies, Incorporated, a Virginia corporation (the Company),
is a wholly-owned subsidiary of Metters Industries, Inc. (Metters or the
Parent). The Company specializes in the design and development of software
products and services for Internet and Intranet enabled document management
systems including storage and retrieval, document imaging, workflow, text
search, and computer output to laser disk (COLD) that run in a client server
environment on a variety of platforms.
In May 1996, Metters acquired all of the outstanding stock of the Company in
exchange for Metters common stock. The transaction was accounted for using the
purchase method. The purchase price of approximately $2,527,000 was allocated
to the net assets acquired based upon their estimated fair values. The excess
of the purchase price over the estimated fair value of the net assets acquired,
which approximated their historical recorded book amounts, of approximately
$1,938,000 was recorded as goodwill by Metters and is being amortized on a
straight-line basis over five years. The fair value adjustments of all assets
and liabilities, including the amounts recorded as goodwill and its related
amortization, have been reflected in the accompanying financial statements of
the Company.
The Company operates in a highly competitive marketplace and depends on
proprietary technology, and attracting and retaining key personnel. The Company
depends, in part, on financing from its Parent. There can be no assurance that
the Company or its Parent will be able to raise additional capital to expand
the Company's business activities, if necessary.
On November 19, 1999, the Parent entered into a purchase agreement (the
"Agreement") with a third party. Under the terms of the Agreement, the third
party acquired all of the outstanding common stock of the Company, subject to
normal conditions of closing.
(2) Summary of Significant Accounting Policies
(a) Basis of Presentation
The accompanying financial statements include the accounts of Blueridge
Technologies, Incorporated, a wholly-owned subsidiary of Metters Industries,
Inc.
(b) Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(c) Revenue Recognition
The Company accounts for software transactions in accordance with Statement
of Position ("SOP") 97-2, Software Revenue Recognition. SOP 97-2 generally
requires revenue earned on software arrangements involving multiple elements,
such as software products, upgrades/enhancements, post-contract customer
F-36
<PAGE>
BLUERIDGE TECHNOLOGIES, INCORPORATED
(a wholly-owned subsidiary of Metters Industries, Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
support, installation, and training, to be allocated to each element based on
the relative fair values of the elements. The revenue allocated to software
licenses where the separate service elements are not essential to functionality
of the other elements is generally recognized when persuasive evidence of an
arrangement exists, delivery of the product has occurred, the fee is fixed or
determinable, and collectibility is probable. When the separate service
elements are essential to the functionality of the other elements, software
license revenues are recognized according to the contract accounting provisions
outlined in SOP 81-1, Accounting for Performance of Construction-Type and
Certain Performance-Type Contracts, specifically the percentage of completion
method. The revenue allocated to post-contract customer support is recognized
ratably over the term of the support, and revenue allocated to service elements
such as training, installation and customization is recognized as the services
are performed. Consulting revenue is also recognized as the services are
performed. Revenue from equipment sales is recognized upon shipment. Amounts
received in advance of meeting the revenue recognition criteria are deferred.
(d) Inventories
Inventories, which consist primarily of finished goods, are stated at the
lower of cost or market. Cost is determined on a specific identification basis.
(e) Property and Equipment
Property and equipment is carried at historical cost less accumulated
depreciation and amortization. Depreciation and amortization is calculated
using the straight-line method based on the estimated remaining useful lives of
the assets as follows:
<TABLE>
<S> <C>
Computer equipment................ 3 to 5 years
Furniture and fixtures............ 5 years
Capital leases.................... Shorter of estimated life or lease term
</TABLE>
In accordance with Financial Accounting Standards Board ("FASB") Statement
of Financial Accounting Standard ("SFAS") No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,
the Company periodically reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to the undiscounted
future net cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured as the
amount by which the carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
(f) Cash Equivalents
The Company considers all highly liquid financial instruments with an
original maturity of three months or less to be cash equivalents. The Company
did not have any cash equivalents at March 31, 1998 or 1999, or November 19,
1999.
(g) Software Development Costs
Product development expenses are expensed as incurred. Statement of
Financial Accounting Standards ("SFAS") No. 86, Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed does not materially
affect the Company.
F-37
<PAGE>
BLUERIDGE TECHNOLOGIES, INCORPORATED
(a wholly-owned subsidiary of Metters Industries, Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(h) Goodwill
The excess of cost over the fair value of net tangible and identifiable
intangible assets acquired has been assigned to goodwill and is being amortized
using the straight-line method over five years.
During the period from April 1, 1999 through November 19, 1999, the Company
received refunds of $136,280 of previously paid income taxes for periods prior
to the acquisition by Metters. Such refunds have been recognized as a reduction
of the goodwill from the acquisition by Metters.
(i) Income Taxes
The Company is included in the consolidated Federal and state returns of the
Parent. However, the Company recognizes its provisions for income taxes as if
the Company files its income tax returns separately. The Company accounts for
income taxes under the asset and liability method. Under the asset and
liability method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using the enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Annually, the Parent charges (reimburses) the Company for its Federal and
state income tax expense (benefit). Deferred income tax assets (liabilities)
represent amounts to be recovered from (settled with) the Parent. These amounts
are included in Due to Parent in the accompanying balance sheets. The tax
attributes of the Parent are considered in assessing the recoverability of the
Company's Federal and state deferred tax assets.
(j) Comprehensive Income (Loss)
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components in the financial statements. The
Company has no amounts associated with the components of other comprehensive
income (loss) in the Company's financial statements.
(k) Services Provided by the Parent
Through November 19, 1999, the Parent provided certain services to the
Company, including marketing, financial, and administrative support, and
insurance. Certain costs of such services were charged to the Company by the
Parent and may not be reflective of the actual costs of such services had they
been provided by unrelated third parties.
(3) Property and Equipment
Property and equipment consists of the following at March 31, 1998 and 1999,
and November 19, 1999:
<TABLE>
<CAPTION>
March 31,
------------------ November 19,
1998 1999 1999
-------- -------- ------------
<S> <C> <C> <C>
Computer equipment...................... $499,149 659,698 701,573
Furniture and fixtures.................. 3,862 3,862 3,862
-------- -------- --------
503,011 663,560 705,435
Less accumulated depreciation and
amortization........................... (347,773) (444,121) (507,561)
-------- -------- --------
$155,238 219,439 197,874
======== ======== ========
</TABLE>
F-38
<PAGE>
BLUERIDGE TECHNOLOGIES, INCORPORATED
(a wholly-owned subsidiary of Metters Industries, Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(4) Lease Commitments
The Company has noncancelable operating and capital lease commitments for
office space and computer equipment, respectively. The future minimum lease
payments as of November 19, 1999 are as follows:
<TABLE>
<CAPTION>
Operating Capital
Year ending March 31, --------- -------
<S> <C> <C>
2000................................................ $13,644 57,159
2001................................................ -- 22,710
2002................................................ -- 1,856
------- -------
Total minimum lease payments...................... $13,644 81,725
=======
Less amount representing interest..................... (8,596)
-------
Present value of minimum lease payments............... 73,129
Less current maturities of obligations under capital
leases............................................... (51,872)
-------
Obligations under capital leases, net of current
maturities........................................... $21,257
=======
</TABLE>
Rental expense under operating leases was approximately $55,000, $73,000,
and $25,000 for the years ended March 31, 1998 and 1999, and the period from
April 1, 1999 through November 19, 1999, respectively. Cost and accumulated
amortization for computer equipment under capital leases at November 19, 1999
are approximately $129,000 and $64,600, respectively.
(5) Net Investment by Parent
Net investment by Parent represents the net equity of the Company. Net
investment by Parent is increased (decreased) for the Company's net income
(loss) and contributions (distributions). As of March 31, 1998 and 1999, and
November 19, 1999, the Company had 100,000 shares of common stock authorized,
no par value, and 66,911 shares issued and outstanding, all of which was held
by the Parent. During the years ended March 31, 1998 and 1999, and the period
from April 1, 1999 through November 19, 1999, all of the outstanding common
stock of the Company was pledged as collateral by the Parent to secure a line
of credit from a bank.
(6) Accounts Receivable
Accounts receivable consists of the following at March 31, 1998 and 1999,
and November 19, 1999:
<TABLE>
<CAPTION>
March 31,
---------------- November 19,
1998 1999 1999
-------- ------- ------------
<S> <C> <C> <C>
Billed...................................... $621,760 534,229 628,773
Unbilled.................................... 334,103 8,316 --
-------- ------- -------
$955,863 542,545 628,773
======== ======= =======
</TABLE>
The unbilled amounts are due within one year and are billed on the basis of
contract terms and delivery schedules.
(7) Accrued Expenses
Accrued expenses consists of the following at March 31, 1998 and 1999, and
November 19, 1999:
<TABLE>
<CAPTION>
March 31,
---------------- November 19,
1998 1999 1999
-------- ------- ------------
<S> <C> <C> <C>
Accrued compensation and benefits........... $166,802 185,751 228,478
Other....................................... 75,132 72,252 5,710
-------- ------- -------
$241,934 258,003 234,188
======== ======= =======
</TABLE>
F-39
<PAGE>
BLUERIDGE TECHNOLOGIES, INCORPORATED
(a wholly-owned subsidiary of Metters Industries, Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(8) Related Party Transactions
During the years ended March 31, 1998 and 1999, and the period from April 1,
1999 through November 19, 1999, the Parent collected cash from customers on
behalf of the Company in the amounts of $531,016, $180,679, and $31,194,
respectively, each of which are reflected as distributions to the Parent in the
accompanying financial statements of the Company.
During the years ended March 31, 1998 and 1999, and the period from April 1,
1999 through November 19, 1999, the Company incurred expenses of approximately
$141,000, $159,000 and $98,000, respectively, for certain support services
provided by the Parent. At March 31, 1998 and 1999, and November 19, 1999, the
Company owed $44,146, $96,582, and $0, respectively, to the Parent in
connection with the support services.
(9) Note Payable
During fiscal year 1998, the Company had a $200,000 line of credit with a
financial institution payable on demand with an interest rate at the bank's
prime rate plus 1 percent. The loan was guaranteed and secured by the personal
assets of certain stockholders of the Parent who were stockholders of the
Company prior to its acquisition by the Parent. The line of credit expired in
May 1998, and the Company did not renew the line of credit. The Company had no
outstanding balance under the line of credit as of March 31, 1998.
(10) Income Taxes
The components of the income tax provisions for the years ended March 31,
1998 and 1999, and the period from April 1, 1999 through November 19, 1999 are
as follows:
<TABLE>
<CAPTION>
Period from
Years ended April 1,
March 31, 1999 through
---------------- November 19,
1998 1999 1999
-------- ------- ------------
<S> <C> <C> <C>
Current:
Federal................................... $135,150 102,850 5,950
State..................................... 23,850 18,150 1,050
-------- ------- -----
159,000 121,000 7,000
Deferred:
Federal................................... 32,300 -- --
State..................................... 5,700 -- --
-------- ------- -----
38,000 -- --
-------- ------- -----
$197,000 121,000 7,000
======== ======= =====
</TABLE>
The actual income tax provision differs from the expected income tax
provision (benefit) computed using the statutory Federal income tax rate of 34
percent applied to pretax income (loss) as a result of the following:
<TABLE>
<CAPTION>
Period from
Years ended March April 1,
31, 1999 through
------------------ November 19,
1998 1999 1999
-------- -------- ------------
<S> <C> <C> <C>
Computed "expected" tax provision
(benefit).............................. $131,793 (142,761) 19,233
Increase (reduction) in income taxes
resulting from:
Increase (decrease) in the beginning
of the period valuation allowance.... (89,848) 95,723 (36,723)
Amortization of goodwill.............. 151,308 151,308 74,510
Income tax refunds received........... -- -- (77,000)
Other, net............................ 3,747 16,730 26,980
-------- -------- -------
$197,000 121,000 7,000
======== ======== =======
</TABLE>
F-40
<PAGE>
BLUERIDGE TECHNOLOGIES, INCORPORATED
(a wholly-owned subsidiary of Metters Industries, Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
The tax effects of temporary differences that give rise to significant
portions of the Company's deferred tax assets and liabilities as of March 31,
1998 and 1999, and November 19, 1999 are as follows:
<TABLE>
<CAPTION>
March 31,
--------------- November 19,
1998 1999 1999
------- ------- ------------
<S> <C> <C> <C>
Deferred tax assets:
Book depreciation in excess of tax
depreciation............................ $56,881 54,649 22,500
Other accruals........................... 38,760 44,400 36,500
------- ------- -------
Total deferred tax assets.............. 95,641 99,049 59,000
------- ------- -------
Deferred tax liabilities:
Unbilled accounts receivable............. 133,641 3,326 --
------- ------- -------
Total deferred tax liabilities......... 133,641 3,326 --
Valuation allowance........................ -- (95,723) (59,000)
------- ------- -------
Net deferred tax liability............. $38,000 -- --
======= ======= =======
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
asset will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which temporary differences become deductible. Based upon the level of
historical taxable income and projections for future taxable income over the
periods in which the temporary differences are available to reduce income taxes
payable, management has established a valuation allowance for the full amount
of the net deferred tax assets at March 31, 1999 and November 19, 1999. The net
change in the valuation allowance during the period from April 1, 1999 through
November 19, 1999 was a decrease of $36,723. No income tax payments were made
during the years ended March 31, 1998 and 1999, or the period from April 1,
1999 through November 19, 1999.
(11) Retirement Plan
The Company maintains a qualified defined contribution retirement plan under
the provisions of Internal Revenue Code Section 401(k). The participants may
contribute any whole percentage of salary each pay period, subject to Federal
limitations. The Company may make discretionary contributions to the Plan.
During the years ended March 31, 1998 and 1999, and the period from April 1,
1999 through November 19, 1999, the Company made no discretionary contributions
to the Plan.
(12) Significant Customers
During the year ended March 31, 1998, the Company generated approximately 44
percent of its total revenue from three customers. During the year ended March
31, 1999, the Company generated approximately 37 percent of its total revenue
from three customers. During the period from April 1, 1999 through November 19,
1999, the Company generated approximately 31 percent of its total revenue from
three customers. At March 31, 1998 and 1999, and November 19, 1999, accounts
receivable from these customers was approximately $68,700, $269,800, and
$151,400, respectively.
F-41
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
BeautyJungle.com, Inc.:
We have audited the accompanying balance sheet of BeautyJungle.com, Inc. (a
development stage enterprise) as of September 30, 1999 and the related
statements of operations, stockholders' equity, and cash flows for the period
from May 11, 1999 (inception) through 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 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 BeautyJungle.com, Inc. (a
development stage enterprise) as of September 30, 1999 and the results of its
operations and its cash flows for the period from May 11, 1999 (inception)
through September 30, 1999 in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Chicago, Illinois
December 17, 1999,
except for note 9, which
is as of January 11, 2000
F-42
<PAGE>
BEAUTYJUNGLE.COM, INC.
(a development stage enterprise)
BALANCE SHEET
September 30, 1999
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents........................................ $ 865,805
Inventory........................................................ 317,236
Prepaid expenses................................................. 217,655
Other current assets............................................. 77,161
----------
Total current assets........................................... 1,477,857
Property and equipment, net........................................ 769,408
Other assets....................................................... 63,420
----------
Total assets................................................... $2,310,685
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................. $1,246,126
Current portion, capital lease obligation........................ 35,302
----------
Total current liabilities...................................... 1,281,428
Deferred rent...................................................... 35,850
Capital lease obligation........................................... 113,698
----------
Total liabilities.............................................. 1,430,976
----------
Stockholders' equity:
Common stock, $.001 par value. 47,000,000 shares authorized;
16,950,000 shares issued and outstanding........................ 16,950
Series A preferred stock, $.001 par value. 18,137,500 shares
authorized; 17,637,500 shares issued and outstanding............ 17,637
Additional paid-in capital....................................... 3,346,303
Subscription receivable.......................................... (3,390)
Deficit accumulated during the development stage................. (2,497,791)
----------
Total stockholders' equity..................................... 879,709
----------
Total liabilities and stockholders' equity..................... $2,310,685
==========
</TABLE>
See accompanying notes to financial statements.
F-43
<PAGE>
BEAUTYJUNGLE.COM, INC.
(a development stage enterprise)
STATEMENT OF OPERATIONS
Period from May 11, 1999 (inception) through September 30, 1999
<TABLE>
<S> <C>
Revenues.......................................................... $ --
-----------
Operating expenses:
General and administrative...................................... 2,490,795
Depreciation and amortization................................... 6,996
-----------
Total operating expenses...................................... 2,497,791
-----------
Net loss...................................................... $(2,497,791)
===========
</TABLE>
See accompanying notes to financial statements.
F-44
<PAGE>
BEAUTYJUNGLE.COM, INC.
(a development stage enterprise)
STATEMENT OF STOCKHOLDERS' EQUITY
Period from May 11, 1999 (inception) through September 30, 1999
<TABLE>
<CAPTION>
Deficit
accumulated
Common stock Preferred stock Additional during the Total
------------------ ------------------ paid-in Subscription development stockholders'
Shares Amount Shares Amount capital receivable stage equity
---------- ------- ---------- ------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance as of May 11,
1999 (inception)..... -- $ -- -- $ -- -- -- -- --
Issuance of common
stock in formation of
the Company, adjusted
for stock split (see
note 6).............. 16,950,000 16,950 -- -- (13,560) (3,390) -- --
Issuance of Series A
preferred stock...... -- -- 17,637,500 17,637 3,509,863 -- -- 3,527,500
Financing commission
expense related to
the issuance of
Series A preferred
stock................ -- -- -- -- (150,000) -- -- (150,000)
Net loss.............. -- -- -- -- -- -- (2,497,791) (2,497,791)
---------- ------- ---------- ------- --------- ------ ---------- ----------
Balance as of Septem-
ber 30, 1999......... 16,950,000 $16,950 17,637,500 $17,637 3,346,303 (3,390) (2,497,791) 879,709
========== ======= ========== ======= ========= ====== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-45
<PAGE>
BEAUTYJUNGLE.COM, INC.
(a development stage enterprise)
STATEMENT OF CASH FLOWS
Period from May 11, 1999 (inception) through September 30, 1999
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss........................................................ $(2,497,791)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization................................. 6,996
Changes in assets and liabilities:
Prepaid expenses............................................ (217,655)
Inventory................................................... (317,236)
Other current assets........................................ (77,161)
Other assets................................................ (63,420)
Accounts payable............................................ 1,246,126
Deferred rent............................................... 35,850
-----------
Net cash used in operating activities..................... (1,884,291)
-----------
Cash flows from investing activities--additions to property and
equipment........................................................ (562,794)
-----------
Cash flows from financing activities:
Proceeds from issuance of preferred stock, net of issuance
costs.......................................................... 3,377,500
Payments on capital lease obligation............................ (64,610)
-----------
Net cash provided by financing activities................. 3,312,890
-----------
Net increase in cash...................................... 865,805
Cash and cash equivalents at beginning of period.................. --
Cash and cash equivalents at end of period........................ $ 865,805
===========
Supplemental disclosure of noncash financing activity--equipment
under capital lease.............................................. $ 213,610
===========
</TABLE>
See accompanying notes to financial statements.
F-46
<PAGE>
BEAUTYJUNGLE.COM, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
(1) Nature of the Business
BeautyJungle.com, Inc. (the Company) was incorporated on May 11, 1999 as a C
corporation. The Company sells a wide range of cosmetics, fragrances, and
personal care products through its website, www.BeautyJungle.com.
Since inception, the Company has devoted substantially all of its efforts to
business planning, product development, acquiring operating assets, raising
capital, marketing, and business development activities. Accordingly, the
Company is in the development stage, as defined by Statement of Financial
Accounting Standards (SFAS) No. 7, Accounting and Reporting by Development
Stage Enterprises.
The Company has incurred losses since inception and expects to incur a loss
for the remainder of 1999. Should the Company be unable to generate revenue and
realize cash flows from operations in the near term, the Company may require
additional equity or debt financing to meet working capital needs and to fund
operating losses. Although management believes the Company could obtain such
financing, there can be no assurances that such financing will be available in
the future at terms acceptable to the Company.
The Company is subject to risks and uncertainties common to growing
technology-based companies, including technological change, growth and
commercial acceptances of the Internet, dependence on principal products and
third-party technology, new product development and performance, new product
introductions and other activities of competitors, and its limited operating
history.
(2) Summary of Significant Accounting Policies
(a) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
(b) Cash Equivalents
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents. At September 30, 1999, the
Company maintained a $100,000 certificate of deposit which was restricted to
support a merchant service agreement.
(c) Impairment of Long-Lived Assets
In accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of, the Company records
impairment losses on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amounts.
(d) Property and Equipment
Property and equipment are carried at cost and depreciated using the
straight-line method over the estimated useful lives of the related assets,
which range from five to seven years.
F-47
<PAGE>
BEAUTYJUNGLE.COM, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(e) Financial Instruments
The fair value of the Company's financial instruments were not materially
different from their carrying values as of September 30, 1999.
(f) Revenue Recognition
Revenue is recognized upon shipment of products to the customer.
(g) Inventory
Inventory is recorded at cost using the first-in, first-out method.
(h) Computer Software/Website Development
The Company has adopted the provisions of Statement of Position 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use. Accordingly, certain costs to develop internal-use computer
software are capitalized provided these costs will be recoverable. During the
period from May 11, 1999 (inception) through September 30, 1999, $634,557
related to website development was incurred. This amount was expensed due to
the uncertainty of recovery.
(i) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(j) Option Plan
The Company has adopted the disclosure-only provisions of SFAS No. 123,
Accounting for Stock Based Compensation. SFAS No. 123 encourages, but does not
require, companies to adopt a fair value based method for determining expense
related to stock based compensation. The disclosures are presented in note 6.
The Company accounts for stock based compensation as prescribed under
Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued
to Employees, and related interpretations. Accordingly, compensation cost of
stock options is measured as the excess, if any, of the fair value of the
Company's stock at the date of grant over the option exercise price and is
charged to operations over the vesting period.
(k) Advertising Expenses
Advertising expenses are charged to operations during the year in which they
are incurred. The total amount of advertising expenses charged to operations
was $436,261 for the period from May 11, 1999 (inception) through September 30,
1999.
F-48
<PAGE>
BEAUTYJUNGLE.COM, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(l) Concentration of Credit Risk
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and cash equivalents. The Company
maintains its cash and cash equivalents with one financial institution.
(3) Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
September 30,
1999
-------------
<S> <C>
Furniture and fixtures.................................... $ 60,904
Equipment................................................. 563,948
Computers................................................. 145,583
Software.................................................. 5,969
--------
776,404
Less accumulated depreciation and amortization.............. (6,996)
--------
Property and equipment, net............................. $769,408
========
</TABLE>
(4) Income Taxes
The provision for income taxes differs from the amounts which would result
by applying the applicable Federal income tax rate of 34% to income before
provision for income taxes for the period from May 11, 1999 (inception) through
September 30, 1999 as follows:
<TABLE>
<S> <C>
Expected income tax benefit from continuing operations........ $(849,249)
State income tax benefit, net of Federal taxes................ (149,867)
Permanent differences......................................... 1,721
Effect of change in valuation allowance....................... 997,395
---------
$ --
=========
</TABLE>
Temporary differences giving rise to significant portions of the deferred
tax assets and liabilities as of September 30, 1999 are as follows:
<TABLE>
<S> <C>
Deferred tax assets--start-up costs........................... $1,020,633
Deferred tax liabilities--depreciation........................ (23,238)
----------
Net deferred tax assets................................... 997,395
Valuation allowance........................................... (997,395)
----------
Net deferred tax assets................................... $ --
==========
</TABLE>
The Company has a net operating loss carryforward of approximately $189,000
which expires in 2019. The Company has recorded a full valuation allowance
against its net deferred tax assets since management believes that, after
considering all the available objective evidence, it is more likely than not
that these assets will not be realized.
F-49
<PAGE>
BEAUTYJUNGLE.COM, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(5) Commitments
Operating Lease Agreements
The Company has various lease agreements for real and personal property.
These obligations extend through 2005 and in some cases contain renewal
options. As of September 30, 1999, future minimum lease payments for
noncancelable operating leases in excess of one year are as follows:
<TABLE>
<S> <C>
October 1, 1999 through December 31, 1999..................... $ 166,596
2000.......................................................... 533,347
2001.......................................................... 543,348
2002.......................................................... 550,706
2003.......................................................... 427,704
2004 and thereafter........................................... 530,154
----------
Total..................................................... $2,751,855
==========
</TABLE>
Rental expense on all operating leases totaled $83,581 for the period from
May 11, 1999 (inception) through September 30, 1999.
Capital Leases
Assets under capital leases consist of $213,610 of equipment at September
30, 1999.
The following are the net minimum lease payments that will have to be made
in each of the periods indicated for capital leases:
<TABLE>
<S> <C>
October 1, 1999 through December 31, 1999....................... $ 10,979
2000............................................................ 43,917
2001............................................................ 43,917
2002............................................................ 36,502
2003............................................................ 21,674
2004............................................................ 16,255
Less amount representing interest............................... (24,244)
--------
Total....................................................... $149,000
========
</TABLE>
Other Commitments
The Company has entered into two noncancelable agreements with companies
that provide services related to the installation, implementation, hosting, and
administration of the Company's website. The Company is obligated under these
agreements as follows:
<TABLE>
<S> <C>
October 1, 1999 through December 31, 1999....................... $ 34,804
2000............................................................ 189,216
2001............................................................ 154,412
--------
Total....................................................... $378,432
========
</TABLE>
F-50
<PAGE>
BEAUTYJUNGLE.COM, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(6) Capital Stock
On June 22, 1999, the Board of Directors authorized the issuance and sale of
Series A preferred stock, which is convertible into shares of the Company's
common stock. The Board of Directors reserved 13,381,579 shares of common stock
for issuance upon conversion of the Series A preferred stock. On September 15,
1999, the number of reserved shares of common stock for such conversion was
increased to 16,180,559. Any holder of Series A preferred stock may at any time
convert all or any number of shares into a number of shares of common stock
based on the conversion price in effect at such time. At September 30, 1999,
each share of preferred stock was convertible into .92 shares of common stock.
Each share of preferred stock entitles the holder to have the number of votes
equal to the number of shares of common stock into which such shares of
preferred stock are then convertible. The holders of preferred stock are
entitled to receive payment of dividends or other distributions declared on
common stock based on the amount of common shares the holder would have upon
conversion. The preferred shares rank senior to the common stock upon
liquidation of the Company.
On June 22, 1999, the Board of Directors declared a five-for-one stock
split. The par value of the common stock was maintained at the pre-split amount
of $.001 per share. The stock split has been reflected in the accompanying
financial statements, and all applicable references to the number of common
shares have been restated on a retroactive basis.
(7) Options
The Company has an option plan providing for the issuance of options for
common stock to employees, directors, consultants, and contractors. This plan
permits the Company to issue options on terms that the Company determines
appropriate. Such terms include exercise price, number of options, vesting
dates, and other terms. The Company reserved 5,352,631 shares of common stock
for issuance of awards under the plan.
The Company applies APB No. 25 and related interpretations in accounting for
its plan. Had compensation cost for the Company's options been determined
consistent with SFAS No. 123, the net loss would have increased to the pro
forma amount indicated below:
<TABLE>
<S> <C>
Net loss:
As reported................................................ $(2,686,677)
Pro forma.................................................. (2,691,907)
</TABLE>
For purposes of calculating the compensation costs consistent with SFAS No.
123, the fair value of each grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants during the period from May 11, 1999 (inception)
through September 30, 1999: no expected dividend yield; no expected volatility;
risk free interest rate of 5.92%; and expected life of four years.
Additional information on options is as follows:
<TABLE>
<CAPTION>
Weighted
average
Number of exercise
options price
--------- --------
<S> <C> <C>
Options outstanding as of May 11, 1999 (inception).... -- $ --
Granted............................................... 2,408,684 0.10
--------- -----
Options outstanding as of September 30, 1999.......... 2,408,684 $0.10
========= =====
</TABLE>
F-51
<PAGE>
BEAUTYJUNGLE.COM, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Following is a summary of outstanding options as of September 30, 1999:
<TABLE>
<CAPTION>
Options
Options outstanding exercisable
---------------------------------------- ----------------------
Weighted
average Weighted Weighted
remaining average average
Exercise contractual exercise exercise
price Number life price Number price
-------- --------- ----------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
$0.10 2,408,684 9.8 $0.10 446,052 $0.10
</TABLE>
The weighted average fair value of options granted during the period from
May 11, 1999 (inception) to September 30, 1999 was $.02.
(8) 401(k) Savings Plan
The Company sponsors a 401(k) savings plan covering substantially all
employees. Employees may contribute up to the maximum limits set by the
Internal Revenue Code for tax-deferred treatment. The Company does not
contribute to the Plan.
(9) Subsequent Events
On October 6, 1999, the Company obtained a letter of credit from Silicon
Valley Bank in the amount of $209,275. The letter of credit was obtained as
part of a lease agreement entered into by the Company. The amount of the letter
of credit decreases as follows provided the available amount exceeds the
aggregate amount of future lease payments at that time:
<TABLE>
<CAPTION>
Aggregate
Effective date amount
-------------- ---------
<S> <C>
October 1, 2000................ $174,480
October 1, 2001................ 139,585
October 1, 2002................ 104,690
</TABLE>
This lease is for office space for the Company's New York location. The
lease term is six years with a base annual rent of $209,375 subject to a 3%
annual increase effective October of each succeeding year.
Subsequent to September 30, 1999, the Company entered into promissory notes
with the chief executive officer aggregating $2,500,000. The notes bear
interest at 9% per annum and are payable upon demand. The principal of the
notes may be prepaid, in whole or in part, without penalty or premium, at any
time. On January 11, 2000, principal of $708,000 was repaid along with accrued
interest of $42,000. The Company also entered into a $1,000,000 promissory note
with a member of the Company's Board of Directors. This note includes the same
terms and conditions as the notes with the chief executive officer. On January
11, 2000, this note was repaid in full including accrued interest of $6,600.
The Company issued 500,000 shares of Series A preferred stock subsequent to
September 30, 1999. The total proceeds were $100,000.
On January 11, 2000, the Company entered into a Series B preferred stock
purchase agreement (the Agreement) with a third party. Under the terms of the
Agreement, the Company issued 35,168,864 shares of Series B convertible
preferred stock and agreed to issue an additional 35,168,864 shares of Series B
convertible preferred stock at a second closing. Each share of Series B
preferred stock is convertible into one share of common stock.
As of the closing of the Agreement, the Company's authorized capital stock
consisted of 142,000,000 shares of common stock, 18,137,500 shares of Series A
preferred stock, and 70,500,000 shares of Series B convertible preferred stock.
F-52
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
bid4real.com, inc.:
We have audited the accompanying balance sheet of bid4real.com, inc. (a
development stage enterprise) as of December 31, 1999, and the related
statements of operations, stockholder's deficit, and cash flows for the period
from December 13, 1999 (inception) through December 31, 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 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 bid4real.com, inc. (a
development stage enterprise) as of December 31, 1999, and the results of its
operations and its cash flows for the period from December 13, 1999 (inception)
through December 31, 1999, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Chicago, Illinois
February 7, 2000
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Bid4Real.com LLC:
We have audited the accompanying balance sheet of Bid4Real.com LLC (a
development stage enterprise) as of December 31, 1999, and the related
statements of operations, members' deficit, and cash flows for the period from
July 15, 1999 (inception) through December 31, 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 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 Bid4Real.com LLC (a
development stage enterprise) as of December 31, 1999, and the results of its
operations and its cash flows for the period from July 15, 1999 (inception)
through December 31, 1999, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Chicago, Illinois
February 7, 2000
F-53
<PAGE>
BID4REAL.COM, INC.
(a development stage enterprise)
BALANCE SHEETS
December 31, 1999
<TABLE>
<CAPTION>
bid4real.com, Bid4Real.com bid4real.com, inc.
inc. LLC Pro forma
------------- ------------ ------------------
(unaudited)
Assets
<S> <C> <C> <C>
Current assets:
Cash........................... $390,607 75 390,682
Due from Bid4Real.com LLC...... 109,393 -- --
Other current assets........... -- 57,498 57,498
-------- -------- --------
Total current assets......... 500,000 57,573 448,180
Web site development, at cost.... -- 48,862 48,862
Property and equipment, at cost.. -- 35,323 35,323
-------- -------- --------
Total assets................. $500,000 141,758 532,365
======== ======== ========
Liabilities and Deficit
Current liabilities:
Accounts payable............... $ -- 88,513 88,513
Accrued expenses............... 1,747 80,228 81,975
Convertible note payable....... 500,000 -- 500,000
Due to bid4real.com, inc....... -- 109,393 --
Related party promissory notes
payable....................... -- 114,796 114,796
-------- -------- --------
Total current liabilities.... 501,747 392,930 785,284
-------- -------- --------
Equity (deficit):
Members' equity:
Member contributions.......... -- 14,000 --
less: member contributions
receivable.................. -- (1,895) --
Stockholder's equity:
Series A-1 convertible
preferred stock, $.001 par
value; 7,000,000 shares
authorized; none issued and
outstanding.................. -- -- --
Series A-2 convertible
preferred stock, $.001 par
value; 7,000,000 shares
authorized; none issued and
outstanding.................. -- -- --
Class A common stock, $.001
par value; 15,031,842 shares
authorized; none issued and
outstanding at December 31,
1999; 5,879,999 issued in
merger....................... -- -- 5,880
Class B common stock, $.001
par value; 7,000,000 shares
authorized; none issued and
outstanding.................. -- -- --
Common stock, $.001 par value;
2,000 shares authorized; 1
share issued and outstanding;
cancelled in merger.......... -- -- --
Additional paid-in capital.... -- -- 6,225
Deficit accumulated during the
development stage............ (1,747) (263,277) (265,024)
-------- -------- --------
Total deficit................ (1,747) (251,172) (252,919)
-------- -------- --------
Total liabilities and
deficit..................... $500,000 141,758 532,365
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-54
<PAGE>
BID4REAL.COM, INC.
(a development stage enterprise)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
December 13, 1999 Period from
(inception) July 15, 1999
through (inception)
December 31, 1999 through
bid4real.com, December 31, 1999 bid4real.com, inc.
inc. Bid4Real.com LLC Pro forma
----------------- ----------------- ------------------
(unaudited)
<S> <C> <C> <C>
Revenues................ $ -- -- --
------- -------- --------
Operating expenses:
Payroll related
expenses............. -- 151,016 151,016
General and
administrative....... -- 108,584 108,584
------- -------- --------
Total operating
expenses........... -- 259,600 259,600
Interest expense........ 1,747 3,677 5,424
------- -------- --------
Net loss............ $(1,747) (263,277) (265,024)
======= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-55
<PAGE>
BID4REAL.COM, INC.
(a development stage enterprise)
STATEMENT OF STOCKHOLDER'S DEFICIT
Period from December 13, 1999 (inception) through December 31, 1999
<TABLE>
<CAPTION>
Deficit
accumulated
Common stock Additional during the Total
------------- paid-in development stockholder's
Shares Amount capital stage deficit
------ ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 13, 1999
(inception)................ -- $-- -- -- --
Issuance of common stock in
formation of the Company... 1 -- -- -- --
Net loss.................... -- -- -- (1,747) (1,747)
--- ---- --- ------ ------
Balance at December 31,
1999....................... 1 $-- -- (1,747) (1,747)
=== ==== === ====== ======
</TABLE>
See accompanying notes to financial statements.
F-56
<PAGE>
BID4REAL.COM, INC.
(a development stage enterprise)
STATEMENT OF MEMBERS' DEFICIT
Period from July 15, 1999 (inception) through December 31, 1999
<TABLE>
<CAPTION>
Members'
deficit
Bid4Real.com
LLC
------------
<S> <C>
Balance at July 15, 1999 (inception)............................... $ --
Contributed capital................................................ 14,000
Member contributions receivable.................................... (1,895)
Net loss........................................................... (263,277)
---------
Balance at December 31, 1999....................................... $(251,172)
=========
</TABLE>
See accompanying notes to financial statements.
F-57
<PAGE>
BID4REAL.COM, INC.
(a development stage enterprise)
STATEMENT OF CASH FLOWS
Period from December 13, 1999 (inception) through December 31, 1999
<TABLE>
<CAPTION>
bid4real.com, inc.
------------------
<S> <C>
Cash flows from operating activities:
Net loss.................................................. $ (1,747)
Adjustments to reconcile net loss to net cash used in
operating activities:
Changes in assets and liabilities--
Accrued expenses...................................... 1,747
--------
Net cash used in operating activities............... --
--------
Cash flows from financing activities:
Issuance of convertible note payable...................... 500,000
Advance to Bid4Real.com LLC............................... (109,393)
--------
Net cash provided by financing activities........... 390,607
--------
Net increase in cash................................ 390,607
Cash at beginning of period................................. --
--------
Cash at end of period....................................... $390,607
========
</TABLE>
See accompanying notes to financial statements.
F-58
<PAGE>
BID4REAL.COM, INC.
(a development stage enterprise)
STATEMENT OF CASH FLOWS
Period from July 15, 1999 (inception) through December 31, 1999
<TABLE>
<CAPTION>
Bid4Real.com
LLC
------------
<S> <C>
Cash flows from operating activities:
Net loss........................................................ $(263,277)
Adjustments to reconcile net loss to net cash used in operating
activities:
Changes in assets and liabilities:
Other assets................................................ (57,498)
Accounts payable............................................ 88,513
Accrued expenses............................................ 80,228
---------
Net cash used in operating activities..................... (152,034)
---------
Cash flows from investing activities:
Web site development costs...................................... (48,862)
Purchases of property and equipment............................. (35,323)
---------
Net cash used in investing activities..................... (84,185)
---------
Cash flows from financing activities:
Proceeds from member contributions.............................. 12,105
Advance from bid4real.com, inc.................................. 109,393
Issuance of promissory notes to members......................... 114,796
---------
Net cash provided by financing activities................. 236,294
---------
Net increase in cash...................................... 75
Cash at beginning of period....................................... --
---------
Cash at end of period............................................. $ 75
=========
</TABLE>
See accompanying notes to financial statements.
F-59
<PAGE>
BID4REAL.COM, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
(1) Description of the Business and Basis of Presentation
bid4real.com, inc. ("the Company") was incorporated as a Subchapter C-
corporation on December 13, 1999. Bid4Real.com LLC was established as a limited
liability company on July 15, 1999. On January 12, 2000, Bid4Real.com LLC
merged with bid4real.com, inc. under the terms of an agreement and plan of
merger between Bid4Real.com LLC and bid4real.com, inc. Upon completion of the
merger, (i) each member of Bid4Real.com LLC will convert each incremental 1%
ownership into 58,800 shares of bid4real.com, inc. Class A common stock, (ii)
Bid4Real.com LLC will dissolve and (iii) the assets and liabilities of
Bid4Real.com LLC will be transferred to the Company. The merger will be
accounted for as a combination of entities under common control and,
accordingly, the transfer of the assets and liabilities of Bid4Real.com LLC to
the Company will be recorded by the Company at historical carrying values. The
pro forma effect of the combination on reported financial position and results
of operations is disclosed in the accompanying balance sheet and statement of
operations as of and for the period from July 15, 1999 through December 31,
1999.
The Company is an Internet-based business focused on providing real estate
auction over the Internet. The Company's web site began on January 11, 2000 and
is expected to become fully operational in February 2000.
Since inception, the Company has devoted substantially all of its efforts to
business planning, product development, acquiring operating assets, raising
capital, marketing and business development activities. Accordingly, the
Company was in the development stage during 1999, as defined by Statement of
Financial Accounting Standards (SFAS) No. 7, Accounting and Reporting by
Development Stage Enterprises.
bid4real.com, inc. is subject to risks and uncertainties common to growing
technology-based companies, including technological change, growth and
commercial acceptance of the Internet, dependence on principal products and
third party technology, new product development and performance, new product
introductions and other activities by competitors, and its limited operating
history.
(2) Summary of Significant Accounting Policies
(a) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
(b)Property and Equipment
Property and equipment, consisting primarily of computer equipment, is
stated at cost. Bid4Real.com LLC has not recorded depreciation expense during
the period from July 15, 1999 (inception) through December 31, 1999, as the
equipment has not been placed into service.
(c) Computer Software
The Company has adopted the provisions of Statement of Position 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use. Accordingly, certain costs to develop internal-use computer
software are capitalized. As of December 31, 1999, Bid4Real.com LLC has
capitalized $48,862 of costs related to the development of its web site.
F-60
<PAGE>
BID4REAL.COM, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(d) Deferred Private Placement Costs
The Company incurred professional fees aggregating $57,498 in connection
with a January 2000 private placement (Note 3). Such amounts have been
capitalized and are included in the accompanying balance sheet as other current
assets.
(e) Income Taxes
Effective July 15, 1999, Bid4Real.com LLC elected to become a limited
liability company for income tax reporting purposes. Accordingly, Bid4Real.com
LLC is treated as a partnership for Federal income tax purposes. For the period
from July 15, 1999 (inception) through December 31, 1999, no provision has been
made for income taxes, as Bid4Real.com LLC is not directly subject to taxation.
Bid4Real.com LLC's net loss is allocated to and included in the income tax
returns of its members.
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. Under SFAS No. 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the period that includes the
enactment date. Deferred tax assets and an income tax benefit have not been
reflected in the financial statements as of and for the period from December
13, 1999 (inception) through December 31, 1999, because the Company's
management believes that, after considering all the available objective
evidence, it is more likely than not that the underlying deferred tax assets
will not be realized.
(f) Recent Accounting Pronouncements
The Company does not expect the adoption of recently issued accounting
pronouncements to have a significant impact on the Company's results of
operations, financial position, or cash flows.
(3) Convertible Note Payable
The Company issued a $500,000 convertible note to a third party on December
17, 1999. The note has a maturity date of March 27, 2000 and bears interest at
8.5% per annum. Upon the date that the Company and the holder enter into a
definitive Series A Preferred Stock purchase agreement, the note will be
surrendered and the outstanding principal amount of the note will automatically
be converted into the Series A-2 convertible preferred stock based upon the
price per share paid by the holder. All accrued interest and unpaid interest on
the note will be paid in cash to the holder of the note. Interest expense
totaled $1,747 for the period from December 17, 1999 through December 31, 1999.
The note was subsequently converted into shares of the Company's Series A-2
convertible preferred stock in connection with the January 2000 private
placement (Note 5).
(4) Related-party Transactions
Promissory notes
On August 10, 1999, Bid4Real.com LLC entered into promissory notes with
several members of the LLC including an entity controlled by an officer. The
promissory notes reflect amounts owed for advances to fund operating costs. The
promissory notes bear interest at a rate of 9% per annum. No payments have been
made on these notes as of December 31, 1999. Interest expense totaled $3,677
for the period from July 15, 1999 (inception) through December 31, 1999.
F-61
<PAGE>
BID4REAL.COM, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Rental expense
The Company's operating facilities are located in Chicago, Illinois. During
the period from July 15, 1999 (inception) through December 31, 1999, the
Company occupied office space subleased from an entity controlled by an
officer. During this period, Bid4Real.com LLC paid $8,400 to this entity
related to rental expense. Such amount represented the estimated market value
of the rent expense.
(5) Subsequent Events
Equity Transactions
On January 6, 2000, the Company amended its certificate of incorporation to
authorize the issuance of 7,000,000 shares of $.001 par value common stock.
On January 12, 2000, the Company amended its certificate of incorporation to
authorize the issuance of 36,031,842 shares of $.001 par value capital stock,
of which 7,000,000 shares are designated Series A-1 convertible preferred
stock, 7,000,000 shares are designated Series A-2 convertible preferred stock,
15,031,842 shares are designated Class A common stock, and 7,000,000 shares are
designated Class B common stock.
In conjunction with the January 12, 2000 merger of Bid4Real.com LLC and
bid4real.com, inc., as discussed in Note 1, each member of Bid4Real.com LLC
converted each incremental 1% ownership into 58,800 shares of bid4real.com,
inc. Class A common stock. The conversion resulted in the issuance of 5,879,999
shares of the Company's Class A common stock. In addition, the 1 share of
common stock issued and outstanding at December 31, 1999 was cancelled.
The Company issued 11,015,921 shares of Series A-2 convertible preferred
stock in conjunction with a January 2000 private placement, which yielded
aggregate gross proceeds of $7,000,000. The proceeds from this offering
included $6,500,000 cash and the conversion of a $500,000 convertible note
(Note 3). The gross proceeds received will be reduced by $57,498 of deferred
offering costs (Note 1(d)).
Line of Credit
In January 2000, the Company entered into an operating line of credit with a
borrowing limit of $250,000. Borrowings under the line of credit accrue
interest at the bank's prime rate of interest. The line of credit will expire
on December 31, 2000.
Stock Options (unaudited)
In January 2000, the Company established an incentive and non-qualified
stock option plan ("the Plan") for employees, officers, and directors of the
Company. The Company reserved 1,856,842 shares of Class A common stock for
issuance under the Plan. The Board of Directors granted 271,158 incentive
options at an exercise price of $.475 per Class A common share. The Board of
Directors granted 211,526 non-qualified options at an exercise price of $.08
per Class A common share. The options vest over a period of time approved and
adopted by the Board of Directors, generally one year from the date of grant.
F-62
<PAGE>
BID4REAL.COM, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(6) Pro Forma Presentation (unaudited)
On January 12, 2000, Bid4Real.com LLC merged with bid4real.com, inc. under
the terms of an agreement and plan of merger between Bid4Real.com LLC and
bid4real.com, inc. Upon completion of the merger, (i) each member of
Bid4Real.com LLC will convert each incremental 1% ownership into 58,800 shares
of bid4real.com, inc. Class A common stock, (ii) Bid4Real.com LLC will dissolve
and (iii) the assets and liabilities of Bid4Real.com LLC will be transferred to
the Company. In addition, the 1 share of common stock issued and outstanding as
of December 31, 1999 will be cancelled.
The December 31, 1999 pro forma balance sheet is presented to give effect to
the conversion of all the outstanding Bid4Real.com LLC membership interests
into 5,879,999 shares of the Company's Class A common stock. Prior to the
conversion, the net losses of Bid4Real.com LLC were allocated to the members
and reflected in members' deficit. At the time of the conversion, members'
deficit will be reclassified into Class A common stock and additional paid-in
capital. The pro forma statement of operations for 1999 reflects the
aggregation of the Company's operations from December 13, 1999 (inception)
through December 31, 1999 and the operations of Bid4Real.com LLC from July 15,
1999 (inception) through December 31, 1999.
Upon completion of the merger, 5,879,999 shares of Class A common stock will
be issued and outstanding.
F-63
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
BidBuyBuild, Inc.
We have audited the accompanying balance sheet of BidBuyBuild, Inc. (a
development stage enterprise) (the Company) as of December 31, 1999, and the
related statements of operations, shareholders' deficit, and cash flows for the
period from November 9, 1999 (date of inception) through December 31, 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 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 BidBuyBuild, Inc. (a
development stage enterprise) as of December 31, 1999, and the results of its
operations and its cash flows for the period from November 9, 1999 (date of
inception) through December 31, 1999, in conformity with generally accepted
accounting principles.
/s/ Grant Thornton LLP
Chicago, Illinois
February 4, 2000
F-64
<PAGE>
BIDBUYBUILD, INC.
(a development stage enterprise)
BALANCE SHEET
December 31, 1999
<TABLE>
<S> <C>
Assets
Current assets:
Cash and cash equivalents....................................... $ 249,393
Advances to founders............................................ 24,800
Prepaid expenses................................................ 1,400
---------
Total current assets.......................................... 275,593
Computer equipment.............................................. 13,152
---------
Total assets.................................................. $ 288,745
=========
Liabilities and Shareholders' Deficit
Current liabilities:
Accounts payable................................................ $ 10,448
Accrued expenses................................................ 270,209
Convertible debt................................................ 150,000
---------
Total current liabilities..................................... 430,657
=========
Shareholders' Deficit:
Common stock, authorized 5,000,000 shares, $.001 par value;
4,962,500 issued and outstanding............................... 4,962
Additional paid-in capital...................................... 149,888
Deficit accumulated during development stage.................... (296,762)
---------
Total shareholders' deficit................................... (141,912)
---------
Total liabilities and shareholders' deficit................... $ 288,745
=========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-65
<PAGE>
BIDBUYBUILD, INC.
(a development stage enterprise)
STATEMENT OF OPERATIONS
Period from November 9, 1999 (inception) through December 31, 1999
<TABLE>
<S> <C>
Revenues........................................................ $ --
--------
Operating expenses:
Product development costs..................................... 250,000
General and administrative.................................... 46,762
--------
Total operating expenses.................................... 296,762
--------
Operating loss................................................ 296,762
Income taxes.................................................. --
--------
Net loss...................................................... $296,762
========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-66
<PAGE>
BIDBUYBUILD, INC.
(a development stage enterprise)
STATEMENT OF SHAREHOLDERS' DEFICIT
Period from November 9, 1999 (inception) through December 31, 1999
<TABLE>
<CAPTION>
Deficit
accumulated
Common stock Additional during the
---------------- paid-in development Shareholders'
Shares Amount capital stage deficit
--------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance November 1, 1999
(inception)............. -- $ -- $ -- $ -- $ --
Issuance of shares....... 4,962,500 4,962 149,888 -- 154,850
Net Loss................. -- -- -- (296,762) (296,762)
--------- ------ -------- --------- ---------
Balance December 31,
1999.................... 4,962,500 $4,962 $149,888 $(296,762) $(141,912)
========= ====== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-67
<PAGE>
BIDBUYBUILD, INC.
(a development stage enterprise)
STATEMENT OF CASH FLOWS
Period from November 9, 1999 (inception) through December 31, 1999
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss $(296,762)
Adjustments to reconcile net income to net cash used in operating
activities:
Increase in advanced receivables.................................. (24,800)
Increase in prepaid assets........................................ (1,400)
Increase in accounts payable...................................... 10,448
Increase in accrued expenses...................................... 270,209
---------
Net cash used in operating activities............................. (42,305)
Cash flows from investing activities:
Capital expenditures.............................................. (13,152)
---------
Net cash used in investing activities............................. (13,152)
Cash flows from financing activities:
Convertible debt.................................................. 150,000
Stock issuance.................................................... 154,850
---------
Net cash provided by financing activities......................... 304,850
---------
Net increase in cash and cash equivalents........................... 249,393
Cash and cash equivalents at beginning of year...................... --
---------
Cash and cash equivalents at end of year............................ $ 249,393
=========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-68
<PAGE>
BIDBUYBUILD, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation and Summary of Significant Accounting Policies
Development Stage
BidBuyBuild, Inc. (the Company) commenced operations on November 9, 1999,
and was incorporated in the State of Delaware under the name BidBuyBuild, Inc.
The Company is a development stage enterprise that plans to provide a web-site
initially focused on facilitating business to business ecommerce for
Mechanical, Electrical and Plumbing (MEP) contracting.
The Company has had no operating revenue; as its activities have focused on
initial web-site development, market development, and raising capital.
Financing of the development activities has been provided primarily through the
sale of common stock and convertible debt. The accumulated loss from inception
through December 31, 1999 was $296,762.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash and short-term investments with
original maturities of not more than three months.
Computer Equipment
Computer equipment is carried at cost and is depreciated using the straight-
line method over the estimated useful lives of the related assets, generally
three years.
Product Development Costs
The Company has adopted the provisions of the American Institute of
Certified Public Accountants' Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." During the
period from November 9, 1999 (inception) through December 31, 1999, software
development costs of $250,000 were incurred related to the development of a
web-based network and website. Such amounts were expensed as they were incurred
during the preliminary project phase.
Income Taxes
The Company accounts for income taxes using Statement of Financial
Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes."
Under SFAS No. 109 income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
F-69
<PAGE>
BIDBUYBUILD, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Comprehensive Income
SFAS No. 130, "Reporting Comprehensive Income". SFAS No. 130 establishes
standards for the reporting and display of comprehensive income and its
components in the financial statements. The Company has no amounts associated
with the components of other comprehensive income in the Company's financial
statements.
2. Computer Equipment
Computer equipment is recorded at cost. Depreciation is provided using the
straight-line method over three years. No depreciation was recorded, as the
computers were not placed into service.
Computer equipment, stated at cost, was as follows at December 31, 1999:
<TABLE>
<S> <C>
Computer equipment................................................ $13,152
=======
</TABLE>
3. Advances to Founders
During December the Company advanced amounts to its Founders. The balance
outstanding as of December 31, 1999 was $24,800.
4. Income Taxes
The Company has incurred net operating losses since inception. Given the
uncertainty of future earning trends, the Company has not reflected any benefit
of such net operating loss carryforwards in the accompanying financial
statements.
<TABLE>
<S> <C>
Expected income tax benefit at the statutory rate........... $(100,900)
(Increase) reduction in tax benefit resulting from:
Increase in the beginning valuation allowance............. 118,706
State income tax benefit.................................. (17,806)
-----------
$ --
===========
</TABLE>
The tax effects of temporary differences that give rise to significant
deferred tax assets as of December 31, 1999 are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforward............................. $ 3,958
Start-up and organizational costs........................... 114,748
---------
Total deferred tax assets................................. 118,706
Valuation allowance........................................... $(118,706)
---------
Net deferred tax asset........................................ $ --
=========
</TABLE>
As of December 31, 1999, the Company has U.S. tax net operating loss
carryforwards of approximately $4,000, which can be carried forward for 20
years and will begin to expire in 2019. Pursuant to Sections 382 and 383 of the
Internal Revenue Code, the annual use of the Company's net operating loss and
credit carryforwards, may be limited if a cumulative change in ownership (as
defined by the Internal Revenue Code) of more than 50 percent occurs within a
three-year testing period.
F-70
<PAGE>
BIDBUYBUILD, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or the entire deferred tax
asset will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which temporary differences become deductible. Based upon the level of
historical taxable income and projections for future taxable income over the
periods in which the temporary differences are available to reduce income taxes
payable, management has established a valuation allowance for the full amount
of the net deferred tax assets.
5. Convertible Notes to Stockholders
During December 1999, the Company issued various unsecured notes payable to
certain stockholders. These promissory notes bear interest at 5.66% and are due
six months from the issuance date. The total principal balance outstanding on
the notes at December 31, 1999 was $150,000 and has been classified as a
current liability. If the Company fails to pay in full all principal and
interest due under the notes, they shall automatically be converted into 37,500
shares of common stock.
6.Related Party
The Company entered into a Consulting Agreement for the development of their
ecommerce platform and web-site. Certain employees of the consulting firm are
shareholders in the Company. Additionally, under certain circumstances, if the
consulting fees are not paid, the outstanding payable will convert into common
stock.
7. Subsequent Event
On January 18, 2000, the Company entered into a Letter of Intent, with a
third party (Investor). Subject to the Investor's due diligence, the Company
will issue to Investor shares of Series A Convertible Preferred Stock equal to
35.3% of the Company's common stock on a fully diluted basis. The Company will
also issue a warrant to the investor for approximately 281,000 shares of common
stock (or 3% of the Company's common stock on a fully diluted basis). The
warrant is exercisable, in whole or in part, at any time over the next five
years.
F-71
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
eFiltration.com, Inc.:
We have audited the accompanying balance sheet of eFiltration.com, Inc. (a
development stage enterprise) as of December 31, 1999, and the related
statements of operations, stockholders' deficit, and cash flows for the period
from September 7, 1999 (inception) through December 31, 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 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 eFiltration.com, Inc. (a
development stage enterprise) as of December 31, 1999, and the results of its
operations and its cash flows for the period from September 7, 1999 (inception)
through December 31, 1999, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Chicago, Illinois
February 7, 2000, except for
note 6 which is as of
February 11, 2000
F-72
<PAGE>
EFILTRATION.COM, INC. (a development stage enterprise)
BALANCE SHEET
December 31, 1999
ASSETS
<TABLE>
<S> <C>
Current assets:
Prepaid expenses................................................... $ 160
--------
Total assets..................................................... $ 160
========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Due to affiliate..................................................... $ 37,670
Accounts payable and accrued liabilities............................. 3,509
--------
Total current liabilities........................................ 41,179
--------
Stockholders' deficit:
Common stock, no par value, 1,000 shares authorized, 100 shares
issued and outstanding............................................ 1,000
Due from shareholders.............................................. (1,000)
Deficit accumulated during the development stage................... (41,019)
--------
Total stockholders' deficit...................................... (41,019)
--------
Total liabilities and stockholders' deficit...................... $ 160
========
</TABLE>
See accompanying notes to financial statements.
F-73
<PAGE>
EFILTRATION.COM, INC.
(a development stage enterprise)
STATEMENT OF OPERATIONS
Period from September 7, 1999 (inception) through December 31, 1999
<TABLE>
<S> <C>
Revenues............................................................. $ --
Selling, general and administrative expenses......................... 41,019
--------
Net loss........................................................... $(41,019)
========
</TABLE>
See accompanying notes to financial statements.
F-74
<PAGE>
EFILTRATION.COM, INC.
(a development stage enterprise)
STATEMENT OF STOCKHOLDERS' DEFICIT
Period from September 7, 1999 (inception) through December 31, 1999
<TABLE>
<CAPTION>
Deficit
accumulated
Common stock during the Total
------------- Due from development stockholders'
Shares Amount shareholders stage deficit
------ ------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at September 7,
1999 (inception)......... -- $ -- -- -- --
Issuance of common stock
in formation of the
Company.................. 100 1,000 (1,000) -- --
Net loss.................. -- -- -- (41,019) (41,019)
--- ------ ------ ------- -------
Balance at December 31,
1999..................... 100 $1,000 (1,000) (41,019) (41,019)
=== ====== ====== ======= =======
</TABLE>
See accompanying notes to financial statements.
F-75
<PAGE>
EFILTRATION.COM, INC.
(a development stage enterprise)
STATEMENT OF CASH FLOWS
Period from September 7, 1999 (inception) through December 31, 1999
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss........................................................... $(41,019)
Adjustments to reconcile net loss to net cash used in operating
activities:
Changes in assets and liabilities:
Prepaid expenses............................................... (160)
Accounts payable and accrued expenses.......................... 41,179
--------
Net cash used in operating activities........................ --
--------
Net increase in cash......................................... --
--------
Cash at beginning of period.......................................... --
--------
Cash at end of period................................................ $ --
========
Supplemental disclosure of noncash financing activities--issuance of
common stock for amounts due from shareholders.................... $ 1,000
========
</TABLE>
See accompanying notes to financial statements.
F-76
<PAGE>
EFILTRATION.COM, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
(1) Nature of the Business
eFiltration.com, Inc. (the Company) was incorporated as a Subchapter C
corporation on September 7, 1999 as a spin-out of Filtration Group--Fluid
Systems (Affiliate). Filtration Group--Fluid Systems originally served as a
distributor of heating, ventilation and air conditioning (HVAC) filters
throughout the Midwest, and has since expanded into manufacturing filter
products. eFiltration.com, Inc. is focused on business-to-business (B2B) e-
commerce in the filtration industry. Its customers are consumers of filtration
products and other vertical sites that pay the Company to manage the filtration
component of their B2B marketplace. The Company's website, www.efiltration.com,
provides information on the Company and the services it performs.
Since inception, the Company has devoted substantially all of its efforts to
activities such as financial planning, raising capital, and website
development. Accordingly, the Company is in the development stage, as defined
by the Statement of Financial Accounting Standards (SFAS) No. 7, Accounting and
Reporting by Development Stage Enterprises.
The Company has incurred a loss since inception. Should the Company be
unable to generate revenue and realize cash flows from operations in the near
term, the Company may require additional equity or debt financing to meet
working capital needs and to fund operating losses. Although management
believes the Company could obtain such financing, there can be no assurances
that such financing will be available in the future at terms acceptable to the
Company.
eFiltration.com, Inc. is subject to risks and uncertainties common to
growing technology-based companies, including technological change, growth and
commercial acceptance of the Internet, dependence on principal products and
third-party technology, new product development and performance, new product
introductions and other activities of competitors, and its limited operating
history.
(2) Summary of Significant Accounting Policies
(a) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
(b) Website Development and Advertising Costs
The Company has adopted the provisions of Statement of Position (SOP) 93-7,
Reporting on Advertising Costs and SOP 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. Accordingly, costs
related to media development and other website content are expensed as
incurred. Costs qualifying for capitalization are initially capitalized and
amortized over the useful life of the asset. For the period from September 7,
1999 (inception) through December 31, 1999, the Company incurred and expensed
website development costs of $20,164. Costs initially capitalized under SOP 98-
1 have subsequently been expensed as the useful life of the website has
expired.
For the period from September 7, 1999 (inception) through December 31, 1999,
the Company incurred and expensed $4,936 in advertising costs.
(c) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying
F-77
<PAGE>
EFILTRATION.COM, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
amounts of existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(3) Income Taxes
The provision for income taxes differs from the amounts which would result
by applying the applicable Federal income tax rate of 34% to income before
provision for income taxes for the period from September 7, 1999 (inception) to
December 31, 1999 as follows:
<TABLE>
<S> <C>
Expected income tax benefit from continuing operations......... $(13,946)
State income tax benefit, net of Federal taxes................. (2,461)
Permanent differences.......................................... 55
Effect of change in valuation allowance........................ 16,352
--------
$ --
========
</TABLE>
Temporary differences giving rise to significant portions of the deferred
tax assets and liabilities at December 31, 1999 are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Start-up costs................................................ $ 14,378
Net operating loss carryforward............................... 1,974
--------
Total gross deferred tax assets............................. 16,352
Valuation allowance............................................. (16,352)
--------
Net deferred taxes.......................................... $ --
========
</TABLE>
The Company incurred a net operating loss from September 7, 1999 (inception)
through December 31, 1999, which can potentially be carried forward twenty
years and will expire in 2019.
The Company has recorded a full valuation allowance against its deferred tax
assets since management believes that, after considering all the available
objective evidence, it is more likely than not that these assets will not be
realized.
(4) Related Party Transactions
The Affiliate of the Company under common control has funded the operations
of the Company. One shareholder owning 50% of the Company also owns
approximately 56% of the Affiliate. Total amounts payable at December 31, 1999
to the Affiliate is $37,670.
Included in the amount due to Affiliate is $4,000 for corporate allocation.
The corporate allocation is for accounting salaries, administration expense,
rent, and shared office equipment.
(5) Commitments and Contingencies
On November 24, 1999, the Company entered into an advertising agreement that
provides for the Company to make payments during 2000 totaling $36,000.
F-78
<PAGE>
EFILTRATION.COM, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(6) Subsequent Events
On February 2, 2000, the Company reincorporated in the State of Delaware. In
conjunction with the reincorporation, authorized capital stock consisted of
9,307,692 shares of Common Stock, $.001 par value, all of which is issued and
outstanding.
On February 11, 2000 (closing date), the Company entered into a Series A
Preferred Stock Purchase Agreement (the Agreement) with a third party. Under
the terms of the Agreement, the third party received 7,692,308 shares of Series
A-2 preferred stock from the Company for $5,000,000 in cash and a secured
promissory note in the amount of $5,000,000. The third party is obligated to
purchase additional shares of Series A-2 preferred stock for $11,000,000 if the
Company has a minimum of $2,000,000 of revenue for the 12-month period ending
on the last day of the fifteenth month after the closing date. The Series A-2
preferred stock is convertible into shares of Series A-1 preferred stock or
Class B common stock on a one-for-one basis. The Series A-1 preferred stock and
Class B common stock are convertible into shares of Class A common stock on a
one-for-one basis.
In conjunction with the Agreement, the Company amended its articles of
incorporation to authorize the following classes of capital stock: 34,158,163
shares of $.001 par value Class A common stock; 21,442,308 shares of $.001 par
value Class B common stock; 21,442,308 shares of $.001 par value Series A-1
preferred stock; and 21,442,308 shares of $.001 par value Series A-2 preferred
stock.
F-79
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
i-Fulfillment, Inc.:
We have audited the accompanying balance sheet of I-FULFILLMENT, INC. (an
Illinois corporation in the development stage) as of June 30, 1999, and the
related statements of operations, shareholders' (deficit) equity and cash flows
for the period from October 6, 1998 (inception), through June 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 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 i-Fulfillment, Inc. as of
June 30, 1999, and the results of its operations and its cash flows for the
period from October 6, 1998 (inception), through June 30, 1999, in conformity
with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Chicago, Illinois
February 8, 2000
F-80
<PAGE>
I-FULFILLMENT, INC.
(a development stage company)
BALANCE SHEETS
As of June 30, 1999 and December 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1999
Assets -------- ------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash.................................................. $ -- $ 1,000
Intangible Asset........................................ -- 6,207
-------- --------
Total assets........................................ $ -- $ 7,207
======== ========
<CAPTION>
Liabilities and Shareholders' (Deficit) Equity
<S> <C> <C>
Current Liabilities:
Accrued expenses ..................................... $ 1,000 $ 4,000
-------- --------
Commitments and Contingencies
Shareholders' (Deficit) Equity:
Common stock, $0.01 par value; 10,000,000 shares
authorized; 100 shares and 5,000,000 issued and
outstanding as of June 30, 1999, and December 31,
1999, respectively................................... 1 50,000
Additional paid-in capital............................ 13,138 --
Deficit accumulated during the development stage...... (14,139) (46,793)
-------- --------
Total shareholders' (deficit) equity................ (1,000) 3,207
-------- --------
Total liabilities and shareholders' equity.......... $ -- $ 7,207
======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-81
<PAGE>
I-FULFILLMENT, INC.
(a development stage company)
STATEMENTS OF OPERATIONS
Period from October 6, 1998 (Inception), Through
June 30, 1999, Six Months Ended
December 31, 1999 (Unaudited),
and Period from October 6, 1998 (Inception),
Through December 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Period From
Period From October 6,
October 6, 1998
1998 Six Months (Inception),
(Inception), Ended Through
Through June December 31, December 31,
30, 1999 1999 1999
------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Operating Expenses:
General and administrative expenses..... $(14,139) $(32,654) $(46,793)
-------- -------- --------
Net Loss.................................. $(14,139) $(32,654) $(46,793)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-82
<PAGE>
I-FULFILLMENT, INC.
(a development stage company)
STATEMENTS OF SHAREHOLDERS' (DEFICIT) EQUITY
Period from October 6, 1998 (Inception), Through
June 30, 1999, and Six Months Ended
December 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Common Stock,
Par Value $.01, Deficit
10,000,000 Shares Accumulated
Authorized Additional During the
------------------ Paid-in Development
Shares Amount Capital Stage Total
--------- ------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Balance, October 6, 1998
(inception).............. -- $ -- $ -- $ -- $ --
Issuance of common
stock.................. 100 1 -- -- 1
Operating costs funded
by shareholder......... -- -- 13,138 -- 13,138
Net loss for the period. -- -- -- (14,139) (14,139)
--------- ------- -------- -------- --------
Balance, June 30, 1999.... 100 1 13,138 (14,139) (1,000)
Cancellation of common
stock (unaudited)...... (100) (1) -- -- (1)
Issuance of common stock
(unaudited)............ 1,100,000 11,000 -- -- 11,000
Issuance of common stock
in exchange for
operating costs funded
by shareholder
(unaudited)............ 3,900,000 39,000 (13,138) -- 25,862
Net loss for the period
(unaudited)............ -- -- -- (32,654) (32,654)
--------- ------- -------- -------- --------
Balance, December 31, 1999
(unaudited).............. 5,000,000 $50,000 $ -- $(46,793) $ 3,207
========= ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-83
<PAGE>
I-FULFILLMENT, INC.
(a development stage company)
STATEMENTS OF CASH FLOWS
Period from October 6, 1998 (Inception), Through June 30, 1999, Six Months
Ended December 31, 1999 (Unaudited), and Period from October 6, 1998
(Inception), Through December 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Period From Period From
October 6, 1998 October 6, 1998
(Inception), Six Months Ended (Inception),
Through December 31, Through
June 30, 1999 1999 December 31, 1999
--------------- ---------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Cash Flows from Operating
Activities:
Net loss.................. $(14,139) $(32,654) $(46,793)
Adjustments to reconcile
net loss to net cash used
in operating activities--
Accrued expenses........ 1,000 3,000 4,000
-------- -------- --------
Net cash used in
operating activities. (13,139) (29,654) (42,793)
-------- -------- --------
Cash Flows from Investing
Activities:
Payment for patent........ -- (6,207) (6,207)
-------- -------- --------
Cash Flows from Financing
Activities:
Proceeds from issuance of
common stock............. 1 11,000 11,001
Operating costs funded by
shareholder.............. 13,138 25,861 38,999
-------- -------- --------
Net cash provided by
financing activities. 13,139 36,861 50,000
-------- -------- --------
Net Increase in Cash........ -- 1,000 1,000
Cash, beginning of period... -- -- --
-------- -------- --------
CASH, end of period......... $ -- $ 1,000 $ 1,000
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-84
<PAGE>
I-FULFILLMENT, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS [/R]
1. Description of Business
i-Fulfillment, Inc. (the "Company") is a development stage company that
plans to provide standardized turnkey fulfillment and inventory management
services to e-businesses selling products over the Internet. The Company will
provide this service by tightly integrating its supply chain systems to Web-
store platforms and operating highly automated fulfillment centers from which
clients' inventory will be shipped. The Company's operating strategy is to
improve the quality of the shopping experience over the Internet through real-
time inventory acknowledgement, shipment cost calculation and visibility to
order status. The Company's goal is to allow e-businesses to go to market
quickly without undertaking proprietary systems integration and infrastructure
development. The Company plans to derive revenues primarily through activity
and resource-based fees. The Company is headquartered in Chicago, Illinois.
2. Risks and Uncertainties
The Company has incurred losses since inception and expects to continue to
incur substantial losses. The net loss was $14,139 and $32,654 (unaudited) for
the period ended June 30, 1999, and for the six months ended December 31, 1999,
respectively. The Company expects to continue to incur significant expenses
related to marketplace development, technology, sales and marketing and
administration. Significant revenue will need to be generated to achieve and
maintain profitability. There can be no assurance that the Company will be able
to generate sufficient revenues to achieve or sustain profitability in the
future. If profitability is reached, the Company may not be able to sustain or
increase profitability. As further discussed in Note 7, on January 28, 2000,
the Company entered into a Series A Preferred Stock Purchase Agreement
("Preferred Stock Agreement"), pursuant to which the Company sold 5,250,000
shares of Series A preferred stock for $10,500,000. However, $9,000,000 of this
$10,500,000 funding is contingent upon the Company and its founder meeting
certain requirements by February 15 and March 15, 2000. Accordingly,
development of the operations is dependent upon the completion of these
requirements. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
3. Summary of Significant Accounting Policies and Practices
Interim Financial Statements (Unaudited)
In the opinion of the Company's management, the December 31, 1999, unaudited
interim financial statements include all adjustments, consisting of normal
recurring adjustments necessary for a fair presentation of such financial
statements. The results of operations for the six months ended December 31,
1999, are not necessarily indicative of the results to be expected for the
entire 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 reported amounts of assets and liabilities and
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.
Start-up Costs
In accordance with Statement of Position No. 98-5, "Reporting on the Costs
of Start-up Activities," the Company has expensed all start-up costs, including
organization costs, as incurred.
F-85
<PAGE>
i-FULFILLMENT, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Intangible Asset
The intangible asset, primarily the cost of obtaining patents, is stated at
cost and will be amortized using the straight-line method over the estimated
economic useful life of 10 years.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
Under the asset and liability method of SFAS No. 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. A
valuation allowance has been provided to offset deferred tax assets, which
consists primarily of net operating losses. As of June 30, 1999, and December
31, 1999, the deferred tax asset and offsetting valuation allowance amounted to
approximately $5,800 and $19,000 (unaudited), respectively. The Company has net
operating losses for both federal and state tax purposes of approximately
$14,000 and $47,000 (unaudited) as of June 30,1999, and December 31, 1999,
respectively, which begin to expire in the year 2019. The net operating losses
can be carried forward to offset future taxable income. Utilization of the
above carryforwards may be subject to the utilization limits, which may inhibit
the Company's ability to use carryforwards in the future.
4. Related Party
The Company made rental payments of approximately $2,700 and $1,800
(unaudited), to a shareholder from October 6, 1998, through June 30, 1999, and
for the six months ended December 31, 1999, respectively.
5. Commitments and Contingencies
The Company has a one-year employment agreement with an employee that is
effective if $3 million of funding is obtained before June 30, 2000.
6. Shareholders' (Deficit) Equity
Common Stock
On March 16, 1999, the Company issued 100 shares of $.01 par value common
stock to its founder for $.01 per share. Subsequent to year-end, these shares
were cancelled and additional shares were issued to the founder as is described
in Note 7.
7. Subsequent Events--Capital Structure
On July 1, 1999, the Company cancelled the 100 shares of common stock
outstanding and issued 5,000,000 shares of common stock including 3,900,000
shares issued to the founder and his descendants for $.01 per share. Further,
on July 1, 1999, the Company and the shareholders entered into a Shareholder
Agreement which states that (a) shareholders cannot own, operate or become
interested in any business similar to the Company, (b) transfer of shares is
restricted and (c) in the event of death or divorce, the Company and then the
other shareholders have the right of first refusal to purchase the stock. This
Shareholder Agreement was cancelled in connection with the Preferred Stock
Agreement described below.
F-86
<PAGE>
i-FULFILLMENT, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
On January 27, 2000, the Company reincorporated in Delaware. In connection
with the reincorporation, the Company increased its authorized capital stock to
5,250,000 shares of $.001 par value Series A-1 preferred stock, 5,000,000
shares of $.001 par value Series A-2 preferred stock, 20,000,000 shares of
$.001 par value Class A common stock and 5,000,000 shares of $.001 par value
Class B common stock. Accordingly, all existing shares of common stock were
reclassified to shares of $.001 par value Class A common stock.
On January 28, 2000, the Company entered into a Series A Preferred Stock
Purchase Agreement. Under the terms of the Preferred Stock Agreement, the
Company issued 5,000,000 shares of Series A-2 preferred stock and 250,000
shares of Series A-1 preferred stock for $2.00 per share. In consideration for
the Series A preferred stock, the Company received $1,500,000 and a $9,000,000
promissory note secured by 4,500,000 shares of Series A-2 preferred stock. The
promissory note is void if certain requirements are not achieved at February 15
and March 15, 2000. If these requirements are met, the note is payable as
follows: $1,000,000 on February 15, 2000, $3,000,000 on March 15, 2000, and
$5,000,000 on May 1, 2000. If the requirements are not met by March 15, 2000,
the Series A-2 preferred stockholder has the right to require the Company to
repurchase its one million unsecured preferred shares for $2.4 million and the
Series A-2 preferred stockholder forfeits the remaining 4 million unsecured
shares. The February 15, requirement was met on February 8, 2000.
In connection with the Preferred Stock Agreement, the Company entered into a
Stockholders' Agreement on January 28, 2000. The Stockholders' Agreement
provides that in the event a stockholder desires to sell stock, the Company and
then certain stockholders have the right of first refusal.
The Series A preferred stockholders are entitled to liquidation rights and
dividends that accrue at 8% per annum. Preferred stockholders can convert their
shares into common stock. The number of shares of common stock into which it is
convertible is determined by adding (a) the result of multiplying the number of
shares of stock to be converted by $2.00 and dividing that product by the
Series A conversion price, as defined, plus (b) the number of shares determined
by dividing the accrued and unpaid dividends by the Series A conversion price.
In the event of an approved sale of the Company or a qualified public offering,
as defined, the Series A preferred stock automatically converts to common stock
and all accrued dividends are cancelled upon closing. Upon a fundamental change
or change in ownership, as defined, the Series A preferred stockholders have
the right to require the Company to redeem their stock at the Series A
redemption price, as defined. Each holder of common stock is entitled to one
vote per share outstanding. Each holder of preferred stock has votes equal to
the number of shares of common stock into which the preferred stock is
convertible.
In conjunction with the Preferred Stock Agreement, two employees, one of
which is the founder, who collectively own 3.9 million shares of Class A common
stock signed Restricted Common Stock Agreements ("Restricted Stock
Agreements"). The Restricted Stock Agreements provide for a ratable 30-month
vesting period, with certain restrictions placed upon unvested shares. However,
in the event of a qualified public offering, approved sale of the Company,
death or disability of the employee or termination without cause, all
restricted shares vest immediately. In the event an employee under the
Restricted Stock Agreements is terminated for cause or voluntarily resigns, the
Company and then the other stockholders have the right to repurchase all
restricted shares at $0.01 per share and all unrestricted shares at fair market
value, as defined.
F-87
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
iGive.com, Inc.:
We have audited the accompanying balance sheets of iGive.com, Inc. (the
Company) as of December 31, 1997 and 1998 and the related statements of
operations, unitholders' deficit, and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of iGive.com, Inc. as of
December 31, 1997 and 1998 and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Chicago, Illinois
November 23, 1999
F-88
<PAGE>
IGIVE.COM, INC.
BALANCE SHEETS
December 31, 1997 and 1998 and September 30, 1999 (unaudited)
<TABLE>
<CAPTION>
December 31,
--------------------- September 30,
1997 1998 1999
Assets --------- ---------- -------------
(unaudited)
<S> <C> <C> <C>
Current assets:
Cash........................................ $ 4,616 7,337 --
Trade accounts receivable................... -- 11,539 34,239
Prepaid expenses and other current assets -- 60,470 34,013
--------- ---------- ----------
Total current assets...................... 4,616 79,346 68,252
--------- ---------- ----------
Computer equipment, at cost 15,490 39,927 80,348
Less accumulated depreciation................. (2,582) (11,818) (26,852)
--------- ---------- ----------
Computer equipment, net................... 12,908 28,109 53,496
--------- ---------- ----------
$ 17,524 107,455 121,748
========= ========== ==========
<CAPTION>
Liabilities and Unitholders' and Stockholders'
Deficit
<S> <C> <C> <C>
Current liabilities:
Accounts payable and accrued expenses....... $ 10,010 256,371 83,985
Member designated contributions payable..... 2,205 112,400 126,295
Line of credit.............................. -- -- 100,000
Convertible notes........................... -- 400,000 600,000
Due to shareholders......................... 295,582 118,254 195,914
Deposits on Series A preferred stock........ -- 33,000 --
--------- ---------- ----------
Total current liabilities................. 307,797 920,025 1,106,194
Line of credit................................ 25,000 100,000 --
--------- ---------- ----------
Total liabilities......................... 332,797 1,020,025 1,106,194
--------- ---------- ----------
Unitholders' and stockholders' deficit:
Class A membership units: -0-, 4,286,781,
and -0- units issued and outstanding in
1997, 1998, and 1999, respectively......... -- 741,185 --
Common membership units: 20,490,951,
20,856,026, and -0- units issued and
outstanding in 1997, 1998, and 1999,
respectively............................... 20,000 55,000 --
Series A preferred stock, $0.0001 par: -0-,
-0-, and 25,421,284 shares authorized; -0-,
-0-, and 18,033,498 shares issued and
outstanding in 1997, 1998, and 1999,
respectively............................... -- -- 1,803
Common stock, $0.0001 par: -0-, -0-, and
60,000,000 shares authorized; -0-, -0-, and
20,856,026 shares issued and outstanding in
1997, 1998, and 1999, respectively......... -- -- 2,086
Additional paid-in capital.................. -- -- 1,771,152
Accumulated deficit......................... (335,273) (1,708,755) (2,759,487)
--------- ---------- ----------
Total unitholders' and stockholders'
deficit.................................. (315,273) (912,570) (984,446)
--------- ---------- ----------
Total liabilities and unitholders' and
stockholders' deficit.................... $ 17,524 107,455 121,748
========= ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-89
<PAGE>
IGIVE.COM, INC.
STATEMENTS OF OPERATIONS
Years ended December 31, 1997 and 1998 and the nine months ended
September 30, 1998 (unaudited) and 1999 (unaudited)
<TABLE>
<CAPTION>
Years ended December Nine months ended
31, September 30,
--------------------- -----------------------
1997 1998 1998 1999
--------- ---------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net revenue..................... $ -- 18,321 3,340 84,105
--------- ---------- -------- ----------
Operating expenses:
Sales and marketing........... 44,325 283,308 134,347 127,626
Member designated
contributions................ 2,405 158,297 56,821 198,393
Compensation.................. -- 480,205 231,494 509,223
Website development and
maintenance.................. 10,000 251,710 134,208 133,676
General and administrative.... 58,839 212,834 55,034 163,194
--------- ---------- -------- ----------
Total operating expenses.... 115,569 1,386,354 611,904 1,132,112
--------- ---------- -------- ----------
Loss from operations........ (115,569) (1,368,033) (608,564) (1,048,007)
Interest expense (income), net.. 3,669 5,449 (133) 2,725
--------- ---------- -------- ----------
Net loss.................... $(119,238) (1,373,482) (608,431) (1,050,732)
========= ========== ======== ==========
</TABLE>
See accompanying notes to financial statements.
F-90
<PAGE>
IGIVE.COM, INC.
STATEMENTS OF UNITHOLDERS' DEFICIT FOR THE YEARS ENDED DECEMBER 31, 1998 AND
1997
STATEMENT OF STOCKHOLDERS' DEFICIT FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER
30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Series A
Class A Common Series A preferred Common
membership membership preferred Class A Common stock, stock, Additional
units units stock Common stock membership membership $0.0001 $0.0001 paid-in
(# of units) (# of units) (# of shares) (# of shares) units units par value par value capital
------------ ------------ ------------- ------------- ---------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
12/31/96........ -- 20,408,163 -- -- $ -- 10,000 -- -- --
Issuance of
membership
units........... -- 82,788 -- -- -- 10,000 -- -- --
Net loss........ -- -- -- -- -- -- -- -- --
---------- ----------- ---------- ---------- -------- ------- ----- ----- ---------
Balance at
12/31/97........ -- 20,490,951 -- -- -- 20,000 -- -- --
Issuance of
membership
units........... 4,286,781 365,075 -- -- 741,185 35,000 -- -- --
Net loss........ -- -- -- -- -- -- -- -- --
---------- ----------- ---------- ---------- -------- ------- ----- ----- ---------
Balance at
12/31/98........ 4,286,781 20,856,026 -- -- 741,185 55,000 -- -- --
Exchange of
membership units
for stock
(unaudited)..... (4,286,781) (20,856,026) 7,512,515 20,856,026 (741,185) (55,000) 751 2,086 793,348
Issuance of
stock
(unaudited)..... 10,520,983 -- -- -- 1,052 -- 977,804
Net loss
(unaudited)..... -- -- -- -- -- -- -- -- --
---------- ----------- ---------- ---------- -------- ------- ----- ----- ---------
Balance at
9/30/99
(unaudited)..... -- -- 18,033,498 20,856,026 $ -- -- 1,803 2,086 1,771,152
========== =========== ========== ========== ======== ======= ===== ===== =========
<CAPTION>
Accumulated
deficit Total
------------ -----------
<S> <C> <C>
Balance at
12/31/96........ (216,035) (206,035)
Issuance of
membership
units........... -- 10,000
Net loss........ (119,238) (119,238)
------------ -----------
Balance at
12/31/97........ (335,273) (315,273)
Issuance of
membership
units........... -- 776,185
Net loss........ (1,373,482) (1,373,482)
------------ -----------
Balance at
12/31/98........ (1,708,755) (912,570)
Exchange of
membership units
for stock
(unaudited)..... -- --
Issuance of
stock
(unaudited)..... -- 978,856
Net loss
(unaudited)..... (1,050,732) (1,050,732)
------------ -----------
Balance at
9/30/99
(unaudited)..... (2,759,487) (984,446)
============ ===========
</TABLE>
See accompanying notes to financial statements.
F-91
<PAGE>
IGIVE.COM, INC.
STATEMENTS OF CASH FLOWS
Years ended December 31, 1997 and 1998 and the nine months ended September 30,
1998 (unaudited) and 1999 (unaudited)
<TABLE>
<CAPTION>
Years ended Nine months ended
December 31, September 30,
--------------------- -----------------------
1997 1998 1998 1999
--------- ---------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss...................... $(119,238) (1,373,482) (608,431) (1,050,732)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation................ 2,582 9,236 -- 15,034
Noncash expenses............ -- 80,000 50,000 --
Change in assets and
liabilities:
Trade accounts receivable. -- (11,539) (1,278) (22,700)
Prepaid expenses and other
current assets........... -- (60,470) -- 26,457
Accounts payable and
accrued expenses......... 10,000 246,361 -- (185,285)
Member designated
contributions payable.... 2,205 110,195 22,478 13,895
--------- ---------- -------- ----------
Net cash used in
operating activities.... (104,451) (999,699) (537,231) (1,203,331)
--------- ---------- -------- ----------
Cash flows from investing
activities--capital
expenditures.................. (15,490) (24,437) -- (40,421)
--------- ---------- -------- ----------
Cash flows from financing
activities:
Net increase in cash
overdraft.................... -- -- 60,242 12,899
Net borrowings on line of
credit....................... 25,000 75,000 65,000 --
Net borrowings (repayments) of
shareholder loans............ 67,743 (77,328) (48,812) 77,660
Convertible notes issued...... -- 400,000 -- 600,000
Deposit on Series A preferred
stock........................ -- 3,000 -- --
Proceeds from issuance of
common membership units...... 10,000 -- -- --
Proceeds from issuance of
Class A membership units..... -- 626,185 456,185 --
Proceeds from issuance of
Series A preferred stock..... -- -- -- 545,856
--------- ---------- -------- ----------
Net cash provided by
financing activities.... 102,743 1,026,857 532,615 1,236,415
--------- ---------- -------- ----------
Net increase (decrease)
in cash................. (17,198) 2,721 (4,616) (7,337)
Cash at beginning of period.... 21,814 4,616 4,616 7,337
--------- ---------- -------- ----------
Cash at end of period.......... $ 4,616 7,337 -- --
========= ========== ======== ==========
Supplemental disclosure of cash
flow information--interest
paid.......................... $ 3,669 3,804 1,313 6,437
Supplemental disclosure of
noncash financing activities:
Common membership units issued
in exchange for professional
services..................... -- 35,000 35,000 --
Class A membership units
issued in exchange for
professional services........ -- 15,000 15,000 --
Deposit on Series A preferred
stock provided in exchange
for professional services.... -- 30,000 -- --
Reduction in shareholder loans
resulting from issuance of
Class A membership units..... -- 100,000 100,000 --
Exchange of convertible notes
for Series A preferred stock. -- -- -- 400,000
========= ========== ======== ==========
</TABLE>
See accompanying notes to financial statements.
F-92
<PAGE>
IGIVE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
(1) Description of the Business and Basis of Presentation
iGive.com, Inc. (the Company) is an Internet-based business that enables
consumers to assist their favorite personal causes by making retail purchases
from over 190 merchant websites accessed through the Company's website (iGive
Mall). The Company's website provides information on the Company and the
mechanisms that enable consumers to assist their favorite personal causes
(http://www.igive.com).
The Company was originally established as a limited liability company in
1995 under the name Intercast L.L.C. Intercast created content and
infrastructure for handheld wireless devices. In 1996, Intercast sold its net
assets to a chip manufacturer and changed its name to Eyegive, L.L.C. On
January 15, 1999, Eyegive, L.L.C. changed its name to iGive.com, Inc. and
changed its legal structure to a C-corporation. In conjunction with the change
in legal structure, all outstanding Eyegive, L.L.C. common membership units
were exchanged for an equal number of iGive.com, Inc. common shares and each
Eyegive, L.L.C. Class A membership unit was exchanged for 1.752484 shares of
iGive.com, Inc. Series A preferred stock.
(2) Summary of Significant Accounting Policies
(a) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
(b) Revenue Recognition
Under the terms of revenue sharing agreements between the Company and the
merchants on the iGive Mall, the Company earns commissions based upon a
percentage of sales generated from the merchant's link on the Company's
website. The Company recognizes commission revenue at the time a purchase is
made from a merchant's website through a link from iGive Mall.
The Company earns advertising revenues based on the number of iGive.com
members who access advertisement banners displayed on the Company's website.
The Company recognizes advertising revenue at the time an iGive.com member
accesses the advertiser's banner.
(c) Member Designated Charitable Contributions
The Company incurs unconditional obligations to make payments to qualified
not-for-profit organizations designated by its iGive members upon the
occurrence of certain website accessing activity by those members. The Company
also makes payments to member designated not-for-profit organizations or
individuals when commission revenues are earned through merchant sales to iGive
members. These expenses are recorded as incurred and were $2,405 and $158,297
in 1997 and 1998, respectively.
(d) Computer Equipment
Computer equipment is stated at cost. Depreciation is provided over the
three-year estimated useful lives of the assets using the straight-line method
for financial reporting purposes.
F-93
<PAGE>
IGIVE.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(e) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between financial statement carrying
amounts of existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Prior to changing its legal form to a corporation, the Company operated as a
limited liability company, whereby all income, deductions, and credits were
passed through to the Company's membership unitholders for federal income tax
purposes. State and local income taxes have not been provided for in the
December 31, 1997 and 1998 financial statements due to the Company's net
losses.
(f) Website Costs
The Company's website costs primarily consist of the costs to develop and
maintain content and graphics for the iGive Mall. The Company expenses such
costs in accordance with American Institute of Certified Public Accountants
(AICPA) Statement of Position 93-7, Reporting on Advertising Costs.
(g) Deferred Costs
The Company defers the costs of equity offerings and applies them to the
proceeds received. Accordingly, $52,970 of professional fees were incurred
during 1998 in conjunction with a January 1999 private placement and are
reflected within prepaid expenses and other current assets as of December 31,
1998.
(h) Interim Financial Statements (unaudited)
In the opinion of management, the accompanying interim financial statements
contain all adjustments necessary (consisting only of normal recurring
accruals) to present fairly the financial information contained therein. These
statements do not include all disclosures required by generally accepted
accounting principles and should be read in conjunction with the audited
financial statements of the Company for the year ended December 31, 1998. The
results of operations for the nine months ended September 30, 1999 are not
necessarily indicative of the results to be expected for the year ending
December 31, 1999.
(3) Unitholders' Deficit
The Company sold 82,788 common membership units to a private investor during
1997 for $10,000.
The Company issued 365,075 common membership units to certain private
investors during 1998 in exchange for professional services rendered.
Professional service expense and equity contributions of $35,000 were recorded
based on the fair value of the services received.
In conjunction with a 1998 private placement, the Company issued 4,286,781
Class A membership units for a total capital contribution of $741,185. These
amounts include 578,369 units issued to the Company's majority shareholder in
exchange for a $100,000 reduction in the Company's loan payable to this
individual,
F-94
<PAGE>
IGIVE.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
and 86,755 units issued to an investor in exchange for professional services
rendered. Professional service expense and an equity contribution of $15,000
were recorded based on the fair value of the services received.
During 1998, the Company received $3,000 cash and $30,000 worth of
professional services as deposits on the future issuance of 334,483 shares of
Series A preferred stock upon the Company's change in legal structure to a C-
corporation in January 1999.
1999 activity (unaudited)--In conjunction with the January 15, 1999 change
in legal structure of the Company, the 20,856,026 issued and outstanding common
units were exchanged for an equal number of shares of $0.0001 par value common
stock, and the 4,286,781 issued and outstanding Class A units were exchanged
for 7,512,515 shares of $0.0001 par value Series A preferred stock. The Amended
and Restated Articles of Incorporation filed upon the Company's incorporation
as a C-corporation on January 15, 1999 authorized the issuance of 60,000,000
shares of common stock and 25,421,284 shares of preferred stock.
The holders of Series A preferred stock are entitled to receive dividends
annually at the rate of $0.008 per share, when and if declared by the Board of
Directors of the Company, prior to the payment of any dividend on the common
stock of the Company. No dividends were declared on the common stock or Series
A preferred stock of the Company during the nine months ended September 30,
1999. Each share of Series A preferred stock is convertible at the option of
the holder into such number of shares of common stock determined by dividing
$0.09866 by the conversion price applicable to such share. The initial
conversion price of Series A preferred stock is $0.09866, and it is subject to
adjustment for certain dilutive issuances, stock splits, combinations, and
recapitalizations. In the event of any liquidation or dissolution of the
Company, either voluntary or involuntary, the holders of Series A preferred
stock shall be entitled to receive, prior and in preference to the distribution
of any assets of the Company to the holders of common stock, an amount equal to
$0.09866 per share (adjusted for any stock split, stock dividend, combination,
or recapitalization) for each share of Series A preferred stock then held, plus
any accrued but unpaid dividends. Upon completion of this distribution, the
remaining assets of the Company available for distribution to stockholders
shall be distributed among the holders of Series A preferred stock and common
stock pro rata based on the number of shares held by each (assuming conversion
of the Series A preferred stock) until holders of the Series A preferred stock
have received $0.79 per share. Any remaining assets in the Company shall be
distributed solely to the holders of common stock.
The Company issued 10,216,908 shares of Series A preferred stock in
conjunction with a January 1999 private placement. The proceeds from this
offering included $608,000 cash and the conversion of $400,000 convertible
notes. The gross proceeds received have been reduced by $59,150 of offering
costs. The January 1999 private placement included the issuance of 30,408
shares for $3,000 that was received as of December 31, 1998.
In connection with the January 1999 private placement, the Company issued
6,757,206 Series A preferred stock purchase warrants. The warrants entitle the
holders to purchase up to 6,757,206 shares of Series A preferred stock at the
private placement price of $0.09866 per share. In lieu of exercising the
warrants through a cash contribution, the holder is entitled to elect to
receive shares equal to the value of the warrants on the surrender date (net
issue exercise). The number of shares received through a net issue exercise is
determined by the following formula: (1) the number of shares purchasable under
the warrant, multiplied by the excess of the fair value of the Series A
preferred stock on the surrender date over the warrant exercise price; divided
by (2) the fair value of the Series A preferred stock on the surrender date.
The warrant holders' option is exercisable immediately and expires on January
14, 2004.
F-95
<PAGE>
IGIVE.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(4) Leases
During 1997, the Company incurred $2,400 of rent expense leasing home office
space owned by its president. The Company did not lease home office space from
its president during 1998. The Company incurred $2,679 of rent expense leasing
home office space from an employee during 1998.
1999 activity (unaudited)--The Company incurred $30,277 of rent expense
leasing its office space from a third party under a month-to-month operating
lease during the nine months ended September 30, 1999. In November 1999, the
Company entered into an operating lease for office space with future non-
cancelable rental payments of $60,450 and $62,400 in 2000 and 2001,
respectively.
(5) Due to Shareholders
The due to shareholders balances reflects amounts owed to the president of
the Company for advances remitted to fund operating costs. These advances are
non-interest bearing and are repaid from time to time based on the Company's
cash levels.
(6) Line of Credit
The Company maintains an operating line of credit with a borrowing limit of
$100,000 at December 31, 1997 and $50,000 at December 31, 1998. Borrowings
under the line of credit accrue interest at the bank's prime rate plus 0.5%
(9.0% and 8.25% at December 31, 1997 and 1998, respectively). At December 31,
1997 and 1998, the Company had outstanding borrowings of $25,000 and $100,000,
respectively. The line of credit expires on September 15, 2000 and is
personally guaranteed by the president of the Company.
1999 activity (unaudited)--At September 30, 1999, outstanding borrowings
under the line of credit were $100,000 which accrued interest at the bank's
prime rate plus 0.5% (8.75% at September 30, (1999).
(7) Convertible Notes
The Company issued $400,000 of convertible notes to venture capital
investors during 1998 as bridge financing until permanent financing could be
obtained. The notes were convertible at the option of the holder into such
number of shares of Series A preferred stock determined by dividing (1) the
outstanding principal and accrued interest on the notes, into (2) the price per
share of Series A preferred stock at the next qualified equity offering.
1999 activity (unaudited)--In conjunction with the January 1999 private
placement, $400,000 of convertible notes were converted into 4,054,328 shares
of Series A Preferred Stock.The Company issued a $200,000 convertible
promissory note to a shareholder on May 12, 1999. This shareholder was
subsequently appointed Chairman of the Board of Directors of the Company. The
note has a May 11, 2000 maturity date and accrues interest at 2% over the prime
rate, payable in a single installment at maturity. The note may be converted
into shares of the Company's Series A preferred stock at the rate of $0.09866
per share. The Company issued a $400,000 convertible promissory note to its
chairman on June 29, 1999. The note has a June 28, 2000 maturity date and
accrues interest at 2% over the prime rate, payable in a single installment at
maturity. The note may be converted into shares of the Company's Series A
preferred stock at the rate of $0.09866 per share.
(8) Significant Customers
The Company had three customers that collectively accounted for 71% of
accounts receivable and individually accounted for 43%, 17%, and 11% of
accounts receivable at December 31, 1998. The Company had three customers that
collectively accounted for 64% of revenues and individually accounted for 30%,
20%, and 14% of revenues for the year ended December 31, 1998.
F-96
<PAGE>
IGIVE.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(9) Stock Option Commitments
In 1998, the Company established a stock option plan (the Plan) for all
employees and select non-employees who render services to the Company. The
Company has reserved 10,003,000 common shares for issuance upon exercise of
options. No options were granted during the year ended December 31, 1998 or the
nine months ended September 30, 1999. As of September 30, 1999, the Company has
committed to grant 3,905,246 options to certain current and former employees of
the Company. In the event that all shares reserved for the Plan are not granted
by December 31, 1999, 2,605,835 common shares are issuable to the president of
the Company.
1999 activity (unaudited)--As of September 30, 1999, the Company has
committed to grant 3,985,246 options to certain current and former employees of
the Company. In the event that all shares reserved for the Plan are not granted
by December 31, 1999, 2,605,835 common shares are issuable to the president of
the Company.
On February 11, 2000 the Company committed to grant an additional 2,313,559
options to purchase Class A common stock.
(10) Subsequent Events (unaudited)
The Company issued a $200,000 convertible promissory note to its chairman on
October 22, 1999. The note had a January 15, 2000 maturity date and accrued
interest at 2% over the prime rate, payable in a single installment at
maturity. The note was issued in contemplation of the investment by divine--an
entity of which the company's chairman is the majority shareholder. On February
11, 2000, the principal amount due under this note was cancelled as partial
consideration for the issuance of Series B-1 preferred stock .
The Company issued a $500,000 convertible promissory note to divine on
November 8, 1999. The note had a January 15, 2000 maturity date and accrued
interest at 2% over the prime rate, payable in a single installment at
maturity. The note was issued in contemplation of the investment by divine. On
February 11, 2000, the principal amount due under this note was cancelled as
partial consideration for the issuance of Series B-2 preferred stock.
On February 11, 2000, the Company entered into a Series B Preferred Stock
Purchase Agreement (the Agreement) with the Company's chairman and divine
interVentures, Inc. In conjunction with this transaction, the Company amended
its articles of incorporation to authorize 100,000,000 shares of $0.001 par
value Class A common stock, 23,388,912 shares of $0.001 par value Class B
common stock, 24,593,681 shares of $0.001 par value Series B-1 preferred stock,
and 23,388,912 shares of $0.001 par value Series B-2 preferred stock, and to
increase the authorized shares of $0.001 par value Series A preferred stock
from 18,033,498 to 27,434,516. The Company issued 20,856,026 shares of the
newly authorized Class A common stock to existing holders of common stock and
all 20,856,026 previously outstanding shares of common stock were cancelled.
Under the terms of the Agreement, the Company issued 1,204,769 shares of
Series B-1 preferred stock to its chairman and 23,388,912 shares of Series B-2
preferred stock to divine for aggregate proceeds of $4,206,012. The proceeds
from this transaction included conversion of the $200,000 convertible
promissory note to the Company's chairman and the conversion of the $500,000
convertible promissory note to divine. Each share of Series B-1 Preferred Stock
may be converted into Class B Common Stock at an initial conversion price of
$0.17102 per share and is subject to adjustment for certain dilutive issuances,
stock splits, combinations, and recapitalizations. Each share of Series B-2
preferred stock may be converted into one share of Series B-1 Preferred Stock.
On February 11, 2000, the Company issued 9,401,018 shares of Series A
preferred stock to certain investors, including the president of the Company
and the chairman of the Company, for aggregate proceeds of $927,504.
F-97
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
i-Street, Inc.:
We have audited the accompanying balance sheets of i-Street, Inc., (a
development stage enterprise) as of December 31, 1998 and September 30, 1999,
and the related statements of operations, stockholder's equity (deficit), and
cash flows for the period from September 15, 1998 (inception) through December
31, 1998, the nine months ended September 30, 1999, and for the period from
September 15, 1998 (inception) to 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 financial position of i-Street, Inc. (a
development stage enterprise) as of December 31, 1998 and September 30, 1999,
and the results of its operations and its cash flows for the period from
September 15, 1998 (inception) through December 31, 1998, the nine months ended
September 30, 1999, and for the period from September 15, 1998 (inception) to
September 30, 1999, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Chicago, Illinois
November 12, 1999, except for
note 6 which is as of
November 23, 1999
F-98
<PAGE>
I-STREET, INC.
(a development stage enterprise)
BALANCE SHEETS
December 31, 1998 and September 30, 1999
<TABLE>
<CAPTION>
December 31, September 30,
ASSETS 1998 1999
------ ------------ -------------
<S> <C> <C>
Current assets:
Prepaid expenses.................................. $ 45 88
Other current assets, net......................... -- 25
------- -------
Total current assets............................ 45 113
Property and equipment, net of accumulated
depreciation....................................... 1,820 1,331
Other assets, net................................... 51 318
------- -------
Total assets.................................... $ 1,916 1,762
======= =======
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
----------------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable.................................. $ 29 238
Accrued liabilities............................... -- 3,719
Amounts payable to sole shareholder............... -- 7,083
------- -------
Total current liabilities....................... 29 11,040
------- -------
Stockholder's equity (deficit) (see note 6):
Series A-1 convertible preferred stock, $.001 par
value; 574,000 shares authorized; none issued and
outstanding...................................... -- --
Series A-2 convertible preferred stock, $.001 par
value; 574,000 shares authorized; none issued and
outstanding...................................... -- --
Class A common stock, $.001 par value; 1,500,000
shares authorized; 326,000 issued and
outstanding...................................... 326 326
Class B common stock, $.001 par value; 1,500,000
shares authorized; none issued and outstanding... -- --
Additional paid-in capital........................ 3,990 37,029
Deficit accumulated during the development stage.. (2,429) (46,633)
------- -------
Total stockholder's equity (deficit)............ 1,887 (9,278)
------- -------
Total liabilities and stockholder's equity
(deficit)...................................... $ 1,916 1,762
======= =======
</TABLE>
See accompanying notes to the financial statements.
F-99
<PAGE>
I-STREET, INC.
(a development stage enterprise)
STATEMENTS OF OPERATIONS
Period from September 15, 1998 (inception) through December 31, 1998, nine
months ended September 30, 1999, and period from September 15, 1998 (inception)
through September 30, 1999
<TABLE>
<CAPTION>
Period from Period from
September 15, 1998 Nine September 15, 1998
(inception) months (inception)
through ended through
December 31, 1998 September 30, 1999 September 30, 1999
------------------ ------------------ ------------------
<S> <C> <C> <C>
Revenues................ $ -- -- --
------- ------- -------
Operating expenses:
Organizational costs.. 178 150 328
Operations............ 869 26,737 27,606
Payroll expense for
sole shareholder..... -- 7,083 7,083
Administration........ 1,079 9,617 10,696
Depreciation and
amortization......... 303 617 920
------- ------- -------
Total operating
expenses........... 2,429 44,204 46,633
------- ------- -------
Net loss............ $(2,429) (44,204) (46,633)
======= ======= =======
</TABLE>
See accompanying notes to the financial statements.
F-100
<PAGE>
I-STREET, INC.
(a development stage enterprise)
STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
Period from September 15, 1998 (inception) through December 31, 1998 and nine
months ended September 30, 1999
<TABLE>
<CAPTION>
Deficit
Class A accumulated
common stock Additional during the Total
-------------- paid-in development stockholder's
Shares Amount capital stage equity (deficit)
------- ------ ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Balance at September 15,
1998 (inception) ...... -- $ -- -- -- --
Issuance of common stock
in formation of the
Company................ 326,000 326 -- -- 326
Contributed capital..... -- -- 3,990 -- 3,990
Net loss................ -- -- -- (2,429) (2,429)
------- ---- ------ ------- -------
Balance at December 31,
1998................... 326,000 326 3,990 (2,429) 1,887
Contributed capital..... -- -- 33,039 -- 33,039
Net loss................ -- -- -- (44,204) (44,204)
------- ---- ------ ------- -------
Balance at September 30,
1999................... 326,000 $326 37,029 (46,633) (9,278)
======= ==== ====== ======= =======
</TABLE>
See accompanying notes to the financial statements.
F-101
<PAGE>
I-STREET, INC.
(a development stage enterprise)
STATEMENTS OF CASH FLOWS
Period from September 15, 1998 (inception) through December 31, 1998,
nine months ended September 30, 1999, and period from
September 15, 1998 (inception) through September 30, 1999
<TABLE>
<CAPTION>
Period from Period from
September 15, 1998 September 15, 1998
(inception) Nine months (inception)
through ended through
December 31, 1998 September 30, 1999 September 30, 1999
------------------ ------------------ ------------------
<S> <C> <C> <C>
Cash flows from
operating activities:
Net loss.............. $(2,429) (44,204) (46,633)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation........ 284 489 773
Amortization........ 19 128 147
Changes in assets
and liabilities:
Prepaid expenses.. (45) (43) (88)
Other assets...... (70) (420) (490)
Accounts payable
and accrued
expenses......... 29 11,011 11,040
------- ------- -------
Net cash used in
operating
activities..... (2,212) (33,039) (35,251)
------- ------- -------
Cash flow from investing
activities--additions
to property and
equipment.............. (2,104) -- (2,104)
------- ------- -------
Cash flows from
financing activities:
Proceeds from issuance
of common stock...... 326 -- 326
Capital contributions
from sole
shareholder.......... 3,990 33,039 37,029
------- ------- -------
Net cash
provided by
financing
activities..... 4,316 33,039 37,355
------- ------- -------
Net increase in
cash........... -- -- --
Cash at beginning of
period................. -- -- --
------- ------- -------
Cash at end of period... $ -- -- --
======= ======= =======
</TABLE>
See accompanying notes to the financial statements.
F-102
<PAGE>
I-STREET, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
(1) Nature of the Business
i-Street, Inc. (the Company) was incorporated as a C-corporation on
September 15, 1998 and is an Internet-based business focused on providing web-
based services for the start-up business community. The Company's web site,
www.i-streetcentral.com, provides information on the Company and the services
it performs.
Since inception, the Company has devoted substantially all of its efforts to
business planning, product development, acquiring operating assets, raising
capital, marketing, and business development activities. Accordingly, the
Company is in the development stage, as defined by the Statement of Financial
Accounting Standards (SFAS) No. 7, Accounting and Reporting by Development
Stage Enterprises.
i-Street, Inc. is subject to risks and uncertainties common to growing
technology-based companies, including technological change, growth and
commercial acceptances of the Internet, dependence on principal products and
third party technology, new product development and performance, new product
introductions and other activities of competitors, and its limited operating
history.
(2) Summary of Significant Accounting Policies
(a) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
(b) Impairment of Long-lived Assets
In accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of, the Company records
impairment of losses on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount.
(c) Property and Equipment
Property and equipment are carried at cost and depreciated using the
straight-line method over the estimated useful lives of the related assets,
which range from three to five years.
(d) Computer Software
The Company has adopted the provisions of Statement of Position 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use. Accordingly, certain costs to develop internal-use computer
software are capitalized. During the period from September 15, 1998 (inception)
through December 31, 1998, no software development costs were incurred. During
the nine months ended September 30, 1999, software development costs of $21,000
related to website development were incurred. Such amounts were expensed due to
the uncertainty of recovery.
(e) Other Assets
Other assets (current and long-term) include amounts paid for domain name
rights which are being amortized over their two year lives.
F-103
<PAGE>
I-STREET, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(f) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(g) Revenue Share Agreements
The Company entered into two revenue share agreements during 1999. In
conjunction with the revenue share agreements, the Company has a banner link to
two third-party websties. The Company earns a commission based upon a
percentage of any sales generated from the banner link on the Company's web
site. The revenue share agreements are cancelable at any time by either party.
No revenues have been recognized from the revenue share agreements.
(h) Recent Accounting Pronouncements
The Company does not expect the adoption of recently issued accounting
pronouncements to have a significant impact on the Company's results of
operations, financial position, or cash flows.
(3) Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Property and equipment:
Office equipment............................. $ 526 526
Computer equipment........................... 1,578 1,578
------ -----
2,104 2,104
Less accumulated depreciation.................. (284) (773)
------ -----
Property and equipment, net................ $1,820 1,331
====== =====
</TABLE>
(4) Income Taxes
The reconciliation of income tax expense (benefit) computed using the
Federal statutory rate of 34% to the Company's income tax expense (benefit)
is as follows:
<TABLE>
<CAPTION>
Period from
September 15, 1998
(inception) Nine months
through ended
December 31, 1998 September 30, 1999
------------------ ------------------
<S> <C> <C>
Expected income tax benefit from
continuing operations............ $ (826) (15,030)
State income tax benefit, net of
federal taxes.................... (146) (2,652)
Permanent differences............. 160 226
Effect of change in valuation
allowance........................ 812 17,456
------ -------
$ -- --
====== =======
</TABLE>
F-104
<PAGE>
I-STREET, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Temporary differences giving rise to significant portions of the deferred
tax assets and liabilities at December 31, 1998 and September 30, 1999 are as
follows:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Deferred tax assets--start-up costs............ $ 870 18,286
Deferred tax liabilities--depreciation......... (58) (18)
----- -------
Net deferred tax assets.................... 812 18,268
Valuation allowance............................ (812) (18,268)
----- -------
Net deferred taxes ........................ $ -- --
===== =======
</TABLE>
The Company has recorded a full valuation allowance against its deferred tax
assets since management believes that, after considering all the available
objective evidence, it is more likely than not that these assets will not be
realized.
(5) Related Party Transactions
The Company's sole shareholder contributed capital to the Company to pay
operating expenses. Such amounts are not due to the shareholder.
The Company has $7,083 of accrued salary at September 30, 1999, payable to
the sole shareholder of the Company.
The Company's operating facilities are located in Chicago, Illinois. During
the period from September 15, 1998 (inception) through September 30, 1999, the
Company occupied office space owned by the sole shareholder. The Company
incurred no rent or utility expenses, with the exception of phone expense, from
inception through September 30, 1999.
(6) Subsequent Events
In October 1999, the Company increased its authorized capital stock to
1,500,000 shares of $.001 par value Class A common stock, 1,500,000 shares of
$.001 par value Class B common stock, and 1,500,000 shares of $.001 par value
Series A preferred stock, of which 574,000 shares were designated as Series A-1
shares and 574,000 shares were designated as Series A-2 shares. Also in October
1999, the Company affected a 326:1 stock split on its then outstanding shares
of Class A common stock. All share information included in these financial
statements has been retroactively adjusted to reflect the revised authorized
capital stock and the stock split.
On November 23, 1999, the Company entered into a Series A Preferred Stock
Purchase Agreement (the Agreement) with a third party. Under the terms of the
Agreement, the Company issued 574,000 shares of Series A-2 preferred stock. The
Series A-2 preferred stock is convertible into shares of Series A-1 preferred
stock or Class B common stock on a one-for-one basis. The Series A-1 preferred
stock and Class B common stock are convertible into shares of Class A common
stock on a one-for-one basis.
F-105
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To LiveOnTheNet.com, Inc.:
We have audited the accompanying balance sheets of LiveOnTheNet.com, Inc.
(formerly Traveller Information Services, Inc., an Alabama corporation and 75%-
owned subsidiary of Thermo Information Solutions Inc.) as of January 3, 1998
and January 2, 1999, and the related statements of operations, shareholders'
investment and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of LiveOnTheNet.com, Inc. as
of January 3, 1998 and January 2, 1999, and the results of their operations and
their cash flows for the years then ended, in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
Boston, Massachusetts
April 18, 1999
F-106
<PAGE>
LIVEONTHENET.COM, INC.
BALANCE SHEETS
January 3, 1998, January 2, 1999, and October 2, 1999 (unaudited)
(In thousands except share amounts)
<TABLE>
<CAPTION>
January 3, January 2, October 2,
ASSETS 1998 1999 1999
------ ---------- ---------- -----------
(unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.................. $ 141 1,440 28
Accounts receivable, less allowances of
$21, $177, and $666....................... 1,079 3,219 1,803
Prepaid income taxes (note 5).............. 235 558 640
Prepaid expenses and other current assets.. 22 228 1,073
------ ----- ------
1,477 5,445 3,544
------ ----- ------
Property and equipment, at cost, net......... 612 953 1,212
------ ----- ------
Other assets................................. 265 302 278
------ ----- ------
$2,354 6,700 5,034
====== ===== ======
<CAPTION>
LIABILITIES AND SHAREHOLDERS' INVESTMENT
----------------------------------------
<S> <C> <C> <C>
Current liabilities:
Current maturities of long-term capital
lease obligations (note 7)................ $ 20 147 130
Accounts payable........................... 261 472 332
Accrued income taxes....................... -- 487 --
Deferred revenue........................... -- 113 --
Other accrued expenses..................... 102 404 273
Due to parent company (note 6)............. 290 2,630 4,514
------ ----- ------
673 4,253 5,249
------ ----- ------
Long-term capital lease obligations (note 7). -- 150 145
------ ----- ------
Deferred income taxes........................ -- 162 162
------ ----- ------
Commitments (note 8)
Shareholders' investment (note 4):
Common stock, $.01 par value, 1,000,000
shares authorized at January 3, 1998 and
January 2, 1999 and 1,100,000 shares
authorized at October 2, 1999; 929,861
shares issued............................. 9 9 9
Capital in excess of par value............. 2,193 2,193 2,193
Treasury stock at cost, 2,600 shares....... (23) (23) (23)
Accumulated deficit........................ (498) (44) (2,701)
------ ----- ------
1,681 2,135 (522)
------ ----- ------
$2,354 6,700 5,034
====== ===== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-107
<PAGE>
LIVEONTHENET.COM, INC.
STATEMENTS OF OPERATIONS
Years ended January 3, 1998 and January 2, 1999
and the periods from January 4, 1998 through October 3, 1998 (unaudited)
and January 3, 1999 through October 2, 1999 (unaudited)
(In thousands)
<TABLE>
<CAPTION>
Period from Period from
January 4, January 3,
1998 1999
Year ended Year ended through through
January 3, January 2, October 3, October 2,
1998 1999 1998 1999
---------- ---------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues......................... $3,231 6,237 5,347 4,165
------ ------ ----- ------
Costs and operating expenses:
Cost of revenues............... 2,087 5,391 4,422 4,855
Selling, general and
administrative expenses (note
6)............................ 1,416 1,506 1,024 1,959
Gain on sale of business (note
2)............................ -- (1,427) -- --
------ ------ ----- ------
3,503 5,470 5,446 6,814
------ ------ ----- ------
Operating income (loss).......... (272) 767 (99) (2,649)
Interest income.................. 17 -- -- 8
Interest expense................. -- (63) (12) (16)
------ ------ ----- ------
Income (loss) before income
taxes....................... (255) 704 (111) (2,657)
Income tax (provision) benefit
(note 5)........................ 96 (250) 39 --
------ ------ ----- ------
Net income (loss)............ $ (159) 454 (72) (2,657)
====== ====== ===== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-108
<PAGE>
LIVEONTHENET.COM, INC.
STATEMENTS OF SHAREHOLDERS' INVESTMENT
Years ended January 3, 1998 and January 2, 1999
and the period from January 3, 1999 through October 2, 1999 (unaudited)
(In thousands)
<TABLE>
<CAPTION>
Common
stock,
$.01 Capital in
par excess of Treasury Accumulated
value par value stock deficit
------ ---------- -------- -----------
<S> <C> <C> <C> <C>
Balance at December 28, 1996............. $ 9 2,193 (23) (339)
Net loss................................. -- -- -- (159)
---- ----- --- ------
Balance at January 3, 1998............... 9 2,193 (23) (498)
Net income............................... -- -- -- 454
---- ----- --- ------
Balance at January 2, 1999............... 9 2,193 (23) (44)
Net loss (unaudited)..................... -- -- -- (2,657)
---- ----- --- ------
Balance at October 2, 1999 (unaudited)... $ 9 2,193 (23) (2,701)
==== ===== === ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-109
<PAGE>
LIVEONTHENET.COM, INC.
STATEMENTS OF CASH FLOWS
Years ended January 3, 1998 and January 2, 1999
and the periods from January 4, 1998 through October 3, 1998 (unaudited)
and January 3, 1999 through October 2, 1999 (unaudited)
(In thousands)
<TABLE>
<CAPTION>
Period from Period from
January 4, January 3,
1998 1999
Year ended Year ended through through
January 3, January 2, October 3, October 2,
1998 1999 1998 1999
---------- ---------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Operating activities:
Net income (loss).............. $(159) 454 (72) (2,657)
Adjustments to reconcile net
income (loss) to net cash used
in operating activities:
Depreciation and
amortization................ 230 364 134 374
Provision for losses on
accounts receivable......... -- 787 66 622
Deferred income tax expense
(benefit) (note 5).......... (109) (169) 14 (569)
Gain on sale of business
(note 2).................... -- (1,427) -- --
Changes in current accounts:
Accounts receivable........ (744) (2,927) (2,381) 794
Other current assets....... 117 29 52 (845)
Accounts payable........... 19 211 254 (140)
Other current liabilities.. 88 701 490 (244)
----- ------ ------ ------
Net cash used in
operating activities.... (558) (1,977) (1,443) (2,665)
----- ------ ------ ------
Investing activities:
Proceeds from sale of business
(note 2)...................... -- 1,478 -- --
Purchases of property and
equipment..................... (405) (252) (154) (578)
Other.......................... (98) (57) 54 (23)
----- ------ ------ ------
Net cash provided by
(used in) investing
activities.............. (503) 1,169 (100) (601)
----- ------ ------ ------
Financing activities:
Advances from parent company... 279 2,221 1,512 1,884
Payments under capital lease
obligations................... (34) (114) (76) (30)
----- ------ ------ ------
Net cash provided by
financing activities.... 245 2,107 1,436 1,854
----- ------ ------ ------
Increase (decrease) in
cash and cash
equivalents............. (816) 1,299 (107) (1,412)
Cash and cash equivalents at
beginning of year............... 957 141 141 1,440
----- ------ ------ ------
Cash and cash equivalents at end
of year......................... $ 141 1,440 34 28
===== ====== ====== ======
Cash paid for:
Interest....................... $ -- 63 12 16
Income taxes................... -- -- -- 473
===== ====== ====== ======
Noncash activities--
Acquisition of property and
equipment under capital lease. $ -- 391 362 8
===== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-110
<PAGE>
LIVEONTHENET.COM, INC.
NOTES TO FINANCIAL STATEMENTS
(1) Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
LiveOnTheNet.com, Inc. (formerly Traveller Information Services Inc., "the
Company") designs, develops and provides a broad array of information
technology products and services.
Relationship with Thermo Information Solutions Inc., Thermo Coleman
Corporation and Thermo Electron Corporation
On October 17, 1996, Thermo Coleman Corporation ("Coleman") acquired a 75%
interest in the Company. In March 1997, Coleman transferred to Thermo
Information Solutions Inc. ("TIS") the assets and liabilities relating to its
information technology business, including its 75% interest in the stock of the
Company. As of January 2, 1999, TIS owned 713,247 shares of the Company's
common stock representing 75% of such outstanding common stock. TIS is a 79%-
owned subsidiary of Coleman. Coleman is an 87%-owned subsidiary of Thermo
Electron Corporation ("Thermo Electron").
The accompanying financial statements include the assets, liabilities,
income and expenses of the Company as included in TIS's, Coleman's and Thermo
Electron's consolidated financial statements.
Fiscal Year
The Company has adopted a fiscal year ending the Saturday nearest December
31. References to fiscal 1997 and 1998 are for the fiscal years ended January
3, 1998 and January 2, 1999, respectively. Fiscal year 1998 included 52 weeks;
fiscal 1997 included 53 weeks.
Unaudited Interim Financial Information
The financial statements as of October 2, 1999 and for the periods from
January 4, 1998 through October 31, 1998 and from January 3, 1999 through
October 2, 1999, respectively, are unaudited. In the opinion of the Company's
management, the unaudited interim financial statements include all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation
of the financial position and results of operations for that period. The
results of operations for the period from January 3, 1999 through October 2,
1999 are not necessarily indicative of the results of operations to be expected
for the year ended January 1, 2000.
Revenue Recognition
The Company earns revenues through Webcasting and Web page development,
hosting and advertising. In general, revenues are recognized in the month in
which services are performed, provided that no significant obligations remain.
Webcasting revenues are recognized when events are cast. Web advertising
revenues are recognized in the period in which the advertising is displayed.
The Company provides automated Web page development, hosting and advertising to
small businesses. The one-time fee for developing a Web page is recognized upon
completion of the work. Revenues for Web hosting and advertising are recognized
in the period the services are provided.
Through December 1998, the Company also earned revenues as an Internet
services provider, and recognized revenue as services were provided (note 2).
Stock-based Compensation Plans
The Company applies Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its stock-based compensation plans (note 3).
F-111
<PAGE>
LIVEONTHENET.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Accordingly, no accounting recognition is given to stock options granted at
fair market value until they are exercised. Upon exercise, net proceeds,
including tax benefits realized, are credited to shareholders' investment.
Income Taxes
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes," the Company recognizes deferred income
taxes based on the expected future tax consequences of differences between the
financial statement basis and the tax basis of assets and liabilities,
calculated using enacted tax rates in effect for the year in which the
differences are expected to be reflected in the tax return.
Cash and Cash Equivalents
The Company's cash equivalents are invested in an interest-bearing money
market account. Cash and cash equivalents are carried at cost, which
approximates market value.
Property and Equipment
The costs of additions and improvements are capitalized, while maintenance
and repairs are charged to expense as incurred. The Company provides for
depreciation and amortization using the straight-line method over the estimated
useful lives of the property as follows: machinery and equipment, 3 to 7 years
and leasehold improvements, the shorter of the term of the lease or the life of
the asset. Property and equipment consists of:
<TABLE>
<CAPTION>
1997 1998
---- -----
(In
thousands)
<S> <C> <C>
Machinery and equipment........................................ $925 1,447
Leasehold improvements......................................... 52 55
---- -----
977 1,502
Less accumulated depreciation and amortization................. 365 549
---- -----
$612 953
==== =====
</TABLE>
Other Assets
Other assets in the accompanying balance sheet relate primarily to
specifically identifiable intangible assets and are amortized using the
straight-line method over an estimated useful life of 5 years. These assets
were $337,000 at year-end 1997 and 1998, net of accumulated amortization of
$80,000 and $137,000, at year-end 1997 and 1998, respectively.
Comprehensive Income
During the first quarter of 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income." This pronouncement sets forth requirements
for disclosure of the Company's comprehensive income and accumulated other
comprehensive items. In general, comprehensive income combines net income and
"Other comprehensive items," which represents certain items reported as
components of shareholders' investment. The Company has no such items and,
accordingly, its comprehensive income (loss) is equal to its net income (loss)
for all periods presented.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, accounts payable and due to parent company.
The carrying amounts of these financial instruments approximate fair value due
to their short-term nature.
F-112
<PAGE>
LIVEONTHENET.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
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.
(2) Disposition
In December 1998, the Company sold its access and virtual domain (vdom) line
of business to an unrelated third party for $1,628,000 in cash, of which
$150,000 is held in escrow, resulting in a gain of $1,427,000. The access and
vdom business provided regional Internet services and World Wide Web services
to small businesses. This line of business represented 25% of the Company's
revenues in 1998.
(3) Employee Benefit Plans
Stock-based Compensation Plans
The Company has an incentive stock option plan for its key employees, which
permits the grant of incentive stock option awards as determined by the
Company's Board of Directors (the "Board"). The option recipients and the terms
of the options granted under this plan are determined by the Board. As of year-
end 1998, options to purchase 23,735 shares were outstanding. These options
vested and became immediately exercisable on the two-month anniversary of the
grant date. The term of the options is five years. Incentive stock options must
be granted at not less than fair market value of the Company's stock on the
date of grant.
A summary of the Company's stock option activity is:
<TABLE>
<CAPTION>
1997 1998
--------------- ---------------
Weighted Weighted
Number average Number average
of exercise of exercise
shares price shares price
------ -------- ------ --------
(Shares in thousands)
<S> <C> <C> <C> <C>
Options outstanding, at beginning and
end of year............................ 24 $3.00 24 $3.00
=== ===== === =====
Options exercisable..................... 24 $3.00 24 $3.00
=== ===== === =====
Options available for grant............. -- --
=== ===
</TABLE>
As of January 2, 1999, the options outstanding were exercisable at $3.00 and
had a weighted-average remaining contractual life of 1.7 years.
Pro Forma Stock-based Compensation Expense
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-based Compensation," which sets forth a fair-value
based method of recognizing stock-based compensation expense. As permitted by
SFAS No. 123, the Company has elected to continue to apply APB No. 25 to
account for its stock-based compensation plans. Had compensation costs for
awards granted under the Company's
F-113
<PAGE>
LIVEONTHENET.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
stock-based compensation plans been determined based on the fair value at the
grant dates consistent with the method set forth under SFAS No. 123, the effect
on the Company's net income (loss) would have been:
<TABLE>
<CAPTION>
1997 1998
-------- -------
(In thousands)
<S> <C> <C>
Net income (loss):
As reported........................................... $ (159) 454
======== ======
Pro forma............................................. (169) 446
======== ======
</TABLE>
Pro forma compensation expense for options granted is reflected over the
vesting period; therefore, future pro forma compensation expense may be greater
as additional options are granted.
The Black-Scholes option-pricing 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-pricing models require the input of
highly subjective assumptions including expected stock price 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.
Defined Contribution Pension Plan
Beginning in February 1997, substantially all of the Company's full-time
employees are eligible to participate in a defined contribution pension plan
after one year of service. Contributions to the plan are made by both the
employee and the Company. Company contributions are based upon 2% of employee's
gross wages for the prior year. For these plans, the Company contributed and
charged to expense $11,000 and $13,000 in 1997 and 1998, respectively.
(4) Common Stock
At January 2, 1999, the Company had reserved 23,735 unissued shares of its
common stock for possible issuance under stock-based compensation plans.
(5) Income Taxes
The components of the income tax (provision) benefit are:
<TABLE>
<CAPTION>
1997 1998
------- -------
(In thousands)
<S> <C> <C>
Currently payable:
Federal................................................ $ -- (370)
State.................................................. -- (41)
------- -------
-- (411)
------- -------
Prepaid (deferred), net:
Federal................................................ 83 135
State.................................................. 13 26
------- -------
96 161
------- -------
$ 96 (250)
======= =======
</TABLE>
F-114
<PAGE>
LIVEONTHENET.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The income tax (provision) benefit in the accompanying statement of
operations differs from the amount calculated by applying the statutory
federal income tax rate of 34% to income (loss) before income taxes due to:
<TABLE>
<CAPTION>
1997 1998
------- -------
(In thousands)
<S> <C> <C>
(Provision) benefit for income taxes at statutory
rate................................................. $ 87 (239)
Increases (decreases) resulting from:
State income taxes, net of federal.................. 9 (10)
Nondeductible expenses.............................. (1) (12)
Other............................................... 1 11
------ -------
$ 96 (250)
====== =======
</TABLE>
Prepaid income taxes in the accompanying balance sheet consist of:
<TABLE>
<CAPTION>
1997 1998
------- -------
(In thousands)
<S> <C> <C>
Prepaid income taxes:
Net operating loss carryforward....................... $ 260 --
Depreciation.......................................... (31) (162)
Reserves and accruals................................. 6 558
------- -------
$ 235 396
======= =======
</TABLE>
(6) Related-party Transactions
Corporate Services
Thermo Electron's corporate staff provides certain administrative services,
including certain legal advice and services, risk management, certain employee
benefit administration, tax advice and preparation of tax returns, centralized
cash management and certain financial and other services. Since the beginning
of 1998, the Company has paid Thermo Electron annually an amount equal to 0.8%
of the Company's revenues. From October 1996 through year-end 1997, the
Company paid an amount equal to 1.0% of the Company's revenues. For these
services, the Company was charged $32,000 and $50,000 in 1997 and 1998,
respectively. The annual fee is reviewed and adjusted annually by mutual
agreement of the parties. Management believes that the service fee charged by
Thermo Electron is reasonable and that such fees are representative of the
expenses the Company would have incurred on a stand-alone basis. For
additional items such as employee benefit plans, insurance coverage and other
identifiable costs, Thermo Electron charges the Company based upon costs
attributable to the Company.
Other Related-party Transactions
In 1997 and 1998, Coleman paid the Company $755,000 and $42,000,
respectively, for Internet services.
Due to Parent Company
The Company had $290,000 and $2,630,000 of interest-bearing advances from
TIS at year-end 1997 and 1998, respectively, which bore interest at a rate of
5% and were due on demand.
F-115
<PAGE>
LIVEONTHENET.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(7) Long-term Capital Lease Obligations
The Company leases computer equipment under capital leases. The carrying
amount of the equipment is $291,000, which is included in property and
equipment, net in the accompanying balance sheet.
The future minimum lease payments under capital leases are as follows (in
thousands):
<TABLE>
<S> <C>
1999................................................................ $163
2000................................................................ 111
2001................................................................ 47
----
321
Less amount representing interest................................... 24
----
Present value of minimum lease payments............................. 297
Less current portion................................................ 147
----
Long-term capital lease obligations................................. $150
====
</TABLE>
(8) Commitments
The Company leases portions of its office, operating facilities and certain
equipment under various operating lease arrangements. The accompanying
statement of operations includes expenses from operating leases of $101,000 and
$45,000 in 1997 and 1998, respectively. At January 2, 1999, future minimum
payments due under noncancelable operating leases, expiring at various dates
through 2000, are $57,000 in 1999 and $26,000 in 2000. Total future minimum
lease payments are $83,000.
F-116
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Martin Partners, L.L.C.:
We have audited the accompanying balance sheets of Martin Partners, L.L.C.
as of December 31, 1998 and 1999, and the related statements of operations,
members' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Martin Partners, L.L.C. as
of December 31, 1998 and 1999, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Chicago, Illinois
February 3, 2000, except for note 5 which is as of February 8, 2000
F-117
<PAGE>
MARTIN PARTNERS, L.L.C.
BALANCE SHEETS
December 31, 1998 and 1999
<TABLE>
<CAPTION>
1998 1999
Assets -------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................... $385,136 590,420
Accounts receivable, less allowance for doubtful
accounts of $25,000 and $80,750 at December 31, 1998
and 1999, respectively................................. 312,607 1,001,425
-------- ---------
Total current assets.................................. 697,743 1,591,845
Property and equipment:
Computer equipment...................................... 78,175 93,404
Furniture and fixtures.................................. 65,626 65,626
Leasehold improvements.................................. 6,800 6,800
-------- ---------
Total property and equipment.......................... 150,601 165,830
Less accumulated depreciation and amortization............ (50,195) (78,412)
-------- ---------
Net property and equipment............................ 100,406 87,418
Other assets.............................................. 14,184 9,376
-------- ---------
Total assets.......................................... $812,333 1,688,639
======== =========
<CAPTION>
Liabilities and Members' Equity
<S> <C> <C>
Current liabilities:
Accounts payable........................................ $ 1,174 5,545
Accrued expenses........................................ 911 10,412
Deferred revenue........................................ 31,776 266,600
-------- ---------
Total current liabilities............................. 33,861 282,557
Members' equity........................................... 778,472 1,406,082
-------- ---------
Total liabilities and members' equity................. $812,333 1,688,639
======== =========
</TABLE>
See accompanying notes to financial statements.
F-118
<PAGE>
MARTIN PARTNERS, L.L.C.
STATEMENTS OF OPERATIONS
Years ended December 31, 1998 and 1999
<TABLE>
<CAPTION>
1998 1999
---------- ---------
<S> <C> <C>
Revenue................................................... $3,194,660 4,455,688
Operating expenses:
Salaries................................................ 1,229,802 1,448,595
General and administrative expenses..................... 771,573 709,661
---------- ---------
Total operating expenses.............................. 2,001,375 2,158,256
---------- ---------
Operating income...................................... 1,193,285 2,297,432
Other income (expense):
Interest expense........................................ (1,506) --
Interest income......................................... 20,843 30,892
Other, net.............................................. 6,538 --
---------- ---------
Total other income.................................... 25,875 30,892
---------- ---------
Net income............................................ $1,219,160 2,328,324
========== =========
</TABLE>
See accompanying notes to financial statements.
F-119
<PAGE>
MARTIN PARTNERS, L.L.C.
STATEMENTS OF MEMBERS' EQUITY
Years ended December 31, 1998 and 1999
<TABLE>
<CAPTION>
Members'
Equity
-----------
<S> <C>
Balance at December 31, 1997....................................... $ 731,717
Net income......................................................... 1,219,160
Capital withdrawal................................................. (1,172,405)
-----------
Balance at December 31, 1998....................................... 778,472
Net income......................................................... 2,328,324
Capital withdrawal................................................. (1,700,714)
-----------
Balance at December 31, 1999....................................... $ 1,406,082
===========
</TABLE>
See accompanying notes to financial statements.
F-120
<PAGE>
MARTIN PARTNERS, L.L.C.
STATEMENTS OF CASH FLOWS
Years ended December 31, 1998 and 1999
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income......................................... $ 1,219,160 2,328,324
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................... 26,383 28,217
Changes in current assets and liabilities:
Accounts receivable............................ 85,715 (688,818)
Accounts payable............................... (25,342) 4,371
Accrued expenses............................... (296) 9,501
Deferred revenue............................... (79,657) 234,824
Other assets................................... 1,251 4,808
----------- -----------
Net cash provided by operating activities.... 1,227,214 1,921,227
----------- -----------
Cash flows from investing activities--
property and equipment expenditures................ (22,812) (15,229)
----------- -----------
Net cash used in investing activities........ (22,812) (15,229)
----------- -----------
Cash flows from financing activities:
Members' capital withdrawn......................... (1,172,405) (1,700,714)
Principal borrowings on notes payable.............. 39,123 --
Principal payments on notes payable................ (57,873) --
----------- -----------
Net cash used in financing activities........ (1,191,155) (1,700,714)
----------- -----------
Net increase in cash and cash equivalents.... 13,247 205,284
Cash and cash equivalents at beginning of year....... 371,889 385,136
----------- -----------
Cash and cash equivalents at end of year............. $ 385,136 590,420
=========== ===========
Supplemental disclosure of cash flow information--
cash paid for interest ............................. $ 1,507 --
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-121
<PAGE>
MARTIN PARTNERS, L.L.C.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1999
(1) Summary of Significant Accounting Policies
Nature of Business
Martin Partners, L.L.C. was organized in the State of Illinois on January
10, 1996, as a limited liability company under the Limited Liability Company
Act of Illinois, in force January 1, 1994. The Company specializes in the
executive search and placement business. The Company conducts business with
customers located worldwide.
By terms of the operating agreement, the Company will continue until
December 31, 2026, unless terminated earlier by written agreement of a majority
of the members. Members participate in income and losses proportionately on the
basis of the percentage of interest held and are subject to losses only to the
extent of their respective investments.
Income Tax Status
Effective January 10, 1996, the Company elected to become a limited
liability company for income tax reporting purposes. The Company has elected
the cash basis of accounting for income tax reporting purposes. The Company is
treated as a Partnership for Federal income tax purposes. Accordingly, these
financial statements contain no provision and no assets or liabilities for
Federal or state income taxes.
Basis of Accounting
The financial statements of the Company have been prepared in conformity
with U.S. generally accepted accounting principles.
Revenue Recognition
Revenue from client services is generally recognized ratably over a 90-day
period commencing in the month of the initial acceptance of a search. A client
has the ability to cancel the search at any time within the first 90 days. If a
search is canceled, the Company will bill for services performed through the
date of cancellation. Revenue consists of fees billed to clients, net of
reimbursed expenses for candidate travel and other related recruiting expenses.
Cash Equivalents
The Company considers all highly liquid investments purchased with initial
maturities of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost and are depreciated on a straight-
line basis over their estimated useful lives, which range from five to seven
years.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-122
<PAGE>
MARTIN PARTNERS, L.L.C.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(2) Long-term Leases
The Company leases its facility under an operating lease expiring May 31,
2004. The Company also leases a postage meter and copier under operating lease
agreements. Total rent expense was $166,434 and $111,958 for the years ended
December 31, 1998 and 1999, respectively. The following is a schedule of the
future minimum rental payments required under the above leases as of December
31, 1999:
<TABLE>
<CAPTION>
Year ending
December 31,
1999 Amount
------------ --------
<S> <C>
2000.......................................................... $ 63,048
2001.......................................................... 64,626
2002.......................................................... 63,608
2003.......................................................... 64,002
2004.......................................................... 29,226
--------
Total future minimum payments................................... $284,510
========
</TABLE>
(3) Incentive Plans
Profit Sharing Plan
The Company established a qualified Defined Contribution SAR-SEP Profit
Sharing Plan (the "Plan"), effective January 10, 1996. The Plan covers
substantially all employees. Annual contributions to the Plan are made at the
discretion of the Company's Board of Directors. The annual profit sharing
contribution is calculated based upon applying a percentage, not to exceed
fifteen percent (15%), to the calendar year compensation of those employees
participating in the Plan. The Company recorded profit sharing expense of
$33,344 and $29,188 for the years ended December 31, 1998 and 1999,
respectively.
Long-term Incentive Plan
The Company established a long-term incentive plan during 1997 for
substantially all employees. The Plan awards employees with Incentive Units
with a four-year vesting period which appreciate with increases in annual gross
revenues. The Company recorded expense related to the plan of $-0- and $10,383
for the years ended December 31, 1998 and 1999, respectively.
(4) Significant Customers
Revenue for the three largest customers aggregated approximately 27% of
total revenue for the year ended December 31, 1998. As of December 31, 1998,
there were three customers whose individual account balances aggregated 45% of
total trade accounts receivable.
Revenue for the three largest customers aggregated approximately 26% of
total revenue for the year ended December 31, 1999. As of December 31, 1999,
there were three customers whose individual account balances aggregated 50% of
total trade accounts receivable.
(5) Subsequent Event
On February 8, 2000, a third party purchased a 25% member interest in the
Company from the majority member for cash.
F-123
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Mercantec, Inc.:
We have audited the accompanying balance sheets of Mercantec, Inc. as of
December 31, 1998 and 1999 and the related statements of operations,
stockholders' equity (deficit), and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Mercantec, Inc. as of
December 31, 1998 and 1999 and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Chicago, Illinois
January 28, 2000, except for
note 11 which is as of
February 11, 2000
F-124
<PAGE>
MERCANTEC, INC.
BALANCE SHEETS
December 31, 1998 and 1999
<TABLE>
<CAPTION>
ASSETS 1998 1999
------ ----------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents........................... $ 5,427,024 2,513,428
Accounts receivable, net of allowance for doubtful
accounts of $25,000 in 1999........................ 39,936 432,837
Prepaid expenses and other current assets........... 57,501 172,955
----------- ----------
Total current assets.............................. 5,524,461 3,119,220
----------- ----------
Property and equipment, at cost:
Furniture and fixtures.............................. 127,272 156,152
Office equipment.................................... 78,880 174,769
Computer equipment.................................. 187,465 534,707
Computer software................................... 75,148 369,725
Leasehold improvements.............................. 9,982 29,897
----------- ----------
478,747 1,265,250
Less accumulated depreciation and amortization...... 146,621 372,065
----------- ----------
Property and equipment, net....................... 332,126 893,185
----------- ----------
Other assets.......................................... 59,839 60,524
----------- ----------
$ 5,916,426 4,072,929
=========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses............... $ 575,014 898,472
Capital lease obligation, current portion........... 17,766 17,766
Convertible note payable............................ -- 3,000,000
Deferred revenue.................................... 251,975 363,937
Accrued payroll..................................... -- 47,000
----------- ----------
Total current liabilities......................... 844,755 4,327,175
Capital lease obligation, less current portion...... 88,630 70,864
Note payable........................................ 166,500 191,500
----------- ----------
Total liabilities................................. 1,099,885 4,589,539
----------- ----------
Stockholders' equity (deficit):
Preferred Stock, $.01 par value, authorized
15,000,000 shares:
Series A Convertible Preferred Stock, 2,432,434
shares issued and outstanding..................... 24,324 24,324
Series B Convertible Preferred Stock, 2,250,000
shares issued and outstanding..................... 22,500 22,500
Series C Convertible Preferred Stock, 6,980,000
shares issued and outstanding..................... 69,800 69,800
Common stock, $.001 par value, 55,000,000 shares
authorized; 14,518,431 and 14,878,806 shares issued
in 1998 and 1999................................... 14,518 14,878
Additional paid in capital.......................... 8,559,804 8,685,919
Accumulated deficit................................. (3,698,860) (9,158,486)
Treasury stock, at cost, 2,632,500 common shares.... (175,545) (175,545)
----------- ----------
Total stockholders' equity (deficit).............. 4,816,541 (516,610)
----------- ----------
$ 5,916,426 4,072,929
=========== ==========
</TABLE>
See accompanying notes to financial statements.
F-125
<PAGE>
MERCANTEC, INC.
STATEMENTS OF OPERATIONS
Years ended December 31, 1998 and 1999
<TABLE>
<CAPTION>
1998 1999
----------- ----------
<S> <C> <C>
Net revenue............................................ $ 1,015,416 1,469,245
----------- ----------
Operating expenses:
Sales and marketing.................................. 1,440,470 3,039,784
Research and development............................. 928,151 1,839,904
General and administrative........................... 738,026 2,124,562
----------- ----------
Total operating expenses........................... 3,106,647 7,004,250
----------- ----------
Loss from operations............................... (2,091,231) (5,535,005)
----------- ----------
Other income (expense):
Interest income...................................... 46,233 132,226
Interest expense..................................... (1,382) (59,501)
Miscellaneous income (expense)....................... (11,467) 2,654
----------- ----------
Total other income (expense)....................... 33,385 75,379
----------- ----------
Loss before income taxes........................... (2,057,846) (5,459,626)
Income taxes -- --
----------- ----------
Net loss........................................... $(2,057,846) (5,459,626)
=========== ==========
</TABLE>
See accompanying notes to financial statements.
F-126
<PAGE>
MERCANTEC, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Years ended December 31, 1998 and 1999
<TABLE>
<CAPTION>
Preferred Stock
-----------------------------------------------------
Series A Series B Series C Common stock Additional
----------------- ----------------- ----------------- ------------------ paid in Accumulated Treasury
Shares Amount Shares Amount Shares Amount Shares Amount capital deficit stock
--------- ------- --------- ------- --------- ------- ---------- ------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1997............ 2,432,434 $24,324 -- $ -- -- $ -- 14,484,375 $14,484 $1,771,100 $(1,641,014) $(175,545)
Net loss........ -- -- -- -- -- -- -- -- -- (2,057,846) --
Issuance of
common stock in
lieu of deferred
payroll......... -- -- -- -- -- -- 30,681 31 30,653 -- --
Exercise of
stock options... -- -- -- -- -- -- 3,375 3 297 -- --
Issuance of
Series B
Convertible
Preferred Stock. -- -- 2,250,000 22,500 -- -- -- -- 977,500 -- --
Issuance of
Series C
Convertible
Preferred Stock,
net of issuance
costs........... -- -- -- -- 6,980,000 69,800 -- -- 5,780,254 -- --
--------- ------- --------- ------- --------- ------- ---------- ------- ---------- ----------- ---------
Balance at
December 31,
1998............ 2,432,434 24,324 2,250,000 22,500 6,980,000 69,800 14,518,431 14,518 8,559,804 (3,698,860) (175,545)
Net loss........ -- -- -- -- -- -- -- -- -- (5,459,626) --
Settlement of
issuance costs
for Series A
Preferred Stock. -- -- -- -- -- -- -- -- 135,000 -- --
Issuance costs
for Series C
Preferred Stock. -- -- -- -- -- -- -- -- (50,000) -- --
Exercise of
stock options... -- -- -- -- -- -- 360,375 360 41,115 -- --
--------- ------- --------- ------- --------- ------- ---------- ------- ---------- ----------- ---------
Balance at
December 31,
1999............ 2,432,434 $24,324 2,250,000 $22,500 6,980,000 $69,800 14,878,806 $14,878 $8,685,919 $(9,158,486) $(175,545)
========= ======= ========= ======= ========= ======= ========== ======= ========== =========== =========
<CAPTION>
Total
stockholders'
equity (deficit)
----------------
<S> <C>
Balance at
December 31,
1997............ $ (6,651)
Net loss........ (2,057,846)
Issuance of
common stock in
lieu of deferred
payroll......... 30,684
Exercise of
stock options... 300
Issuance of
Series B
Convertible
Preferred Stock. 1,000,000
Issuance of
Series C
Convertible
Preferred Stock,
net of issuance
costs........... 5,850,054
----------------
Balance at
December 31,
1998............ 4,816,541
Net loss........ (5,459,626)
Settlement of
issuance costs
for Series A
Preferred Stock. 135,000
Issuance costs
for Series C
Preferred Stock. (50,000)
Exercise of
stock options... 41,475
----------------
Balance at
December 31,
1999............ $ (516,610)
================
</TABLE>
See accompanying notes to financial statements.
F-127
<PAGE>
MERCANTEC, INC.
STATEMENTS OF CASH FLOWS
Years ended December 31, 1998 and 1999
<TABLE>
<CAPTION>
1998 1999
--- ----------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................ $(2,057,846) (5,459,626)
Adjustments to reconcile net loss to net cash
used in operating activities:
Loss on sale of equipment..................... 1,101 --
Depreciation and amortization................. 86,255 225,444
Provision for doubtful accounts............... -- 25,000
Change in assets and liabilities:.............
Accounts receivable......................... 483,613 (417,901)
Prepaid expenses and other current assets... (35,822) (115,454)
Accounts payable and accrued expenses....... 217,991 483,458
Deferred revenue............................ (434,449) 111,962
Accrued payroll............................. (106,562) 47,000
Other assets................................ (54,801) (685)
----------- ----------
Net cash used in operating activities..... (1,900,520) (5,100,802)
----------- ----------
Cash flows from investing activities:
Proceeds from sale of furniture................. 645 --
Capital expenditures............................ (115,927) (786,503)
----------- ----------
Net cash used in investing activities..... (115,282) (786,503)
----------- ----------
Cash flows from financing activities:
Net proceeds (repayments) on convertible note
payable........................................ (1,258) 3,000,000
Payments on capital leases...................... (2,272) (17,766)
Proceeds from issuance of preferred stock--
Series B....................................... 1,000,000 --
Proceeds from issuance of preferred stock--
Series C....................................... 5,850,054 (50,000)
Proceeds from exercise of common stock options.. 300 41,475
----------- ----------
Net cash provided by financing activities. 6,846,824 2,973,709
----------- ----------
Net increase in cash and cash equivalents. 4,831,022 (2,913,596)
----------- ----------
Cash and cash equivalents at beginning of period.. 596,002 5,427,024
----------- ----------
Cash and cash equivalents at end of period........ $ 5,427,024 2,513,428
=========== ==========
Supplemental disclosure of cash flow information--
interest paid.................................... $ 1,390 9,501
Supplemental disclosure of noncash financing ac-
tivities:
Reduction of deferred payroll resulting from
issuance of common stock....................... 30,684 --
Capital lease obligation assumed................ 108,668 --
Settlement of issuance costs for Series A
preferred stock................................ -- 135,000
</TABLE>
See accompanying notes to financial statements.
F-128
<PAGE>
MERCANTEC, INC.
NOTES TO FINANCIAL STATEMENTS
(1) Description of the Business
Mercater, the predecessor entity, was originally incorporated in December
1995 in the State of Illinois to develop, integrate, and market on-line
electronic commerce solutions and technology for the Internet market place. On
March 8, 1996, Mercater changed its name to Mercantec, Inc. (Mercantec or the
Company). Mercantec specializes in offering software for building and operating
electronic storefronts on the World Wide Web.
During 1996, Mercantec acquired all rights to its core technology,
SoftCart(TM), an electronic commerce virtual shopping solution, from Skeleton
Development Corporation, which released the initial version in August 1995. As
a part of the agreement to acquire the technology, Skeleton Development
Corporation was dissolved and all employees joined Mercantec as founders.
In February 1997, the Company was reincorporated in the State of Delaware.
(2) Summary of Significant Accounting Policies
(a) Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents.
(b) Revenue Recognition
The Company accounts for its revenue in compliance with AICPA Statement of
Position 97-2, "Software Revenue Recognition."
The Company enters into arrangements with resellers and master distributors
which typically include the following elements: 1) the right to resell a
specified number of software licenses over a specified term; 2) maintenance
services to the reseller or distributor for a specified term; and 3) training
and consultation services. These arrangements are separately-priced,
irrevocable, and the license portion is based on a fixed fee with no refunds
entitled to the reseller or distributor in the event the specified number of
licenses are not resold within the term of the arrangement. As the Company does
not have vendor specific objective evidence of fair value of all elements,
revenue associated with software, maintenance and services is recognized
ratably over the term of the arrangement.
Renewal license fees and license fees in excess of the number of licenses
permitted by the original arrangement are recognized monthly upon verification
of reseller reports and/or activation reports from the end user. Revenue is
also recognized on renewal maintenance and training and consultation services
under separately priced contracts as the services are performed.
The Company also enters into arrangements with merchants (end users)
containing a single software license, maintenance, and training and
consultation services. License and maintenance revenue is recognized ratably
over the term of the arrangement while service revenues are recognized as
services are performed.
F-129
<PAGE>
MERCANTEC, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(c) Software Development
Software development costs are accounted for in accordance with Statement of
Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed." Costs associated with the
planning and designing phase of software development, including coding and
testing activities necessary to establish technological feasibility, are
classified as research and development costs and are charged to expense as
incurred. Once technological feasibility has been established, software
development costs would be capitalized. The Company's software costs have not
been capitalized due to the short life cycle of the Company's software products
and the short period between technological feasibility and when products are
ready for release to customers.
(d)Property and Equipment
Property and equipment are stated at cost. Depreciation or amortization is
provided over the estimated useful lives of the assets using the straight-line
method for financial reporting purposes. The estimated useful lives are as
follows:
<TABLE>
<S> <C>
Furniture and fixtures............................... 7 years
Office equipment..................................... 7 years
Computer equipment .................................. 3 years
Computer software.................................... 3 years
Leasehold improvements............................... Over the lease term
</TABLE>
Depreciation and amortization expense was $86,255 and $225,444 for 1998 and
1999, respectively.
(e)Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
(Statement 109). Under Statement 109, deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled.
(f)Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
(g) Fair Value of Financial Instruments
The Company's financial instruments include accounts receivable, accounts
payable, note payable, and capital lease obligations. The fair value of these
financial instruments approximates their carrying values due to the short-term
nature of these instruments or the rates on these instruments approximate
current market rates.
(h) Advertising Expenses
Advertising expenses are charged to operations during the year in which they
are incurred. The total amount of advertising expenses charged to operations
was approximately $10,000 and $29,000 in 1998 and 1999, respectively.
F-130
<PAGE>
MERCANTEC, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(i) Stock Option Plans
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (Statement 123). Statement 123 defines a fair value based method
of accounting for an employee stock option or similar equity instrument.
Statement 123 gives entities a choice of recognizing related compensation
expense using the fair value method or to continue to measure compensation
using the intrinsic value approach under Accounting Principles Board Opinion
No. 25 (APB 25). The Company continues to use the measurement prescribed by APB
25 and provides the pro forma disclosures required by Statement 123.
(3) Stockholders' Equity (Deficit)
Effective November 20, 1998, the Company declared a 4.5 to 1 stock split
effective for all common stock and Series A, Series B, and Series C preferred
stock. All common stock, preferred stock, and stock option information has been
restated to reflect this stock split on a retroactive basis.
The Company amended its articles of incorporation and increased the
authorized number of shares to 55,000,000 of $.001 par value common stock, of
which 50,000,000 shares are designated as voting common stock and 5,000,000
shares are designated as nonvoting common stock. All of the Company's issued
common stock has voting privileges as of December 31, 1998 and 1999. Also, the
Company authorized 15,000,000 shares of $.01 par value Preferred Stock, of
which 6,075,000 shares have been designated Series A Convertible Preferred
Stock. Shares of Series A Convertible Preferred Stock are convertible into
shares of common stock at a conversion price of $.82 per share but may be
adjusted for specified events.
During 1997, the Company acquired 2,632,500 shares of its common stock for
$175,545 (see notes 7 and 10). Additionally, through a private placement
offering, the Company issued 2,432,434 shares of Series A Convertible Preferred
Stock (Series A) for $.82 per share or $2,000,000. The expenses associated with
the private placement were deducted from the proceeds received. The Company
also accrued through additional paid in capital an additional $180,000 in
expenses in 1997 related to a claim by the placement agent which was settled in
1999 for $45,000 resulting in additional paid in capital related to the Series
A offering of $135,000.
During 1998 through two separate private placements, the Company issued
Series B Convertible Preferred Stock (Series B) and Series C Convertible
Preferred Stock (Series C). The Company issued 2,250,000 shares of Series B for
$.44 per share or $1,000,000. In connection with the Series B issuance of
preferred stock, the Company granted warrants to acquire 303,822 shares of
common stock at an exercise price of $1.00 per share. These warrants expire in
June of 2003.
Also during 1998, the Company issued 6,980,000 shares of Series C for $1.00
per share. The Company recorded net cash proceeds of $5,850,054 after the
expenses associated with the private placement of the Series C stock were
deducted. In connection with the Series C issuance of preferred stock, the
Company granted warrants to acquire 698,000 shares of common stock at an
exercise price of $1.00 per share. These warrants expire in November of 2003.
In connection with the Series C issuance of preferred stock, the Company
granted an option to the placement agent to purchase 1,396,000 Series C shares
at $1.00 per share. The placement agent's option is exercisable immediately and
the option expires the later of November 20, 2005 or three years following the
closing of an initial public offering. Additionally, the Company granted
warrants to the placement agent to acquire 139,600 shares of common stock at an
exercise price of $1.00 per share. These warrants expire in November of 2003.
The fair value of the warrants and options issued in connection with the
Series B and Series C issuances of preferred stock are a direct cost of
obtaining capital, and as such, have been recorded as additional paid in
capital.
F-131
<PAGE>
MERCANTEC, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company obtained $250,000 of bridge financing during 1998 from the
Series C placement agent. This bridge financing was repaid with the proceed
from the Series C offering. The placement agent also received warrants to
purchase 75,000 shares of common stock at an exercise price of $1.00 per share
with terms identical to the warrants issued to the holders of the Series C. The
fair value of the warrants was $-0-, accordingly, the Company did not record
any incremental interest expense in connection with issuing these warrants.
All series of preferred stock are non-cumulative, are convertible into
shares of common stock at a ratio of one-for-one, subject to certain anti-
dilution and price-protection adjustments as defined in the respective Private
Placement Memoranda, and have voting rights based on common stock equivalents.
Conversion will be automatic upon closing of a qualified initial public
offering of the Company's common stock. Series A, Series B and Series C
preferred stockholders have a liquidation preference of $0.44 per share, $0.82
per share, and $1.00 per share, respectively.
(4) Stock Option Plan
In 1996 and 1998, the Company established the Mercantec, Inc. Stock Option
Plan and the 1998 Equity Incentive Plan, respectively ("the Plans"), for all
employees and select non-employees who render services to the Company. The
options vest over a period of time approved and adopted by the Board of
Directors, but in no event shall exceed ten years from the date of grant.
Generally the options vest over a four year period from the date of grant. The
Company has reserved 4,500,000 common shares for issuance upon exercise of
options.
The Company applies APB 25 in accounting for its Plans and, accordingly, no
compensation cost has been recognized for its stock options in the financial
statements. Had compensation cost for the plans been determined consistent with
SFAS No. 123, the Company's net loss would have been the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1998 1999
----------- ------------
<S> <C> <C>
Net loss:
As reported.................................. $(2,057,846) $ (5,459,626)
Pro forma.................................... $(2,368,445) $ (5,758,294)
</TABLE>
For purposes of calculating the compensation cost consistent with SFAS No.
123, the fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-
average assumptions used for grants in 1998 and 1999: dividend yield of 0%,
risk free interest rates of 5.75%, volatility of 0% and expected lives of 10
years.
The following is a summary of activity under the stock option plans:
<TABLE>
<CAPTION>
Weighted-
average
Options exercise
outstanding price
----------- ---------
<S> <C> <C>
Outstanding at December 31, 1997.................. 1,998,000 $ 0.80
Granted........................................... 1,444,138 $ 0.82
Canceled.......................................... (502,875) $ 0.09
-----------
Outstanding at December 31, 1998.................. 2,939,263 $ 0.82
Granted........................................... 1,464,032 $ 1.00
Canceled.......................................... (1,222,932) $ 1.00
-----------
Outstanding at December 31, 1999.................. 3,180,363 $ 0.96
===========
<CAPTION>
1998 1999
----------- ---------
<S> <C> <C>
Options exercisable at December 31................ 752,013 858,190
Weighted-average exercise price of options
exercisable....................................... $ 0.86 $ 0.88
Weighted-average minimum value of options granted. $ 0.41 $ 0.43
</TABLE>
F-132
<PAGE>
MERCANTEC, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
At December 31, 1999, there were 1,319,637 options available for grant. The
weighted-average remaining life of the 3,180,363 outstanding options at
December 31, 1999 was 9.2 years, and these options had exercise prices ranging
from $0.09 to $1.00.
(5) Leases
The Company is obligated under a capital lease for office equipment that
expires in December of 2003. The Company was required, per the office equipment
lease, to purchase a $50,000 certificate of deposit and pledge the certificate
of deposit as collateral. The $50,000 certificate of deposit is recorded as a
non-current other asset. At December 31, 1999, the gross amount of office
equipment and related accumulated amortization recorded under the capital lease
were as follows:
<TABLE>
<S> <C>
Office equipment................................................ $108,668
Less accumulated amortization................................... 16,818
--------
$ 91,850
========
</TABLE>
The Company leases its office space under an operating lease expiring in
2003. Total rent expense for the years ended December 31, 1998 and 1999 was
approximately $64,800 and $103,200, respectively.
Commitments under leases at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Capitalized lease Operating leases
----------------- ----------------
<S> <C> <C>
2000................................... $ 27,267 105,700
2001................................... 27,267 110,100
2002................................... 27,267 114,400
2003................................... 24,995 98,400
-------- -------
Total minimum lease payments........... 106,796 428,600
=======
Less amount representing interest...... 18,166
--------
Present value of minimum lease
payments.............................. 88,630
Less current portion of capital lease
obligation.......................... (17,766)
--------
Noncurrent portion of capital lease
obligation............................ $ 70,864
========
</TABLE>
(6) Income Taxes
The tax effects of temporary differences between financial and income tax
reporting result in net deferred tax assets as of December 31, 1998 and 1999,
respectively, and relate primarily to net operating loss carryforwards. At
December 31, 1998 and 1999, the Company has gross deferred tax assets totaling
$3,594,919 and $8,991,510. A valuation allowance has been applied to reduce the
deferred tax assets to zero at December 31, 1998 and 1999. During 1998 and
1999, the valuation allowance increased by $2,043,000 and $5,396,591,
respectively.
Realization is dependent upon generating sufficient future taxable income to
absorb the tax benefits. The amount of deferred tax assets considered to be
realizable could be increased in the near term if estimates of future taxable
income during the carryforward period increase.
At December 31, 1999, the Company had $8,858,354 of net operating loss
carryforwards, which are available to reduce taxable income in future years. If
not used, the net operating loss carryforwards will expire through 2019.
(7)Note Payable
During 1997, the Company purchased 2,025,000 common shares from a former
employee with a $166,500 promissory note at an interest rate of 8.25% and
payable in five equal annual installments of $41,625. The payments commence at
the end of the first annual period in which the Company achieves a positive
cash flow
F-133
<PAGE>
MERCANTEC, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
in an amount in excess of the aggregate of (i) $41,625 plus (ii) the amount of
interest accrued and unpaid through the date of the end of such annual period.
See note 10 regarding related litigation.
(8)Convertible Note Payable
On November 24, 1999, the Company entered into an agreement with a third
party, whereby the third party agreed to lend the Company $3,000,000 for a
period of six months to provide interim financing to the Company prior to the
proposed equity transaction described in note 11. The full amount is due and
payable on May 24, 2000, unless converted to Series D preferred stock upon the
execution of a definitive Series D Preferred Stock Purchase Agreement. The note
bears interest at a rate of 8.5% per annum. Interest expense of approximately
$25,000 was included in accrued expenses at December 31, 1999. In connection
with this financing, the Company issued to the third party a warrant to
purchase 317,000 shares of common stock at $2.36 per share as additional
consideration. The fair value of the warrant was $-0-. Accordingly, the Company
did not record any incremental interest expense in connection with issuing the
warrant.
(9)Business and Credit Concentrations
During 1998, two customers accounted for 33% and 21% of the Company's
revenue. During 1999, three customers accounted for 27%, 17% and 11% of the
Company's revenue. At December 31, 1999, three customers accounted for 46%,
17%, and 16% of the Company's accounts receivable.
(10)Litigation
The Company is a defendant in a lawsuit, which alleges wrongful termination.
The plaintiff, a former employee and stockholder of the Company, alleges
damages of an unspecified amount and seeks an equitable order for the return of
2,025,000 shares of the Company's common stock which were repurchased during
1997 and are included as treasury stock in the financial statements. Although
the ultimate resolution of these proceedings cannot be ascertained, the Company
believes that it has meritorious defenses to the plaintiff's claim.
(11)Subsequent Events
On February 11, 2000, the Company entered into a Series D Preferred Stock
purchase agreement with a third party. Under the terms of the agreement, the
Company issued 15,501,319 shares of Series D convertible preferred stock for
$1.516 per share and warrants to purchase 1,550,132 shares of common stock at
$1.58 per share. The gross proceeds from issuance of Series D preferred stock
is payable by the third party as follows: $9 million on February 11, 2000, $6.5
million on April 1, 2000 and $5 million on July 15, 2000. The second and third
payments are pursuant to a promissory note secured by the pledge of the
purchased Series D preferred shares. The convertible note payable for $3
million described in note 8 was converted into Series D preferred stock.
The Series D convertible preferred stock is subject to rights of redemption
for two thirds of the Series D shares after six years and has supervoting
rights (equal to 1.25 common) if converted into common shares, and other rights
and preferences as defined in the agreement. In addition, the Series D
convertible preferred stock has a liquidation preference to all other classes
of stock.
As of the closing of this agreement, the Company's authorized capital stock
consisted of 44,060,802 shares of $.0001 par value preferred stock and
70,051,451 shares of $.001 par value common stock.
On January 31, 2000, the Company agreed to purchase, upon closing the
agreement above, 1,000,000 shares of Series A convertible preferred stock from
its Series A investors at $2.00 per share. The Company also agreed to secure
offers, as defined in the agreement, with respect to the purchase of the
remaining outstanding Series A preferred shares at an aggregate purchase price
not less than $2.00 per share. The Company is required to redeem any remaining
unsold Series A convertible preferred shares no later than 9 months after
closing the agreement above, secured by a $2,864,868 irrevocable stand-by
letter of credit with American National Bank and Trust Company.
F-134
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
OpinionWare.com, Inc.:
We have audited the accompanying balance sheet of OpinionWare.com Inc. (a
development stage enterprise) (the Company) as of September 30, 1999, and the
related statements of operations, shareholders' deficit, and cash flows for the
period from April 1, 1999 (inception) through 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 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 OpinionWare.com, Inc. (a
development stage enterprise) as of September 30, 1999, and the results of its
operations and its cash flows for the period from April 1, 1999 (inception)
through September 30, 1999, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Minneapolis, Minnesota
November 24, 1999, except
for note 8, which is as of
December 8, 1999
F-135
<PAGE>
OPINIONWARE.COM, INC.
(a development stage enterprise)
BALANCE SHEET
September 30, 1999
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash.............................................................. $ 47,092
---------
Property and equipment.............................................. 37,054
Less accumulated depreciation..................................... (5,260)
---------
31,794
---------
Other assets, net................................................... 60,720
---------
Total assets.................................................... $ 139,606
=========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Line of credit.................................................... $ 135,000
Accrued expenses.................................................. 36,074
Note payable...................................................... 10,000
---------
Total current liabilities....................................... 181,074
Advance from investor............................................... 375,000
---------
Total liabilities............................................... 556,074
---------
Shareholders' deficit:
Common stock, authorized 10,000,000 shares, no par; issued and
outstanding 2,400,000
shares........................................................... 40,000
Additional paid-in capital........................................ 87,120
Deficit accumulated during the development stage.................. (543,588)
---------
Total shareholders' deficit..................................... (416,468)
---------
Total liabilities and shareholders' deficit..................... $ 139,606
=========
</TABLE>
See accompanying notes to financial statements.
F-136
<PAGE>
OPINIONWARE.COM, INC.
(a development stage enterprise)
STATEMENT OF OPERATIONS
Period from April 1, 1999 (inception) through September 30, 1999
<TABLE>
<S> <C>
Revenues.............................................................. $ --
--------
Operating expenses:
Research and development............................................ 242,325
General and administrative.......................................... 272,668
--------
Total operating expenses.......................................... 514,993
Interest expense...................................................... 28,595
--------
Net loss.......................................................... $543,588
========
</TABLE>
See accompanying notes to financial statements.
F-137
<PAGE>
OPINIONWARE.COM, INC.
(a development stage enterprise)
STATEMENT OF SHAREHOLDERS' DEFICIT
Period from April 1, 1999 (inception) through September 30, 1999
<TABLE>
<CAPTION>
Deficit
accumulated
Common Stock Additional during the Total
----------------- paid-in development shareholders' ---
Shares Amount capital stage deficit
--------- ------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 1, 1999
(inception)............ -- $ -- -- -- --
Issuance of common stock
at May 26, 1999 (date
of incorporation)...... 2,400,000 40,000 -- -- 40,000
Options issued in
connection with advance
from investor.......... -- -- 87,120 -- 87,120
Net loss................ -- -- -- (543,588) (543,588)
--------- ------- ------ -------- --------
Balance at September 30,
1999................... 2,400,000 $40,000 87,120 (543,588) (416,468)
========= ======= ====== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-138
<PAGE>
OPINIONWARE.COM, INC.
(a development stage enterprise)
STATEMENT OF CASH FLOWS
Period from April 1, 1999 (inception) through September 30, 1999
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss.......................................................... $(543,588)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization................................... 5,260
Interest expense related to the issuance of options............. 26,400
Increase in accrued expenses.................................... 36,074
---------
Net cash used in operating activities......................... (475,854)
---------
Cash flows from investing activities--purchases of property and
equipment.......................................................... (27,054)
---------
Net cash used in investing activities......................... (27,054)
---------
Cash flows from financing activities:
Net proceeds from line of credit.................................. 135,000
Proceeds from issuance of note payable............................ 10,000
Advance from investor............................................. 375,000
Proceeds from issuance of common stock............................ 30,000
---------
Net cash provided by financing activities..................... 550,000
---------
Net increase in cash................................................ 47,092
Cash, beginning of period........................................... --
---------
Cash, end of period................................................. $ 47,092
=========
Supplemental disclosure of noncash financing and investing
activities:
Common stock issued in exchange for fixed assets.................. $ 10,000
Cash paid for interest............................................ 2,195
=========
</TABLE>
See accompanying notes to financial statements.
F-139
<PAGE>
OPINIONWARE.COM, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
(1) Description of Business and Summary of Significant Accounting Policies
(a) Development Stage
OpinionWare.com, Inc. (the Company) commenced operations on April 1, 1999,
and was incorporated in the State of Minnesota on May 26, 1999 under the name
OpinionWare.com, Inc. The Company is a development stage enterprise that plans
to provide a first-of-its-kind product for web-based opinion discussion that
allows businesses to interact and understand the opinions of public and private
online communities. The Company currently conducts operations in Minnesota,
Ohio, Colorado, Illinois, and Massachusetts.
The Company has had no operating revenues, as its activities have focused on
initial product development, market development, and raising capital. Financing
of the development activities has been provided primarily through the sale of
common stock, establishment of a line of credit and an advance from a third
party investor. The accumulated loss from inception through September 30, 1999
was $543,588.
On November 16, 1999, the Company reincorporated as a Delaware corporation
and on December 8, 1999 amended its articles of incorporation (see note 8).
(b) Cash Equivalents
The Company considers highly liquid debt instruments with an initial
maturity of three months or less to be cash equivalents.
(c) Property and Equipment
Property and equipment are recorded at cost. Depreciation is calculated on a
straight-line basis over the estimated useful lives of the assets, which is
three years.
(d) Research and Development
The cost of research and development is expensed in the period in which it
is incurred.
(e) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of expenses during the reporting period.
Actual results could differ from those estimates.
(f) Stock-based Compensation
The Company applies the intrinsic value method prescribed in APB Opinion No.
25 to account for the issuance of stock incentives to employees and directors
and, accordingly, no compensation expense related to employees' and directors'
stock incentives has been recognized in the financial statements. Pro forma
disclosure of the net income impact of applying the provisions of SFAS No. 123,
Accounting for Stock-based Compensation, of recognizing stock compensation
expense over the vesting period based on the fair value of all stock-based
awards on the date of grant is presented in note 2.
F-140
<PAGE>
OPINIONWARE.COM, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(g) Income Taxes
Deferred taxes are provided on an asset and liability method for temporary
differences and for operating loss and tax credit carryforwards. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax basis.
(2) Stock Options
Incentive stock options and nonqualified options may be granted for the
purchase of up to 1,618,000 shares of common stock.
During the period from May 26, 1999 (date of incorporation) through
September 30, 1999, the Company granted options for the purchase of 1,220,000
shares of common stock, at $0.05 per share. All options vest over a 28 month
period and expire no later than 9 years and 4 months from date of grant. At
September 30, 1999, 100,000 of these options were exercisable at a price of
$0.05 per share.
Information with respect to options outstanding as of September 30, 1999 is
summarized as follows:
<TABLE>
<CAPTION>
Weighted
average exercise
Options price per share
--------- ----------------
<S> <C> <C>
Outstanding at May 26, 1999 (date of
incorporation).............................. -- --
Granted.................................... 1,220,000 $0.05
--------- -----
Outstanding at September 30, 1999............ 1,220,000 $0.05
========= =====
</TABLE>
The following table summarizes information about stock options outstanding
at September 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options exercisable
---------------------------------- ----------------------
Weighted
Number average Number
outstanding remaining exercisable
Exercise September 30, contractual Exercise September 30, Exercise
prices 1999 life price 1999 price
-------- ------------- ----------- -------- ------------- --------
<S> <C> <C> <C> <C> <C>
$0.05 1,220,000 9.1 $0.05 100,000 $0.05
</TABLE>
The Company has adopted the disclosure provisions only of SFAS No. 123, for
employees and directors, and will continue to account for its stock option plan
in accordance with the provisions of APB No. 25, Accounting for Stock Issued to
Employees.
The estimated per share weighted-average fair value of all stock options
granted during the period ended September 30, 1999 was $0.02, as of the date of
grant. The fair value of the Company's stock-based awards was estimated using
the Black-Scholes option pricing model with the following assumptions:
<TABLE>
<S> <C>
Expected life in years........................................ 9.33
Risk-free interest rates...................................... 5.5 to 6.4%
Expected volatility........................................... 0%
</TABLE>
Pursuant to the requirements of SFAS No. 123, the following is the pro forma
net loss amount for the period from April 1, 1999 (inception) through September
30, 1999, as if the compensation cost for the stock
F-141
<PAGE>
OPINIONWARE.COM, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
options issued had been determined based on the fair value at the grant date
for grants issued during the period ended September 30, 1999, reflected over
the options vesting period.
<TABLE>
<S> <C>
Net loss:
As reported................................................... $543,588
Fair value of stock-based compensation........................ 1,990
--------
Pro forma net loss.......................................... $545,578
========
</TABLE>
(3) Advance from Investor
The Company received $375,000 from a third party investor through the period
ended September 30, 1999 to be converted in the future to a yet undetermined
number of shares of the Company. Coincident with the issuance of shares, the
Company plans to issue 100,000 options to the investor to purchase 100,000
shares of the Company as consideration for the advance. The fair value of the
consideration represents debt issuance costs and has been reflected in other
assets net of amortization as of September 30, 1999 (see note 8).
(4) Line of Credit
On June 15, 1999, the Company entered into a loan agreement with a financial
institution, which made available a line of credit of $135,000 through May 14,
2000. Interest on the outstanding balance is based on the prime rate of
interest plus one and one-quarter percent. The interest rate on the outstanding
balance of $135,000 at September 30, 1999 was 9.5 percent. The line of credit
is collateralized by any and all of the assets of the Company and the personal
guarantees of the shareholders of the Company. The Company also has agreed to
pay the financial institution a facility fee, which is calculated at the rate
of .01 percent per annum on $135,000.
(5) Note Payable
On June 15, 1999 the Company entered into a promissory note agreement with a
third party in the amount of $10,000. Outstanding principal and interest is due
at the earlier of June 15, 2004 or upon demand. The promissory note agreement
calls for interest to be charged on the outstanding principal balance at 6
percent per annum. At an undetermined future date, the Company plans to issue
the holder of the note 8,000 options to purchase 8,000 shares of the Company.
(6) Income Taxes
The Company has incurred net operating losses since inception. Given the
uncertainty of future earning trends, the Company has not reflected any benefit
of such net operating loss carryforwards in the accompanying financial
statements.
As of September 30, 1999, the Company has U.S. tax net operating loss
carryforwards of approximately $500,000, which will be available to offset
earnings during the carryforward period. If not used, these carryforwards begin
to expire in 2019. Pursuant to Sections 382 and 383 of the Internal Revenue
Code, the annual use of the Company's net operating loss and credit
carryforwards may be limited if a cumulative change in ownership (as defined by
the Internal Revenue Code) of more than 50 percent occurs within a three-year
testing period.
F-142
<PAGE>
OPINIONWARE.COM, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(7) Commitments and Contingencies
(a) Lease Agreements
The Company leases certain office space in Massachusetts under a
noncancelable operating lease that expired on September 30, 1999. Rental
expense under the lease during the period April 1, 1999 (inception) through
September 30, 1999 was $21,000. The lease was renewed on October 1, 1999 for a
six-month period with base rent of $3,500 per month.
(b) Employment Contracts
The Company has employment agreements and arrangements with the two
shareholders of the Company and certain management personnel that provide for
aggregate minimum annual base compensation of $760,000, expiring on various
dates through July 2001.
(c) Options to be Granted
The Company has agreed to appoint two directors to the board contingent upon
the completion of an investment in the Company by a third party (see note 8).
Coincident with the appointment of the two directors to the Company's board,
the Company has agreed to grant each of the newly appointed directors 75,000
options for the purchase of 75,000 shares of common stock of the Company.
(8) Subsequent Events
On December 8, 1999, the Company entered into a Series A Preferred Stock
Purchase Agreement (the Agreement) with a third party. Under the terms of the
Agreement, the Company issued 2,222,222 shares of Series A-2 convertible
preferred stock. The Series A-2 preferred stock is convertible into shares of
Series A-1 preferred stock or Class B common stock on a one-for-one basis. The
Class B common stock is convertible into shares of Class A common stock on a
one-for-one basis.
As of the closing of the Agreement, the Company's authorized capital stock
consisted of 10,000,000 shares of $.001 par value Class A common stock,
4,900,000 shares of $.001 par value Class B common stock, 4,900,000 shares of
$.001 par value Series A-1 preferred stock, and 4,900,000 shares of $.001 par
value Series A-2 preferred stock.
On December 8, 1999, the advance from investor (see note 3) was converted
into 416,666 shares of Series A-1 preferred stock. In addition, options to
purchase 100,000 shares of Class A common stock with an exercise price of $.05
per share were issued to the investor.
F-143
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Outtask.com, Inc.:
We have audited the accompanying balance sheet of Outtask.com, Inc. (a
development stage enterprise) as of September 30, 1999, and the related
statements of operations, stockholders' deficit, and cash flows for the period
from April 6, 1999 (inception) through 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 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 Outtask.com, Inc. (a
development stage enterprise) as of September 30, 1999, and the results of its
operations and its cash flows for the period from April 6, 1999 (inception)
through September 30, 1999, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
McLean, Virginia
November 5, 1999, except as to note 8, which is as of December 10, 1999
F-144
<PAGE>
OUTTASK.COM, INC.
(a development stage enterprise)
BALANCE SHEET
September 30, 1999
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash.............................................................. $ 190,747
Prepaid rent...................................................... 2,909
---------
Total current assets............................................ 193,656
Property and equipment, net......................................... 72,506
Deposit............................................................. 5,816
---------
Total assets.................................................... $ 271,978
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.................................................. $ 55,425
Accrued vacation.................................................. 2,300
Advance from founder.............................................. 234,750
---------
Total current liabilities....................................... 292,475
---------
Stockholders' deficit:
Common stock, $.01 par value; 30,000,000 shares authorized;
11,775,000 shares issued and outstanding......................... 117,750
Deficit accumulated during the development stage.................. (138,247)
---------
Total stockholders' deficit..................................... (20,497)
---------
Total liabilities and stockholders' deficit..................... $ 271,978
=========
</TABLE>
See accompanying notes to financial statements.
F-145
<PAGE>
OUTTASK.COM, INC.
(a development stage enterprise)
STATEMENT OF OPERATIONS
Period from April 6, 1999 (inception) through September 30, 1999
<TABLE>
<S> <C>
Revenue............................................................... $ --
--------
Operating expenses:
Research and development............................................ 59,187
Marketing........................................................... 42,849
General and administrative.......................................... 36,211
--------
Total operating expenses.......................................... 138,247
Income taxes.......................................................... --
--------
Net loss.......................................................... $138,247
========
</TABLE>
See accompanying notes to financial statements.
F-146
<PAGE>
OUTTASK.COM, INC.
(a development stage enterprise)
STATEMENT OF STOCKHOLDERS' DEFICIT
Period from April 6, 1999 (inception) through September 30, 1999
<TABLE>
<CAPTION>
Deficit
accumulated
Common Stock during the Total
------------------- development stockholders'
Shares Amount stage deficit
---------- -------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at April 6, 1999
(inception)..................... -- $ -- -- --
Issuance of common stock....... 11,775,000 117,750 -- 117,750
Net loss....................... -- -- (138,247) (138,247)
---------- -------- -------- --------
Balance at September 30, 1999.... 11,775,000 $117,750 (138,247) (20,497)
========== ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-147
<PAGE>
OUTTASK.COM, INC.
(a development stage enterprise)
STATEMENT OF CASH FLOWS
Period from April 6, 1999 (inception) through September 30, 1999
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss.......................................................... $(138,247)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation.................................................... 978
Changes in assets and liabilities:
Prepaid rent.................................................. (2,909)
Accounts payable.............................................. 55,425
Accrued vacation.............................................. 2,300
---------
Net cash used in operating activities....................... (82,453)
---------
Cash flows from investing activities:
Purchases of property and equipment............................... (73,484)
Deposit........................................................... (5,816)
---------
Net cash used in investing activities....................... (79,300)
Cash flows from financing activities:
Proceeds from issuance of common stock............................ 117,750
Advance from founder.............................................. 234,750
---------
Net cash provided by financing activities................... 352,500
---------
Net increase in cash........................................ 190,747
Cash, beginning of period........................................... --
---------
Cash, end of period................................................. $ 190,747
=========
</TABLE>
See accompanying notes to financial statements.
F-148
<PAGE>
OUTTASK.COM, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
(1) Organization and Business
Outtask.com, Inc. (the "Company"), a Delaware corporation, was founded on
April 6, 1999. The Company is a development stage enterprise as it is currently
devoting substantially all of its efforts to commencing its planned principal
operations and has not yet begun to generate revenue. The Company will provide
a variety of web-based business applications and solutions.
The Company operates in a highly competitive marketplace and depends on
proprietary technology, and attracting and retaining key personnel. The
Company's products, when developed, will be subject to rapid technological
obsolescence and potential failures, and there can be no assurance that the
Company will develop a marketable product. In addition, there can be no
assurance that the Company will be able to raise sufficient capital to support
its product development efforts and business activities.
(2) Summary of Significant Accounting Policies
(a) Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(b) Property and equipment
Property and equipment is carried at historical cost less accumulated
depreciation. Depreciation and amortization is calculated using the straight-
line method based on the estimated remaining useful lives of the assets as
follows:
<TABLE>
<S> <C>
Computer hardware................................................. 3 years
Video hardware.................................................... 3 years
Furniture and fixtures............................................ 5 years
</TABLE>
In accordance with Financial Accounting Standards Board ("FASB") Statement
of Financial Accounting Standard ("SFAS") No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,
the Company periodically reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to the undiscounted
future net cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured as the
amount by which the carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
(c) Cash and Cash Equivalents
The Company considers all highly liquid financial instruments with an
original maturity of three months or less to be cash equivalents. The Company
did not have any cash equivalents at September 30, 1999.
F-149
<PAGE>
OUTTASK.COM, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(d) Research and Development
Research and development expenses include product development activities and
are expensed as incurred. Statement of Financial Accounting Standards ("SFAS")
No. 86, Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed does not materially affect the Company.
(e) Income Taxes
The Company accounts for income taxes under the asset and liability method.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using the enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
(f) Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components in the financial statements. The
Company has no amounts associated with the components of other comprehensive
income in the Company's financial statements.
(3) Leases and Other Commitments
The Company has a noncancellable operating lease for office space in
Virginia, which expires in June 2000. Rental expense under the lease, which was
executed on August 16, 1999, was approximately $8,500 for the period from April
6, 1999 (inception) through September 30, 1999. The remaining lease payments as
of September 30, 1999 are approximately $34,900.
The Company entered into an agreement in September 1999 with a third party
to provide internet and related support services. The agreement expires in
September 2000 and requires monthly payments in the amount of $1,540.
(4) Property and Equipment
Property and equipment consists of the following at September 30, 1999:
<TABLE>
<S> <C>
Computer hardware................................................ $51,920
Video hardware................................................... 13,995
Furniture and fixtures........................................... 7,569
-------
73,484
Less accumulated depreciation.................................... (978)
-------
$72,506
=======
</TABLE>
(5) Capital Stock
In April 1999, the Company issued an aggregate of 117,500 shares of common
stock to the Company's founders at a price of $1.00 per share.
F-150
<PAGE>
OUTTASK.COM, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(6) Related Party Transactions
During the period from April 6, 1999 (inception) through September 30, 1999,
the Company received advances from its founder in the aggregate amount of
$234,750. The advances are unsecured, do not bear interest, and are repayable
upon demand.
(7)Income Taxes
No provision has been made for income taxes as the Company incurred a
taxable loss for the period from April 6, 1999 (inception) through September
30, 1999. The actual income tax provision (benefit) differs from the expected
income tax benefit computed using the statutory federal income tax rate of 34
percent applied to pretax loss as a result of the following:
<TABLE>
<S> <C>
Computed "expected" tax benefit................................. $(47,004)
(Increase) reduction in tax benefit resulting from:
Increase in the beginning of the year valuation allowance..... 55,299
State income tax benefit...................................... (8,295)
--------
$ --
========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the Company's deferred tax assets and liabilities as of September
30, 1999 are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforward............................... $ 23,675
Start-up and organizational costs............................. 31,624
--------
Total deferred tax assets................................... 55,299
--------
Valuation allowance............................................. (55,299)
--------
Net deferred tax asset...................................... $ --
========
</TABLE>
The Company had net operating loss carryforwards of approximately $59,000 at
September 30, 1999 for income tax purposes. These carryforwards expire, if
unused, in 2019. Because of the "change of ownership" provision of the Internal
Revenue Code, a portion of the Company's net operating loss carryforwards may
be subject to annual limitations regarding their utilization in the event of a
change in control of the Company.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
asset will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which temporary differences become deductible. Based upon the level of
historical taxable income and projections for future taxable income over the
periods in which the temporary differences are available to reduce income taxes
payable, management has established a valuation allowance for the full amount
of the deferred tax assets at September 30, 1999. No income tax payments were
made during the period from April 6, 1999 (inception) through September 30,
1999.
(8) Subsequent Events
In November 1999, the Company increased its authorized capital stock to
30,000,000 shares of $.01 par value Class A common stock, 10,000,000 shares of
$.01 par value Class B common stock, 9,259,259 shares of
F-151
<PAGE>
OUTTASK.COM, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
$.01 par value Series A-1 preferred stock, and 8,101,852 shares of $.01 par
value Series A-2 preferred stock. Also in November 1999, the Company executed a
100:1 common stock split. All common stock share amounts have been
retroactively adjusted in the accompanying financial statements to reflect the
split.
On December 10, 1999, the Company entered into a Series A Preferred Stock
Purchase Agreement (the Agreement) with a third party. Under the terms of the
Agreement, the Company issued 8,101,852 shares of Series A-2 preferred stock.
The Series A-2 preferred stock is convertible into shares of Series A-1
preferred stock or Class B common stock on a one-for-one basis. The Series A-1
preferred stock and Class B common stock are convertible into shares of Class A
common stock on a one-for-one basis.
On December 10, 1999, the Company increased the number of shares of Class A
common stock reserved for issuance under its Stock Incentive Plan to 1,500,000
and issued 945,000 common stock options.
In December 1999, the Company issued 1,115,407 shares of Series A-1
preferred stock including 1,012,731 shares issued to the Company's founder.
F-152
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Perceptual Robotics, Inc.:
We have audited the accompanying balance sheets of Perceptual Robotics, Inc.
as of December 31, 1998 and 1999, and the related statements of operations,
stockholders' equity (deficit) and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Perceptual Robotics, Inc.
as of December 31, 1998 and 1999, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Chicago, Illinois
January 21, 2000, except for
note 10, which is as of
February 14, 2000
F-153
<PAGE>
PERCEPTUAL ROBOTICS, INC.
Balance Sheets
December 31, 1998 and 1999
<TABLE>
<CAPTION>
1998 1999
Assets --------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................... $ 33,893 577,358
Accounts receivable, net of allowance for doubtful accounts
of $10,000 in 1998 and $20,000 in 1999..................... 302,953 535,378
Inventory................................................... 23,674 151,323
Prepaid expenses............................................ 47,809 108,398
--------- ----------
Total current assets.................................... 408,329 1,372,457
--------- ----------
Property and equipment:
Equipment and furnishings................................... 81,129 130,961
Less accumulated depreciation............................... (35,846) (64,918)
--------- ----------
Net property and equipment.............................. 45,283 66,043
--------- ----------
Other assets:
Incorporation costs......................................... 689 689
Patents..................................................... -- 36,571
Less accumulated amortization............................... (413) (1,312)
--------- ----------
Net other assets........................................ 276 35,948
--------- ----------
Total assets............................................ $ 453,888 1,474,448
========= ==========
<CAPTION>
Liabilities and Stockholders' Equity (Deficit)
<S> <C> <C>
Current liabilities:
Note payable--bank.......................................... $ 100,000 --
Notes payable--stockholders................................. 100,000 --
Accounts payable............................................ 129,336 221,215
Due to stockholders and employees........................... 33,562 --
Customer deposits........................................... 34,756 41,080
Accrued expenses............................................ 68,149 133,411
Accrued payroll taxes....................................... 15,679 800
Warranty reserve............................................ 10,048 24,976
Deferred revenues........................................... 107,000 143,106
--------- ----------
Total current liabilities............................... 598,530 564,588
--------- ----------
Stockholders' equity (deficit):
Convertible preferred stock:
Series A--8% cumulative; stated value $3.00 per share;
175,000 shares authorized; 169,591 shares issued and
outstanding.............................................. 508,773 508,773
Series B--8% cumulative; stated value $5.00 per share;
400,000 shares authorized in 1999; 361,125 shares issued
and outstanding in 1999.................................. -- 1,765,473
Junior Series One--non-cumulative; stated value $0.47 per
share; 63,830 shares authorized; 63,830 shares issued and
outstanding.............................................. 30,000 30,000
Junior Series Two--non-cumulative; stated value $0.8225
per share; 30,396 shares authorized; 30,396 shares issued
and outstanding.......................................... 25,001 25,001
Common stock:
Voting--no par value; 100,000,000 shares authorized;
1,000,000 shares issued and outstanding in 1998;
1,121,584 shares issued and outstanding in 1999.......... 2,800 102,803
Nonvoting--no par value; 100,000,000 shares authorized, no
shares issued and outstanding............................ -- --
Accumulated deficit....................................... (711,216) (1,522,190)
--------- ----------
Total stockholders' equity (deficit).................... (144,642) 909,860
--------- ----------
Total liabilities and stockholders' equity (deficit).... $ 453,888 1,474,448
========= ==========
</TABLE>
See accompanying notes to financial statements.
F-154
<PAGE>
PERCEPTUAL ROBOTICS, INC.
STATEMENTS OF OPERATIONS
Years ended December 31, 1998 and 1999
<TABLE>
<CAPTION>
1998 1999
---------- ---------
<S> <C> <C>
Net revenues............................................. $1,011,152 1,732,734
Cost of revenues......................................... 336,866 688,972
---------- ---------
Gross profit......................................... 674,286 1,043,762
---------- ---------
Operating expenses:
General and administrative............................. 253,781 565,663
Selling................................................ 413,678 839,441
Research and development............................... 321,714 476,836
---------- ---------
Total operating expenses............................. 989,173 1,881,940
---------- ---------
Loss from operations................................. (314,887) (838,178)
---------- ---------
Other income (expense):
Interest income........................................ 1,694 25,154
Interest expense....................................... (9,835) (10,331)
---------- ---------
Other income (expense), net.......................... (8,141) 14,823
---------- ---------
Loss before income taxes............................. (323,028) (823,355)
Income taxes............................................. -- --
---------- ---------
Net loss............................................. $ (323,028) (823,355)
========== =========
</TABLE>
See accompanying notes to financial statements.
F-155
<PAGE>
PERCEPTUAL ROBOTICS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Years ended December 31, 1998 and 1999
<TABLE>
<CAPTION>
Preferred stock
-------------------------------------------------------------------------
Series A Series B Junior Series One Junior Series Two Common stock
---------------- ------------------ ------------------ ------------------ ------------------ Accumulated
Amount Shares Amount Shares Amount Shares Amount Shares Amount Shares deficit
-------- ------- ---------- ------- --------- -------- --------- -------- -------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1997............ $508,773 169,591 $ -- -- $ 30,000 63,830 $ 25,001 30,396 $ 2,800 1,000,000 $ (388,188)
Net loss........ -- -- -- -- -- -- -- -- -- -- (323,028)
-------- ------- ---------- ------- --------- -------- --------- -------- -------- --------- -----------
Balance at
December 31,
1998............ 508,773 169,591 -- -- 30,000 63,830 25,001 30,396 2,800 1,000,000 (711,216)
Issuance of
preferred stock,
net of issuance
costs of
$40,152......... -- -- 1,765,473 361,125 -- -- -- -- -- -- --
Issuance of
common stock.... -- -- -- -- -- -- -- -- 100,003 121,584 --
Issuance of
warrants........ -- -- -- -- -- -- -- -- -- -- 12,381
Net loss........ -- -- -- -- -- -- -- -- -- -- (823,355)
-------- ------- ---------- ------- --------- -------- --------- -------- -------- --------- -----------
Balance at
December 31,
1999............ $508,773 169,591 $1,765,473 361,125 $ 30,000 63,830 $ 25,001 30,396 $102,803 1,121,584 $(1,522,190)
======== ======= ========== ======= ========= ======== ========= ======== ======== ========= ===========
<CAPTION>
Total
stockholders'
equity
(deficit)
-------------
<S> <C>
Balance at
December 31,
1997............ $ 178,386
Net loss........ (323,028)
-------------
Balance at
December 31,
1998............ (144,642)
Issuance of
preferred stock,
net of issuance
costs of
$40,152......... 1,765,473
Issuance of
common stock.... 100,003
Issuance of
warrants........ 12,381
Net loss........ (823,355)
-------------
Balance at
December 31,
1999............ $ 909,860
=============
</TABLE>
See accompanying notes to financial statements.
F-156
<PAGE>
PERCEPTUAL ROBOTICS, INC.
STATEMENTS OF CASH FLOWS
Years ended December 31, 1998 and 1999
<TABLE>
<CAPTION>
1998 1999
--------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................. $(323,028) (823,355)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization...................... 24,065 29,971
Provision for doubtful accounts.................... 10,000 10,000
Issuance of warrants............................... -- 12,381
Changes in operating assets and liabilities:
Accounts receivable.............................. (243,660) (252,425)
Inventory........................................ (4,564) (127,650)
Prepaid expenses................................. (6,113) (60,589)
Accounts payable................................. 66,700 91,879
Accrued liabilities.............................. 141,542 101,417
Due to stockholders and employees................ 26,479 --
Customer deposits................................ 34,756 6,324
--------- -----------
Net cash used in operating activities.......... (273,823) (1,012,047)
--------- -----------
Cash flows from investing activities:
Payments of patent costs............................. -- (36,571)
Purchases of property and equipment.................. (16,310) (39,832)
--------- -----------
Net cash used in investing activities.......... (16,310) (76,403)
--------- -----------
Cash flows from financing activities:
Proceeds from sale of common stock................... -- 100,003
Net proceeds from sale of preferred stock............ -- 1,631,912
Proceeds from notes payable.......................... 200,000 --
Payments on notes payable............................ -- (100,000)
--------- -----------
Net cash provided by financing activities...... 200,000 1,631,915
--------- -----------
Increase (decrease) in cash and cash
equivalents................................... (90,133) 543,465
Cash and cash equivalents, beginning of year........... 124,026 33,893
--------- -----------
Cash and cash equivalents, end of year................. $ 33,893 577,358
========= ===========
Supplemental disclosure:
Interest paid........................................ $ 5,653 12,703
========= ===========
Noncash financing activity:
Conversion of note payable-stockholders and due to
stockholders to Series B preferred stock............ $ -- 133,561
========= ===========
</TABLE>
See accompanying notes to financial statements.
F-157
<PAGE>
PERCEPTUAL ROBOTICS, INC.
NOTES TO FINANCIAL STATEMENTS
(1) Description of Business
Perceptual Robotics, Inc. (the Company) develops and sells software which
enables users to control and view images from live video cameras over the
Internet. In conjunction with selling the software, hardware is purchased from
various manufacturers and resold to customers.
(2) Summary of Significant Accounting Policies
(a) Cash and cash equivalents
The Company considers all investments with an original maturity of three
months or less to be cash equivalents. The cash equivalents are maintained by
one financial institution and are insured by the Federal Deposit Insurance
Corporation up to $100,000. At December 31, 1999, the Company's uninsured cash
balance was approximately $450,000.
(b) Inventory
Inventory is stated using the moving average cost basis. At December 31,
1998 and 1999, the inventory consisted of hardware and third party software.
(c) Property and Equipment
Property and equipment consisting of office equipment and furnishings are
stated at cost and depreciated using the straight-line method with useful lives
ranging from 3 to 7 years. Depreciation expense of $23,927 and $29,072 was
recorded in 1998 and 1999, respectively.
(d) Revenue Recognition
The Company recognizes revenue associated with hardware upon delivery to the
customer. Revenue from software is recognized upon delivery provided no
significant production, customization or modification of the software is
required.
The Company provides custom software development to some of its customers.
Revenue is recognized on the percentage-of-completion method for these
contracts and for software sales involving significant production,
customization or modification.
The Company also sells upgrade and service contracts related to its
software. The revenue related to these contracts is recognized over the life of
the contract.
(e) Warranty Reserve
The Company provides a warranty reserve equal to two percent of hardware
sales during the year to voluntarily cover claims made by customers after
expiration of the hardware manufacturers' warranty.
(f) Software Development
Software development costs are accounted for in accordance with Statement of
Financial Accounting Standards (SFAS) No. 86, "Accounting for the Costs of
Computer Software to Be Sold Leased or Otherwise Marketed." Costs associated
with the planning and designing phase of software development, including coding
and testing activities necessary to establish technological feasibility, are
classified as research and development costs and are charged to expense as
incurred. Once technological feasibility has been established, software
F-158
<PAGE>
PERCEPTUAL ROBOTICS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
development costs would be capitalized, however, the Company has not
capitalized any costs to date given the initial software product was
technologically feasible upon inception of the Company and subsequent
enhancements and version releases thereto did not qualify for capitalization
pursuant to the provisions of SFAS No. 86.
(g) Fair Value of Financial Instruments
The Company's financial instruments include accounts receivable, accounts
payable and notes payable. The fair value of these financial instruments
approximates their carrying values due to the short term nature of these
instruments or the rates on these instruments approximate current market rates.
(h) Advertising Expenses
Advertising expenses are charged to operations during the year in which they
are incurred. The total amount of advertising expenses charged to operations
was approximately $80,000 and $154,000 for the years ended December 31, 1998
and 1999, respectively.
(i) Stock Options Plan
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock Based Compensation" which defines a fair value based
method of accounting for employee stock options and similar equity instruments.
SFAS No. 123 gives entities a choice of recognizing related compensation
expense by adopting the new fair value method or to continue to measure
compensation using the intrinsic value approach under Accounting Principles
Board Opinion No. 25 (APB No. 25). The Company continues to use the measurement
approach prescribed by APB No. 25 but provides the pro forma disclosures
required by SFAS No. 123.
(j) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(k) Impairment of Long-lived Assets
The Company evaluates the carrying value of its intangible and other long-
lived assets periodically in compliance with the provisions of SFAS No. 121,
"Accounting for the Impairment of Long-lived Assets and for Long-lived Assets
to be Disposed of."
(3) Income Taxes
The Company, prior to August 31, 1997, with the consent of its shareholders,
elected to be taxed as an S corporation under the provisions of the Internal
Revenue Code. Under these provisions, the shareholders were taxed on the
Company's taxable income in lieu of the corporate income tax. Therefore, no
provision or liability for federal or state income taxes is reflected in the
financial statements prior to August 31, 1997.
Due to the sale of stock on August 31, 1997 to an entity which disqualified
the corporation for the S corporation election under the Internal Revenue Code,
the Company revoked the election as of that date.
F-159
<PAGE>
PERCEPTUAL ROBOTICS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Subsequent to September 1, 1997, the Company accounts for income taxes in
accordance with SFAS No. 109, "Accounting for Income Taxes." Under SFAS No.
109, deferred tax assets and/or liabilities are computed annually for
differences between the financial statement and income tax bases of assets and
liabilities that will result in taxable income or deductible expenses in future
years. Valuation allowances are established, when necessary, to reduce deferred
tax assets to the amount anticipated to be realized.
At December 31, the Company had the following deferred tax assets and
liabilities:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.................... $174,000 504,000
Depreciation........................................ 11,000 14,000
Legal expenses...................................... 13,000 12,000
Other............................................... 2,000 --
-------- --------
Total deferred tax assets......................... 200,000 530,000
Valuation allowance................................... (200,000) (530,000)
-------- --------
Net deferred tax assets........................... -- --
Deferred tax liabilities.............................. -- --
-------- --------
Net deferred taxes................................ $ -- --
======== ========
</TABLE>
At December 31, 1999, the Company has net operating loss carryforwards of
$1,228,000 available to reduce future years' taxable income. These
carryforwards will begin to expire, if unused, in 2012. The valuation allowance
increased $78,000 and $330,000 in 1998 and 1999, respectively. It is
management's judgement that a full valuation allowance is deemed necessary
given management's belief that it is more likely than not that the deferred tax
assets will not be realized prior to expiration of the net operating loss
carryforwards or prior to forfeiture.
(4) Lease Commitments
The Company leases its offices in Evanston, Illinois on a month-to-month
basis. The lease may be cancelled by either party with 30-days notice. The
provisions of the lease require monthly rental and real estate tax payments.
Total lease payments aggregated $20,577 and $52,782 in 1998 and 1999,
respectively.
The Company signed a lease agreement dated March 3, 1999 for certain
computer and video equipment. The agreement provides for periodic purchases of
equipment up to $50,000 by the lessor, at the direction of and for use by the
Company. The Company is obligated to make monthly rental payments, the amount
and number to be determined at the time of each equipment purchase based on an
interest rate of prime + 1%. The Company, as additional consideration, has
granted the lessor 1,000 warrants to purchase Series B preferred stock at $5.00
per share, which was based on the sale price for the Series B preferred stock
offering that took place in 1999 (see note 8). The fair value of this equity
instrument using the Black-Scholes option-pricing model was immaterial.
Accordingly, the Company did not record additional operating expense as a
result of issuing the warrants. During 1999, the Company leased approximately
$44,000 in equipment under this agreement. Payments for this leased equipment
of $2,057 per month are being made over twenty-four months.
The agreement was amended on November 15, 1999 to increase available
purchases of equipment up to $120,000.
F-160
<PAGE>
PERCEPTUAL ROBOTICS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(5) Concentrations
In 1998, the Company had revenues of approximately $296,000 to its four
largest customers representing approximately 29% of total revenues. In 1999,
the Company had revenues of approximately $674,000 to its two largest customers
representing approximately 39% of total revenues. The Company had a receivable
from one customer of approximately $85,000 at December 31, 1999 and receivables
from two customers approximating $158,000 at December 31, 1998.
(6) Notes Payable--Bank
The Company has a working capital loan through a credit and security
agreement with the Associated Bank. The agreement matured on March 25, 1999 and
was renewed until March 25, 2000. The note is secured by all corporate assets
and guaranteed by two of the Company's officers and stockholders. On April 2,
1999, the Company repaid the $100,000 balance outstanding under this agreement.
(7) Notes Payable--Stockholders
On May 15, 1998, the Company issued convertible promissory notes to certain
stockholders aggregating $100,000 due on demand. The notes are subordinated to
bank debt. Interest accrues monthly at 6% per annum on the outstanding
principal balance. The lenders, as additional consideration for extending
credit to the Company, have the right to convert the notes plus accrued
interest into fully paid shares of Series B preferred stock. On March 30, 1999
the lenders converted the notes plus accrued interest into shares of Series B
preferred stock (see note 8). In conjunction with these notes, the Company also
issued warrants to the lenders for the purchase of 21,005 shares of Series B
preferred stock. The fair value of the warrants of $5,102 was recorded as
additional interest expense.
(8) Preferred Stock
During 1998, the Company had three series of authorized preferred stock:
Series A, Junior Series One and Junior Series Two. The Company authorized
300,000 shares of preferred stock of which 30,774 shares remained undesignated
at December 31, 1998. All series of authorized preferred stock are convertible
into voting common stock on a one-for-one basis, and have voting rights based
on common share equivalents.
During 1999, the Company authorized an additional 1,700,000 shares of
preferred stock and designated 400,000 of these shares as Series B resulting in
1,330,774 shares of preferred stock remaining undesignated at December 31,
1999. The Company sold 361,125 shares of Series B preferred stock at $5 per
share for total capital of $1,805,625. The consideration received on the sale
consisted of $133,561 converted from shareholder loans and $1,631,912 of net
proceeds at closing for net capital raised of $1,765,473. Similar to the other
authorized series of preferred stock, Series B is convertible to voting common
stock on a one-for-one basis and has voting rights based on common share
equivalents.
(9) Employee Stock Option Plan
In 1997, the Company adopted a stock option plan authorizing the grant of
incentive or nonqualified options for the purchase of common stock of the
Company. The Company has reserved 600,000 common shares for issuance upon
exercise of options. Incentive stock options may only be granted to employees
of the Company whereas nonqualified options may be granted to employees,
officers, directors or consultants of the
F-161
<PAGE>
PERCEPTUAL ROBOTICS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Company. Options are exercisable based on vesting schedules stipulated in the
individual grant which are typically four years. All options expire ten years
from the grant date.
The following summarizes activity under the Company's stock option plan in
1998 and 1999:
<TABLE>
<CAPTION>
Weighted
average
exercise
Number price
-------- --------
<S> <C> <C>
Options outstanding at December 31, 1997.............. 201,006 $0.36
Options granted to employees and directors during
1998............................................... 144,532 0.30
Options forfeited................................... (107,548) 0.94
-------- -----
Options outstanding at December 31, 1998.............. 237,990 $0.61
Options granted to employees and directors during
1999............................................... 141,125 0.50
Options exercised................................... (121,584) 0.82
-------- -----
Options outstanding at December 31, 1999.............. 257,531 $0.45
======== =====
</TABLE>
At December 31, 1999, there were 55,515 vested options which had a weighted
average exercise price of $0.44 per option.
At December 31, 1999, there were 220,885 options available for grant. The
weighted average remaining life of the 257,531 outstanding options at December
31, 1999 was 8.9 years and the options had exercise prices ranging from $0.30-
0.82.
The Company applied APB No. 25 in accounting for all options granted during
1998 and 1999. Accordingly, no compensation cost has been recognized in the
financial statements. Had the Company determined compensation cost based on the
fair value at the grant date as prescribed by SFAS No. 123, the Company's pro
forma net loss would have been $326,325 in 1998 and $830,534 in 1999. The fair
values were determined using the Black-Scholes option-pricing model assuming
risk free interest rates ranging from 5-6%, zero dividends, no volatility and
expected lives ranging from 3-4 years.
During 1999, the Company issued warrants to a consultant for the purchase of
25,000 shares of Series B preferred stock. The fair value of the warrants of
$7,279 was recorded as compensation expense in 1999.
(10)Subsequent Event
On February 14, 2000, the Company sold 1,083,333 shares of Series C-2
Preferred Stock at $12 per share to an investor in exchange for $10,000,000
cash and $3,000,000 of the investor's preferred stock. The Series C-2 Preferred
Stock accumulates dividends at a rate of 8% and has rights similar to the other
classes of preferred stock including the right to convert to common shares on a
one-for-one basis. However, the Series C-2 Preferred Stock carries non-dilutive
voting rights, as defined in the Preferred Stock purchase agreement. Concurrent
with the sale of stock, the Company reincorporated under a new charter in the
State of Delaware. As part of the reincorporation, the number of authorized
shares was reduced to 10,000,000 for common and 5,000,000 for preferred,
including all prior series, Series C-2 (sold in this transaction and available
for sale) and Series C-1 currently being marketed to current shareholders and
other private investors.
F-162
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
PocketCard Inc.:
We have audited the accompanying balance sheets of PocketCard Inc. (a
development stage enterprise) as of December 31, 1998 and September 30, 1999
and the related statements of operations, stockholders' deficit, and cash flows
for the period from September 3, 1998 (inception) through December 31, 1998,
for the nine months ended September 30, 1999, and for the period from September
3, 1998 (inception) through 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 financial position of PocketCard Inc. (a
development stage enterprise) as of December 31, 1998 and September 30, 1999,
and the results of its operations and its cash flows for the period from
September 3, 1998 (inception) through December 31, 1998, for the nine months
ended September 30, 1999, and for the period from September 3, 1998 (inception)
through September 30, 1999 in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Chicago, Illinois
November 5, 1999, except for note 7, which is as of November 23, 1999
F-163
<PAGE>
POCKETCARD INC.
(a development stage enterprise)
BALANCE SHEETS
December 31, 1998 and September 30, 1999
<TABLE>
<CAPTION>
December 31, September 30,
ASSETS 1998 1999
------ ------------ -------------
<S> <C> <C>
Current assets:
Cash.............................................. $ 900 6,793
Restricted cash................................... -- 6,175
Stock subscriptions receivable.................... 9,000 52,083
--------- --------
Total current assets............................ 9,900 65,051
Property and equipment, net of accumulated
depreciation....................................... -- 25,344
Other assets........................................ -- 395
--------- --------
Total assets.................................... $ 9,900 90,790
========= ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
<S> <C> <C>
Current liabilities:
Due to affiliates................................. $ 306,620 602,622
Accrued expenses.................................. -- 16,313
Customer deposits................................. -- 8,642
Deferred revenue.................................. -- 1,925
--------- --------
Total current liabilities....................... 306,620 629,502
--------- --------
Stockholders' deficit (see notes 3 and 7):
Series A-1 convertible preferred stock, $.0000001
par value; 16,863,905 shares authorized; none
issued and outstanding........................... -- --
Series A-2 convertible preferred stock, $.0000001
par value; 14,792,899 shares authorized; none
issued and outstanding........................... -- --
Class A common stock, $.0000001 par value;
90,000,000 shares authorized; 20,000,000 and
24,629,629 shares issued and outstanding at
December 31, 1998 and September 30, 1999......... 2 2
Class B common stock, $.0000001 par value;
14,792,899 shares authorized; none issued and
outstanding...................................... -- --
Additional paid-in capital........................ 9,998 62,081
Deficit accumulated during the development stage.. (306,720) (600,795)
--------- --------
Total stockholders' deficit..................... (296,720) (538,712)
--------- --------
Total liabilities and stockholders' deficit..... $ 9,900 90,790
========= ========
</TABLE>
See accompanying notes to financial statements.
F-164
<PAGE>
POCKETCARD INC.
(a development stage enterprise)
STATEMENTS OF OPERATIONS
Period from September 3, 1998 (inception) through December 31, 1998,
the nine months ended September 30, 1999, and the period from
September 3, 1998 (inception) through September 30, 1999
<TABLE>
<CAPTION>
Period from Period from
September 3, September 3,
1998 1998
(inception) Nine months (inception)
through ended through
December 31, September 30, September 30,
1998 1999 1999
------------ ------------- -------------
<S> <C> <C> <C>
Revenues.............................. $ -- 4,020 4,020
Operating expenses:
Product development primarily to
related parties (note 6)........... 291,920 220,818 512,738
Selling and marketing primarily to
related parties (note 6)........... 8,250 23,850 32,100
General and administrative primarily
to related parties (note 6)........ 6,550 50,653 57,203
Depreciation........................ -- 2,774 2,774
--------- -------- --------
Total operating expenses.......... 306,720 298,095 604,815
--------- -------- --------
Net loss.......................... $(306,720) (294,075) (600,795)
========= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-165
<PAGE>
POCKETCARD INC.
(a development stage enterprise)
STATEMENTS OF STOCKHOLDERS' DEFICIT
Period from September 3, 1998 (inception) through December 31, 1998,the nine
months ended September 30, 1999, and the period fromSeptember 3, 1998
(inception) through September 30, 1999
<TABLE>
<CAPTION>
Deficit
Class A accumulated
common stock Additional during the Total
----------------- paid-in development stockholders'
Shares Amount capital stage deficit
---------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at September 3,
1998 (inception)....... -- $-- -- -- --
Issuance of common
stock.................. 20,000,000 2 9,998 -- 10,000
Net loss................ -- -- -- (306,720) (306,720)
---------- ---- ------ -------- --------
Balance at December 31,
1998................... 20,000,000 2 9,998 (306,720) (296,720)
Exercise of employee
stock options.......... 4,629,629 -- 52,083 -- 52,083
Net loss................ -- -- -- (294,075) (294,075)
---------- ---- ------ -------- --------
Balance at September 30,
1999................... 24,629,629 $ 2 62,081 (600,795) (538,712)
========== ==== ====== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-166
<PAGE>
POCKETCARD INC.
(a development stage enterprise)
STATEMENTS OF CASH FLOWS
Period from September 3, 1998 (inception) through December 31, 1998,
the nine months ended September 30, 1999, and the period from
September 3, 1998 (inception) through September 30, 1999
<TABLE>
<CAPTION>
Period from Period from
September 3, September 3,
1998 1998
(inception) Nine months (inception)
through ended through
December 31, September 30, September 30,
1998 1999 1999
------------ ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................ $(306,720) (294,075) (600,795)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation...................... -- 2,774 2,774
Changes in assets and liabilities:
Restricted cash................. -- (6,175) (6,175)
Other assets.................... -- (395) (395)
Accrued expenses................ -- 16,313 16,313
Customer deposits............... -- 8,642 8,642
Deferred revenue................ -- 1,925 1,925
Due to affiliate................ 306,620 296,002 602,622
--------- -------- --------
Net cash provided by (used in)
operating activities......... (100) 25,011 24,911
--------- -------- --------
Cash flows from investing activities--
capital expenditures................. -- (28,118) (28,118)
--------- -------- --------
Net cash used in investing
activities................... -- (28,118) (28,118)
--------- -------- --------
Cash flows from financing activities--
proceeds from issuance of common
stock................................ 1,000 9,000 10,000
--------- -------- --------
Net cash provided by financing
activities................... 1,000 9,000 10,000
--------- -------- --------
Net increase in cash.......... 900 5,893 6,793
Cash at beginning of period........... -- 900 --
--------- -------- --------
Cash at end of period................. $ 900 6,793 6,793
========= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-167
<PAGE>
POCKETCARD INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
(a) Description of Business
PocketCard Inc. (the Company) was incorporated in Illinois on September 3,
1998 for the purpose of providing business and family groups with supervised
access to funds.
Since inception, the Company has been engaged principally in organizational
activities, including raising capital, recruiting a management team and
employees, executing agreements, negotiating strategic relationships, and
developing operational plans and marketing activities. Accordingly, the
Company is in the development stage, as defined by Statement of Financial
Accounting Standards (SFAS) No. 7, Accounting and Reporting by Development
Stage Enterprises.
(b) Revenue Recognition
The Company's customers pay an annual membership fee for the right to
receive and use Company issued debit cards that allow real-time funding,
control, and reporting over the Internet. Revenues from annual membership fees
are recognized ratably over the membership period. Revenues from transaction
fees are recognized upon the completion of the related transaction.
Of the $4,020 of revenue for the nine months ended September 30, 1999,
$3,000 related to one customer.
(c) Property and Equipment
Property and equipment are carried at cost and are depreciated using the
straight-line method over the estimated useful lives of the related assets,
generally three years.
(d) Customer Deposits
Customer deposits consist of amounts received from customers for the
purpose of loading available funds onto the Company issued debit cards held by
such customers. The cash related to customer deposits is held in a custodial
bank account and is not used in the operations of the Company.
(e) Product Development Costs
The Company has adopted the provisions of the American Institute of
Certified Public Accountants' Statement of Position 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use.
Accordingly, certain costs to develop internal-use computer software are
capitalized. During the period from September 3, 1998 (inception) through
December 31, 1998, and during the nine months ended September 30, 1999,
software development costs of $291,920 and $220,818, respectively, were
incurred related to the development of a web-based network and website. Such
amounts were expensed due to the uncertainty of recovery.
(f) Stock-based Compensation
The Company accounts for its stock options under the provisions of SFAS No.
123, "Accounting for Stock-Based Compensation." SFAS No. 123 permits entities
to recognize as expense over the vesting period the fair value of all stock-
based awards on the date of grant. Alternatively, SFAS No. 123 allows entities
to continue to apply the provisions of Accounting Principles Board Opinion
(APB) No. 25, "Accounting for Stock Issued to Employees," and provide pro
forma disclosures for employee stock option grants made as if the fair
F-168
<PAGE>
POCKETCARD INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
value-based method defined in SFAS No. 123 had been applied. Under APB No. 25,
compensation expense would be recorded on the date of grant only if the current
fair value of the underlying stock exceeded the exercise price. The Company has
elected to apply the provisions of APB No. 25 and provide the pro forma
disclosures of SFAS No. 123.
(g) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(h) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(2) Property and Equipment
Property and equipment, at cost, less accumulated depreciation, is
summarized as follows at September 30, 1999:
<TABLE>
<S> <C>
Computer equipment............................................... $20,376
Software......................................................... 7,742
-------
28,118
Less accumulated depreciation.................................... (2,774)
-------
$25,344
=======
</TABLE>
(3) Stockholders' Deficit
As of December 31, 1998, there was a $9,000 subscription receivable related
to the issuance of common stock on the date of incorporation. The subscription
receivable was subsequently paid in 1999. As of September 30, 1999, there was a
$52,083 subscription receivable related to the exercise of stock options during
the nine months then ended. This subscription receivable was fully paid in
October 1999.
(4) Stock Option Plan
In 1999, the Company adopted a stock option plan under which certain
employees may be granted the right to purchase shares of common stock at the
fair value on the date of grant. The Company has reserved an aggregate of
7,889,098 shares of common stock for issuance under the plan. Stock options may
be exercised only to the extent they have vested in accordance with provisions
determined by the Board of Directors.
F-169
<PAGE>
POCKETCARD INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company applies APB No. 25 in accounting for its plans and, accordingly,
no compensation cost has been recognized in the financial statements for its
stock options. Had the Company determined compensation cost based on the fair
value at the grant date for its stock-based compensation plans under SFAS No.
123, the Company's net loss would have been the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
Period from
September 3, 1998 Nine months
(inception) ended
through September 30,
December 31, 1998 1999
----------------- -------------
<S> <C> <C>
Net loss:
As reported............................. $306,720 294,075
Pro forma............................... 306,720 303,603
======== =======
</TABLE>
For purposes of calculating the compensation cost consistent with SFAS No.
123, the fair value of each option grant in 1999 is estimated on the date of
grant using the Black-Scholes option-pricing model with the following weighted-
average assumptions: expected dividend yield 0%, expected volatility of 0%,
risk-free interest rate of 4.51% to 5.66% and an expected life of one to two
years.
Stock option activity for the periods indicated is as follows:
<TABLE>
<CAPTION>
Weighted-average
Shares exercise price
---------- ----------------
<S> <C> <C>
Outstanding on January 1, 1998............... -- $ --
Granted...................................... 4,652,590 .01
Exercised.................................... (4,629,629) .01
---------- -----
Outstanding on September 30, 1999............ 22,961 $ .02
========== =====
</TABLE>
The following table summarizes information about stock options outstanding
at September 30, 1999.
<TABLE>
<CAPTION>
Options outstanding Options exercisable
----------------------- -----------------------
Weighted-average Weighted-average
Range of exercise prices Shares exercise price Shares exercise price
------------------------ ------ ---------------- ------ ----------------
<S> <C> <C> <C> <C>
$0.01 to $0.025 22,961 $.02 5,841 $.01
====== ==== ===== ====
</TABLE>
The remaining contract life of 5,600 of the outstanding options is 9.8
years. The remaining 17,361 outstanding options expire 30 days after the
employees' termination of employment with the Company.
(5) Income Taxes
The provision for income taxes differs from the amounts which would result
by applying the applicable Federal income tax rate to income before provision
for income taxes for the period from September 3, 1998 (inception) to December
31, 1998 and for the nine months ended September 30, 1999 as follows:
<TABLE>
<CAPTION>
Period from
September 3, 1998
(inception) Nine months
through ended
December 31, 1998 September 30, 1999
----------------- ------------------
<S> <C> <C>
Expected income tax benefit......... $(104,285) (99,985)
State income tax benefit............ (18,403) (17,644)
Effect of change in valuation
allowance.......................... 122,688 117,629
--------- -------
$ -- --
========= =======
</TABLE>
F-170
<PAGE>
POCKETCARD INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1998 and
September 30, 1999 are as follows:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward.............. $ -- 51,715
Start-up costs............................... 122,688 189,720
-------- --------
Total gross deferred tax assets............ 122,688 241,435
-------- --------
Deferred tax liabilities--depreciation......... -- (1,118)
-------- --------
Total gross deferred tax liabilities....... -- (1,118)
-------- --------
Net deferred tax assets.................... 122,688 240,317
Valuation allowance............................ (122,688) (240,317)
-------- --------
Net deferred taxes......................... $ -- --
======== ========
</TABLE>
Net operating losses for income tax purposes of $129,289 generated for the
nine month period ended September 30, 1999 can be carried forward for twenty
years and will expire in the year 2019.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
asset will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which temporary differences become deductible. Based upon the level of
historical taxable income and projections for future taxable income over the
periods in which the temporary differences are available to reduce income taxes
payable, management has established a valuation allowance for the full amount
of the net deferred tax assets.
(6) Related-party Transactions
The Company maintains significant relationships with certain related parties
in regards to service agreements. One affiliate charges the Company a fee
related to programming, customer service and data processing services. The term
of this agreement extends through June 30, 2002. Another affiliate charges the
Company for check guaranty and debit card fund transfer services. The Company
and these affiliates (the Affiliates) are related parties through common
ownership. The Company is charged rates for these services that are
substantially similar to those paid by other clients of the Affiliates.
Operating expenses include amounts to the Affiliates as follows:
<TABLE>
<CAPTION>
Period from
September 3, 1998
(inception) Nine months
through ended
December 31, 1998 September 30, 1999
----------------- ------------------
<S> <C> <C>
Product development.................. $291,920 223,848
Selling and marketing................ 8,250 16,886
General and administrative........... 6,450 27,150
-------- -------
Total............................ $306,620 267,884
======== =======
</TABLE>
F-171
<PAGE>
POCKETCARD INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(7) Subsequent Events
On November 23, 1999, the Company entered into a Series A Preferred Stock
Purchase Agreement the Agreement) with various third parties. Under the terms
of the Agreement, the Company issued 14,792,899 shares of Series A-2
convertible preferred stock. The Company also issued a total of 98,618 shares
of Series A-1 convertible preferred stock under the Agreement to other third
parties. The Series A-2 preferred stock is convertible into shares of Series A-
1 preferred stock or Class B common stock on a one-for-one basis. The Series A-
1 preferred stock and Class B common stock are convertible into shares of Class
A common stock on a one-for-one basis.
As of the closing of the Agreement, the Company's authorized capital stock
consisted of 90,000,000 shares of $.0000001 par value Class A common stock,
14,792,899 shares of $.0000001 par value Class B common stock, 16,863,905
shares of $.0000001 par value Series A-1 convertible preferred stock, and
14,792,899 shares of $.0000001 par value Series A-2 convertible preferred
stock. On November 2, 1999, the Company was reincorporated in the State of
Delaware and affected a twenty-for-one stock dividend on its then outstanding
shares of Class A common stock. All share information included in these
financial statements has been retroactively adjusted to reflect the revised
authorized capital stock and the stock dividend.
F-172
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Whiplash, Inc.:
We have audited the accompanying balance sheets of Whiplash, Inc. (a
development stage enterprise) as of December 31, 1997 and 1998, and the related
statements of operations, stockholders' deficit, and cash flows for the years
then ended and for the period from March 7, 1996 (inception) through December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Whiplash, Inc. (a
development stage enterprise) as of December 31, 1997 and 1998, and the results
of its operations and its cash flows for the years then ended and for the
period from March 7, 1996 (inception) through December 31, 1998, in conformity
with generally accepted accounting principles.
/s/ KPMG LLP
Chicago, Illinois
December 10, 1999
F-173
<PAGE>
WHIPLASH, INC.
(a development stage enterprise)
BALANCE SHEETS
December 31, 1997 and 1998 and September 30, 1999 (unaudited)
<TABLE>
<CAPTION>
December 31,
----------------------- September 30,
ASSETS 1997 1998 1999
------ ----------- ---------- -------------
(unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............. $ 102,035 69,751 98,211
Accounts receivable .................. 52,163 56,209 817
Common stock subscription receivable.. 67,500 67,500 --
----------- ---------- ----------
Total current assets ............... 221,698 193,460 99,028
Property and equipment, net of
accumulated depreciation and
amortization........................... 55,227 42,406 26,541
Other assets............................ 5,000 5,982 9,605
----------- ---------- ----------
Total assets........................ $ 281,925 241,848 135,174
=========== ========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
-----------------------------
<S> <C> <C> <C>
Current liabilities:
Accounts payable ..................... $ 75,144 171,134 62,576
Accrued expenses ..................... 10,689 74,140 107,127
Current portion of notes payable to
stockholders ........................ -- 200,000 1,100,000
----------- ---------- ----------
Total current liabilities .......... 85,833 445,274 1,269,703
Notes payable to stockholders, less
current portion ....................... 140,000 650,000 495,000
----------- ---------- ----------
Total liabilities .................. 225,833 1,095,274 1,764,703
----------- ---------- ----------
Stockholders' equity (deficit):
Common stock, $.0001 par value;
25,000,000 shares authorized;
9,250,000 shares issued and
outstanding at December 31, 1997 and
1998 and 9,306,664 shares issued and
outstanding at September 30, 1999
(unaudited).......................... 925 925 931
Additional paid-in capital ........... 1,383,739 1,383,739 1,383,733
Deficit accumulated during the
development stage ................... (1,328,572) (2,238,090) (3,014,193)
----------- ---------- ----------
Total stockholders' equity (deficit)
................................... 56,092 (853,426) (1,629,529)
----------- ---------- ----------
Total liabilities and stockholders'
(equity) (deficit) ................ $ 281,925 241,848 135,174
=========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-174
<PAGE>
WHIPLASH, INC.
(a development stage enterprise)
STATEMENTS OF OPERATIONS
Years ended December 31, 1997 and 1998,
the period from March 7, 1996 (inception) through
December 31, 1998, and the nine months ended September 30, 1998
(unaudited) and 1999 (unaudited)
<TABLE>
<CAPTION>
Period from
March 7, 1996
Years ended (inception) Nine months ended
December 31, through September 30,
------------------- December 31, -----------------------
1997 1998 1998 1998 1999
--------- -------- ------------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenues................ $ 52,163 3,390 55,553 3,390 600
--------- -------- ---------- -------- --------
Operating expenses:
Product development... 578,290 738,161 1,714,026 529,097 585,245
General and
administrative....... 298,566 116,239 485,653 99,497 110,928
Depreciation and
amortization......... 25,436 29,265 66,876 21,949 23,267
--------- -------- ---------- -------- --------
Total operating
expenses........... 902,292 883,665 2,266,555 650,543 719,438
Other income (expense):
Interest income....... 1,439 188 2,343 167 443
Interest expense...... -- (29,431) (29,431) (17,570) (57,708)
--------- -------- ---------- -------- --------
Total other income
(expense).......... 1,439 (29,243) (27,088) (17,403) (57,265)
--------- -------- ---------- -------- --------
Net loss............ $(848,690) (909,518) (2,238,090) (664,556) (776,103)
========= ======== ========== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-175
<PAGE>
WHIPLASH, INC.
(a development stage enterprise)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
Years ended December 31, 1997 and 1998,
the period from March 7, 1996 (inception) through
December 31, 1998, and the nine months ended September 30, 1999 (unaudited)
<TABLE>
<CAPTION>
Deficit
accumulated
Common Stock during the Total
---------------- Additional development stockholders'
Shares Amount paid-in capital stage equity (deficit)
--------- ------ --------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Balance at March 7, 1996
(inception)............ -- $-- -- -- --
Issuance of common
stock................ 9,250,000 925 1,327,075 -- 1,328,000
Net loss.............. -- -- -- (479,882) (479,882)
--------- ---- --------- ---------- ----------
Balance at December 31,
1996................... 9,250,000 925 1,327,075 (479,882) 848,118
Common stock
subscribed for
services............. -- -- 56,664 -- 56,664
Net loss.............. -- -- -- (848,690) (848,690)
--------- ---- --------- ---------- ----------
Balance at December 31,
1997................... 9,250,000 925 1,383,739 (1,328,572) 56,092
Net loss.............. -- -- -- (909,518) (909,518)
--------- ---- --------- ---------- ----------
Balance at December 31,
1998................... 9,250,000 925 1,383,739 (2,238,090) (853,426)
Issuance of common
stock subscribed
(unaudited).......... 56,664 6 (6) -- --
Net loss (unaudited).. -- -- -- (776,103) (776,103)
--------- ---- --------- ---------- ----------
Balance at September 30,
1999 (unaudited)....... 9,306,664 $931 1,383,733 (3,014,193) (1,629,529)
========= ==== ========= ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-176
<PAGE>
WHIPLASH, INC.
(a development stage enterprise)
STATEMENTS OF CASH FLOWS
Years ended December 31, 1997 and 1998,
the period from March 7, 1996 (inception) through
December 31, 1998, and the nine months ended September 30, 1998
(unaudited) and 1999 (unaudited)
<TABLE>
<CAPTION>
Period from
March 7, 1996
Years ended (inception) Nine months ended
December 31, through September 30,
------------------- December 31, -----------------------
1997 1998 1998 1998 1999
--------- -------- ------------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss.............. $(848,690) (909,518) (2,238,090) (664,556) (776,103)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization....... 25,436 29,265 66,876 21,949 23,267
Changes in assets
and liabilities:
Accounts
receivable....... (52,163) (4,046) (56,209) (3,859) 55,392
Other assets...... -- (982) (5,982) (982) (3,623)
Accounts payable.. 18,493 95,990 171,134 70,206 (108,558)
Accrued expenses.. 2,347 63,451 74,140 16,497 32,987
--------- -------- ---------- -------- --------
Net cash used in
operating
activities..... (854,577) (725,840) (1,988,131) (560,745) (776,638)
Cash flows from
investing activities--
purchase of property
and equipment.......... (6,526) (16,444) (109,282) (16,444) (7,402)
--------- -------- ---------- -------- --------
Net cash used in
investing
activities..... (6,526) (16,444) (109,282) (16,444) (7,402)
Cash flows from
financing activities:
Payments on common
stock subscriptions.. 590,000 -- 1,260,500 -- 67,500
Common stock
subscribed for
services............. 56,664 -- 56,664 -- --
Proceeds from notes
payable to
stockholders......... 140,000 710,000 850,000 490,000 745,000
--------- -------- ---------- -------- --------
Net cash
provided by
financing
activities..... 786,664 710,000 2,167,164 490,000 812,500
--------- -------- ---------- -------- --------
Net increase
(decrease) in
cash........... (74,439) (32,284) 69,751 (87,189) 28,460
Cash and cash
equivalents at
beginning of period.... 176,474 102,035 -- 102,035 69,751
--------- -------- ---------- -------- --------
Cash and cash
equivalents at end of
period................. $ 102,035 69,751 69,751 14,846 98,211
========= ======== ========== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-177
<PAGE>
WHIPLASH, INC.
NOTES TO FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
(a) Description of Business
Whiplash, Inc. (the Company) was incorporated in Delaware as a C-corporation
on March 7, 1996 (inception), for the purpose of becoming an online business-
to-business global distribution company for the leisure travel marketplace. The
Company was formed around the goal of becoming the premier "electronic retail
enabler" for all travel-related companies by enhancing the existing supply
chain between the travel provider, dealer direct and business-to-business
model.
Since inception, the Company has been engaged principally in organizational
activities, including raising capital, recruiting a management team and
employees, executing agreements, negotiating strategic relationships, and
developing operational plans and marketing activities. Accordingly, the Company
is in the development stage, as defined by Statement of Accounting Standards
(SFAS) No. 7, Accounting and Reporting by Development Stage Enterprises.
(b) Unaudited Interim Financial Information
The financial statements as of September 30, 1999 and for the nine months
ended September 30, 1998 and 1999, respectively, are unaudited. In the opinion
of the Company's management, the unaudited interim financial statements include
all adjustments, consisting of normal recurring adjustments, necessary for a
fair presentation of the Company's financial position and results of
operations. The results of operations for the nine months ended September 30,
1999 are not necessarily indicative of the results of operations to be expected
for the year ending December 31, 1999.
(c) Cash Equivalents
The Company considers all highly liquid instruments with an original
maturity of three months or less at the time of purchase to be cash
equivalents.
(d) Property and Equipment
Property and equipment are carried at cost and depreciated using the
straight-line method over the estimated useful lives of the related assets,
which range from three to seven years.
(e) Revenue Recognition
The Company's revenues since inception consist primarily of consulting
services provided to third parties. Revenues from consulting services are
recognized as the services are performed.
(f) Product Development Costs
Product development costs are expensed as incurred and consist primarily of
payroll and payroll related expenses for personnel dedicated to developing the
Company's global distribution network.
(g) Stock-based Compensation
The Company accounts for its stock options under the provisions of SFAS No.
123, Accounting for Stock-Based Compensation. SFAS No. 123 permits entities to
recognize as expense over the vesting period the fair value of all stock-based
awards on the date of grant. Alternatively, SFAS No. 123 allows entities to
continue to apply the provisions of Accounting Principles Board Opinion (APB)
No. 25, Accounting for Stock Issued to
F-178
<PAGE>
WHIPLASH, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Employees, and provide pro forma net income disclosures for employee stock
option grants made as if the fair value-based method defined in SFAS 123 had
been applied. Under APB No. 25, compensation expense would be recorded on the
date of grant only if the current market price of the underlying stock exceeded
the exercise price. The Company has elected to apply the provisions of APB No.
25 and provide the pro forma disclosures required by SFAS No. 123.
(h) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(i) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(2) Property and Equipment
Property and equipment, at cost, less accumulated depreciation, are
summarized as follows at December 31, 1997 and 1998:
<TABLE>
<CAPTION>
December 31,
-----------------
1997 1998
-------- -------
<S> <C> <C>
Computer hardware and software......................... $ 66,362 82,806
Office furniture and equipment......................... 26,476 26,476
-------- -------
92,838 109,282
Less accumulated depreciation and amortization......... (37,611) (66,876)
-------- -------
$ 55,227 42,406
======== =======
</TABLE>
(3) Stock Option Plan
In 1996, the Company adopted a stock option plan under which certain
employees may be granted the right to purchase shares of common stock at or
above the fair value on the date of grant. The Company has reserved an
aggregate of 790,000 shares of common stock for issuance under the plan. Stock
options may be exercised only to the extent they have vested in accordance with
provisions determined by the Board of Directors.
The per share weighted-average fair value of stock options granted during
1998 was $0.03 on the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions: expected dividend yield
0%, expected volatility of 0%, risk-free interest rate of 5.6% and an expected
life of 3 years. There were no stock option grants in 1997.
F-179
<PAGE>
WHIPLASH, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company applies APB No. 25 in accounting for its plans and accordingly,
no compensation cost has been recognized in the financial statements for its
stock options. Had the Company determined compensation cost based on the fair
value at the grant date for its stock-based compensation plans under SFAS No.
123, the Company's net loss would have been the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
December 31,
-------------------
1997 1998
--------- --------
<S> <C> <C>
Net loss:
As reported........................................ $(848,690) (909,518)
Pro forma.......................................... (854,046) (915,669)
========= ========
</TABLE>
Stock option activity for the periods indicated is as follows:
<TABLE>
<CAPTION>
Weighted-
Average
Exercise
Shares Price
------- ---------
<S> <C> <C>
Outstanding on December 31, 1996 and 1997..................... 640,000 $0.20
Granted during 1998........................................... 150,000 0.20
-------
Outstanding on December 31, 1998.............................. 790,000 $0.20
======= =====
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
Options
Options outstanding exercisable
---------------------------------- --------------------
Weighted-
average Weighted- Weighted-
remaining average average
contractual exercise exercise
Exercise price Shares life price Shares price
-------------- ------- ----------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
$0.20 790,000 7.8 years $0.20 320,000 $0.20
======= ========= ===== ======= =====
</TABLE>
(4) Notes Payable to Stockholders
During 1997 and 1998, the Company issued various unsecured promissory notes
to certain stockholders. These promissory notes bear interest at rates ranging
from 5.58% to 7.28% and are generally due two years from the issuance date. The
total principal balance outstanding on the notes at December 31, 1998 was
$850,000, of which $200,000 has been classified as a current liability. The
outstanding principal balance and related accrued interest shall be
automatically converted into shares of the Company's Series A preferred stock
upon the closing of an external financing in which the Company receives at
least $5.0 million from the sale of equity securities (see note 6).
(5) Income Taxes
The reconciliation of income tax expense (benefit) computed using the
Federal statutory rate of 34% to the Company's income tax expense (benefit) is
as follows:
<TABLE>
<CAPTION>
1997 1998
--------- --------
<S> <C> <C>
Expected income tax benefit at the statutory rate... $(269,289) (309,236)
State income tax benefit............................ (47,522) (54,571)
Permanent differences............................... 55 650
Effect of change in valuation allowance............. 316,756 363,157
--------- --------
$ -- --
========= ========
</TABLE>
F-180
<PAGE>
WHIPLASH, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1997 and
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
1997 1998
--------- --------
<S> <C> <C>
Deferred tax assets:
Capitalized start-up costs......................... $ 509,935 858,618
Accrued expenses................................... -- 11,772
Property and equipment--depreciation............... -- 894
Other.............................................. 547 547
--------- --------
Total gross deferred tax assets.................. 510,482 871,831
Less valuation allowance............................. (508,401) (871,558)
--------- --------
Net deferred tax assets.......................... 2,081 273
--------- --------
Deferred tax liabilities:
Property and equipment--depreciation............... 1,917 --
Other.............................................. 164 273
--------- --------
Total gross deferred tax liabilities............. 2,081 273
--------- --------
Net deferred tax asset (liability)............... $ -- --
========= ========
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax asset will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which temporary differences become deductible. Based upon the level
of historical taxable income and projections for future taxable income over
the periods in which the temporary differences are available to reduce income
taxes payable, management has established a valuation allowance for the full
amount of the net deferred tax assets.
(6) Subsequent Events
On November 8, 1999, the Company entered into a Series A Preferred Stock
Purchase Agreement (the Agreement) with a third party. Under the terms of the
Agreement, the Company issued 3,726,708 shares of Series A-2 preferred stock.
The Series A-2 preferred stock is convertible into shares of Series A-1
preferred stock or Class B common stock on a one-for-one basis. The Series A-1
preferred stock and Class B common stock are convertible into shares of Class
A common stock on a one-for-one basis.
During the period from January 1, 1999 through November 8, 1999, the
Company issued $800,000 of additional unsecured promissory notes to certain
stockholders. These promissory notes bear interest at a rate of 5.58%. The
total principal balance outstanding of all unsecured promissory notes at
November 8, 1999 was $1,650,000. In conjunction with the Agreement, the
$1,650,000 of principal outstanding on the notes plus accrued interest was
converted into 1,024,845 shares of Series A-1 preferred stock. The Series A-1
preferred stock is ultimately convertible into shares of common stock of the
Company in accordance with the terms of the Agreement.
As of the closing of the Agreement, the Company's authorized capital stock
consisted of 20,000,000 shares of $.001 par value Class A common stock,
3,726,708 shares of $.001 par value Class B common stock, 4,751,553 shares of
$.001 par value Series A-1 preferred stock, and 3,726,708 shares of $.001 par
value Series A-2 preferred stock.
On November 8, 1999, the Company increased the number of shares of Class A
common stock reserved for issuance under its stock option plan to 2,290,000.
F-181
<PAGE>
[Outside Back Cover]
[Company logo: red Japanese koi fish with the following text printed across
it.]
The Internet Zaibatsu(TM)
Building businesses for the new economy.
www.divine.com
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
Set forth below is an estimate of the approximate amount of fees and
expenses, other than underwriting commissions and discounts, payable by the
Registrant in connection with the issuance and distribution of our common stock
pursuant to the Prospectus contained in this Registration Statement. The
Registrant will pay all of these expenses.
<TABLE>
<CAPTION>
Approximate
Amount
-----------
<S> <C>
SEC registration fee................................................ $ 121,440
NASD filing fee..................................................... 30,500
Nasdaq National Market listing fee.................................. 90,000
Accountants' fees and expenses...................................... 2,000,000
Legal fees and expenses............................................. 800,000
Transfer agent and registrar fees and expenses...................... 20,000
Printing and engraving.............................................. 900,000
Miscellaneous expenses.............................................. 38,060
----------
Total............................................................. $4,000,000
==========
</TABLE>
All expenses other than the SEC registration fee, NASD filing fee and Nasdaq
National Market listing fee are estimated.
Item 14. Indemnification of Directors and Officers
The Registrant's certificate of incorporation provides that the Registrant
shall indemnify its directors to the full extent permitted by the General
Corporation Law of the State of Delaware and may indemnify its officers and
employees to such extent, except that the Registrant shall not be obligated to
indemnify any such person (1) with respect to proceedings, claims or actions
initiated or brought voluntarily by any such person and not by way of defense,
without the Registrant's prior written consent, or (2) for any amounts paid in
settlement of an action indemnified against by the Registrant without the prior
written consent of the Registrant. The Registrant has entered into indemnity
agreements with each of its directors. These agreements may require the
Registrant, among other things, to indemnify such directors against certain
liabilities that may arise by reason of their status or service as directors,
to advance expenses to them as they are incurred, provided that they undertake
to repay the amount advanced if it is ultimately determined by a court that
they are not entitled to indemnification, and to obtain directors' liability
insurance.
In addition, the Registrant's certificate of incorporation provides that a
director of the Registrant shall not be personally liable to the Registrant or
its stockholders for monetary damages for breach of his or her fiduciary duty
as a director, except for liability (1) for any breach of the director's duty
of loyalty to the Registrant or its stockholders, (2) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (3) for willful or negligent conduct in paying dividends or repurchasing
stock out of other than lawfully available funds or (4) for any transaction
from which the director derives an improper personal benefit.
Reference is made to Section 145 of the General Corporation Law of the State
of Delaware which provides for indemnification of directors and officers in
certain circumstances.
The Registrant has obtained directors' and officers' liability insurance.
II-1
<PAGE>
Under the terms of the Underwriting Agreement, the Underwriters have agreed
to indemnify, under certain conditions, the Registrant, its directors, certain
of its officers and persons who control the Registrant within the meaning of
the Securities Act of 1933.
Item 15. Recent Sales of Unregistered Securities
The following information does not reflect the conversion of the
Registrant's (1) series A-1, series B-1, series C, series D, series D-1, series
E and series F preferred stock into class A common stock and (2) series A-2 and
series B-2 preferred stock into class B common stock, each to be effected upon
consummation of this offering.
(1) In June 1999, the Registrant issued 1,000 shares of common stock to Mr.
Filipowski for cash in the amount of $10. The Registrant sold these shares in a
transaction exempt from registration under the Securities Act in reliance upon
Section 4(2) of the Securities Act ("Section 4(2)"), as a transaction not
involving a public offering. In August 1999, the Registrant converted these
shares into 10,000 shares of class B common stock.
(2) From August 25 until October 19, 1999, the Registrant issued (a) an
aggregate of 20,700,000 shares of class A common stock to 77 officers,
directors and employees (including persons who had accepted offers of
employment) (collectively, "Employees") for cash in the aggregate amount of
$20,450 and (b) an aggregate of 12,250,000 shares of class B common stock to
Messrs. Filipowski, Cullinane, Humenansky, Freedman, Slowey and Tatro, for cash
in the aggregate amount of $12,250. The Registrant sold these shares pursuant
to its 1999 Stock Purchase Plan (the "Stock Purchase Plan") in transactions
exempt from registration under the Securities Act in reliance upon Rule 701
promulgated under Section 3(b) of the Securities Act ("Rule 701").
(3) From September 15 until September 30, 1999, the Registrant issued (a) an
aggregate of 9,236,600 shares of series A-1 convertible preferred stock to 50
Employees and to a family member of Mr. Filipowski, for cash in the aggregate
amount of $2,409,150 and (b) an aggregate of 37,350,000 shares of series A-2
preferred stock, par value $.001 per share, to Messrs. Filipowski, Cullinane,
Humenansky, Slowey and Tatro and to a partnership owned by Mr. Freedman and the
Registrant's assistant general counsel and controlled by Mr. Freedman, for cash
in the aggregate amount of $9,437,500. Except as set forth in the following
sentence, the Registrant sold these shares pursuant to its Stock Purchase Plan
in transactions exempt from registration under the Securities Act in reliance
upon Section 4(2), as transactions not involving a public offering. In the case
of the sales to the family member of Mr. Filipowski and the partnership
controlled by Mr. Freedman, the Registrant sold the shares in transactions
exempt from registration under the Securities Act in reliance upon Rule 506 of
Regulation D promulgated under Section 4(2) of the Securities Act ("Rule 506"),
as a transaction not involving a public offering. Both the family member of Mr.
Filipowski and the partnership controlled by Mr. Freedman represented in
writing to the Registrant that they were "accredited investors," as defined in
Rule 501(a) of Regulation D under the Securities Act ("accredited investors").
(4) From September 28 until October 7, 1999, the Registrant issued (a) an
aggregate of 2,712,000 shares of series B-1 convertible preferred stock to 35
Employees for cash in the aggregate amount of $1,356,000 and (b) 20,100,000
shares of series B-2 convertible preferred stock to Messrs. Filipowski and
Slowey for cash in the aggregate amount of $10,050,000. The Registrant sold
these shares pursuant to its Stock Purchase Plan in transactions exempt from
registration under the Securities Act in reliance upon Section 4(2), as
transactions not involving a public offering.
(5) From September 30 through December 14, 1999, the Registrant issued an
aggregate of 190,062,125 shares of series C convertible preferred stock to 474
investors, for cash in the aggregate amount of $189,662,125 and legal services
having a value of $400,000. Of the shares of series C convertible preferred
stock issued by the Company, an aggregate of 43,616,000 were sold to 27
executive officers and directors (including, for each such person, parties
related to that person) and 400,000 were issued to Katten Muchin Zavis, legal
counsel to the company, in exchange for legal services having a value of
$400,000. The Registrant sold the shares of series C convertible preferred
stock in transactions exempt from registration under the
II-2
<PAGE>
Securities Act in reliance upon Rule 506, as transactions not involving a
public offering. Each of the purchasers of series C preferred stock represented
in writing to the Registrant that such purchaser was an accredited investor.
(6) In October through December 1999, the Registrant granted options (the
"701 Options") to purchase an aggregate of 19,430,000 shares of its class A
common stock to 281 Employees, excluding the Registrant's executive officers
and directors. From January 1, 2000 through January 15, 2000, 253 of these
Employees exercised 701 Options and purchased an aggregate of 18,593,025 shares
of class A common stock for consideration (cash and notes) in the aggregate
amount of $13,944,769. The Registrant granted the 701 Options and sold the
underlying shares pursuant to its 1999 Stock Incentive Plan (the "Stock
Incentive Plan") in transactions exempt from registration under the Securities
Act in reliance upon Rule 701.
(7) In October through December 1999, the Registrant granted options (the
"Accredited Investor Options") to purchase an aggregate of 10,012,500 shares of
its class A common stock to the 39 executive officers and directors of the
Registrant. From December 21, 1999 through January 15, 2000, 16 of these
executive officers and directors exercised Accredited Investor Options and
purchased an aggregate of 6,462,500 shares of class A common stock for
consideration (cash and notes) in the aggregate amount of $4,486,875. The
Registrant granted the Accredited Investor Options and sold the underlying
shares pursuant to its Stock Incentive Plan in transactions exempt from
registration under the Securities Act in reliance upon Section 4(2), as
transactions not involving a public offering. Each of these Employees
represented in writing to the Registrant that such person was an accredited
investor.
(8) On December 7, 1999, the Registrant agreed to issue, and on January 19,
2000 issued, an aggregate of 197,000,000 shares of series D convertible
preferred stock and series D-1 convertible preferred stock to Frontenac VII
Limited Partnership, Frontenac Masters VII Limited, First Chicago Investment
Corporation, Cross Creek Partners X, LLC, Mesirow Capital Partners VII,
Sumitomo Corporation, Sumitomo Corporation of America, Dell USA L.P., CBW/SK
divine Investments and Microsoft Corporation, for cash in the aggregate amount
of $197,000,000. The Registrant sold these shares in a transaction exempt from
registration under the Securities Act in reliance upon Rule 506, as a
transaction not involving a public offering. Each of the purchasers of series D
preferred stock represented in writing to the Registrant that such purchaser
was an accredited investor.
(9) On February 1, 2000, the Registrant issued an aggregate of 2,000,000
shares of its series F convertible preferred stock to two stockholders of
closerlook, inc. in connection with the Registrant's acquisition of preferred
stock of closerlook, inc. The Registrant issued these shares in reliance upon
Rule 506, as a transaction not involving a public offering. Each of these
stockholders represented in writing to the Registrant that such purchaser was
an accredited investor.
(10) On February 3, 2000, the Registrant agreed to sell 18,284,327 shares of
series E convertible preferred stock to CMGI, Inc. ("CMGI") for cash in the
aggregate amount of $18,284,327. This sale will be consummated upon expiration
or termination of the applicable antitrust waiting period. The Registrant also
agreed to sell to CMGI a number of shares of its class A common stock such
that, immediately after a qualified initial public offering of the Registrant,
CMGI will beneficially own 4.9% of the Registrant's class A common stock in
exchange for shares of CMGI common stock having a market value equal to the
shares of the Registrant's class A common stock being sold to CMGI, based upon
the price paid by the public in the Registrant's initial public offering. The
Registrant has agreed to sell these shares in a transaction exempt from
registration under the Securities Act in reliance upon Rule 506, as a
transaction not involving a public offering. CMGI has represented in writing to
the Registrant that it is an accredited investor and a "qualified institutional
buyer," as defined in Rule 144A promulgated under Section 4(1) of the
Securities Act ("QIB").
II-3
<PAGE>
(11) On February 11, 2000, the Registrant agreed to issue 10,000,000 shares
of its series F convertible preferred stock to UBS AG, Chicago Branch ("UBS")
in connection with the Registrant's acquisition of preferred stock of divine
interChange, inc. This issuance will be consummated upon the termination or
expiration of the applicable antitrust writing period. The Registrant has
agreed to issue these shares in reliance upon Rule 506, as a transaction not
involving a public offering. UBS has represented in writing to the Registrant
that it is an accredited investor and is a QIB.
(12) On February 11, 2000, the Registrant issued 1,000,000 shares of its
series F convertible preferred stock to Perceptual Robotics, Inc. ("PRI") in
connection with the Registrant's acquisition of preferred stock of PRI. The
Registrant issued these shares in reliance upon Rule 506, as a transaction not
involving a public offering. PRI represented in writing to the Registrant that
it was an accredited investor.
No underwriters were involved in any of the transactions described above.
Each recipient of securities in each of the transactions described above
represented the recipient's intention to acquire the securities for investment
purposes only and not with a view to, or for sale in connection with, any
distribution thereof.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits.
<TABLE>
<CAPTION>
<C> <S> <C>
1 Form of Underwriting Agreement.
3.1* Form of Third Amended and Restated Certificate of
Incorporation of the Registrant.
3.2 Amended and Restated By-laws of the Registrant.
4.1 Form of specimen stock certificate representing common
stock.
5* Opinion of Katten Muchin Zavis as to the legality of the
securities being registered (including consent).
10.1 divine interVentures, inc. 1999 Stock Incentive Plan.
10.2 Form of Option Agreement under the divine interVentures,
inc. 1999 Stock Incentive Plan.
10.3 Form of Indemnification Agreement for Directors and
Executive Officers.
10.4 Agreement of Sublease between Budget Rent A Car
Corporation and divine interVentures, inc. dated as of
August 25, 1999.
10.5 Letter Agreement, dated July 1, 1999, among divine
interVentures, inc., Blackhawk LLC and Andrew J.
Filipowski.
10.6 Purchase Agreement, dated as of December 7, 1999, between
divine interVentures, inc. and the purchasers named
therein.
10.7 Series D Stockholders Agreement, dated as of December 7,
1999, among divine interVentures, inc., the Management
Stockholders (as defined therein) and the Purchasers (as
defined therein).
10.8 Founders Shares Registration Rights Agreement, dated as of
August 18, 1999, among divine interVentures, inc. and the
Purchasers (as defined therein).
10.9 Series A Registration Rights Agreement, dated as of
September 3, 1999, among divine interVentures, inc. and
the Purchasers (as defined therein).
10.10 Series B Registration Rights Agreement, dated as of
September 17, 1999, among divine interVentures, inc. and
the Purchasers (as defined therein).
10.11 Series C Registration Rights Agreement, dated as of
September 30, 1999, among divine interVentures, inc. and
the Purchasers (as defined therein).
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S> <C>
10.12 Series D Registration Rights Agreement, dated as of
December 7, 1999, among divine interVentures, inc. and the
Purchasers (as defined therein).
10.13 Consulting and Non-Compete Agreement, dated as of March
29, 1999, between PLATINUM technology International, inc.
and Andrew J. Filipowski.
10.14 Consulting and Non-Compete Agreement, dated as of March
29, 1999, between PLATINUM technology International, inc.
and Michael P. Cullinane.
10.15 Consulting and Non-Compete Agreement, dated as of March
29, 1999 between PLATINUM technology International, inc.
and Paul L. Humenansky.
10.16 Consulting and Non-Compete Agreement, dated as of June 1,
1999, between Computer Associates, Inc. and Larry S.
Freedman.
10.17 Business Opportunities Agreement, dated as of December 7,
1999, by and among divine interVentures, inc. and Dell USA
L.P., Microsoft Corporation, CBW/SK divine Investments,
Frontenac VII Limited Partnership, Frontenac Masters VII
Limited Partnership, First Chicago Investment Corporation,
Cross Creek X, LLC and Mesirow Capital Partners VII.
10.18 Big Shoulders Intertech Fund, L.P. Limited Partnership
Agreement, dated as of February 10, 2000.
10.19 Series E Registration Rights Agreement, dated as of
February 3, 2000.
10.20 Purchase Agreement, dated February 3, 2000, between divine
interVentures, inc and CMGI, Inc.
10.21 Alliance Agreement, dated as of January 28, 2000, between
divine interVentures, inc. and Microsoft Corporation.
10.22* Lease, dated Janaury 7, 2000, by and between Habitat-
Kahny, LLC and dotspot, inc.
21* Subsidiaries of the Registrant.
23.1 Consent of KPMG LLP with respect to financial statements
of divine interVentures, inc.
23.2 Consent of KPMG LLP with respect to financial statements
of Blueridge Technologies, Incorporated
23.3 Consent of KPMG LLP with respect to financial statements
of BeautyJungle.com, Inc.
23.4 Consent of KPMG LLP with respect to financial statements
of bid4real.com, inc.
23.5 Consent of KPMG LLP with respect to financial statements
of Bid4Real.com LLC
23.6 Consent of Grant Thornton LLP with respect to financial
statements of BidBuyBuild, Inc.
23.7 Consent of KPMG LLP with respect to financial statements
of eFiltration.com, Inc.
23.8 Consent of Arthur Andersen LLP with respect to financial
statements of i-Fulfillment, Inc.
23.9 Consent of KPMG LLP with respect to financial statements
of iGive.com, inc.
23.10 Consent of KPMG LLP with respect to financial statements
of i-Street, Inc.
23.11 Consent of Arthur Andersen LLP with respect to financial
statements of LiveOnTheNet.com, Inc.
23.12 Consent of KPMG LLP with respect to financial statements
of Martin Partners, L.L.C.
23.13 Consent of KPMG LLP with respect to financial statements
of Mercantec, Inc.
23.14 Consent of KPMG LLP with respect to financial statements
of OpinionWare.com, Inc.
23.15 Consent of KPMG LLP with respect to financial statements
of OUTTASK.COM, Inc.
</TABLE>
II-5
<PAGE>
<TABLE>
<S> <C> <C>
23.16 Consent of KPMG LLP with respect to financial statements of Perceptual Robotics, Inc.
23.17 Consent of KPMG LLP with respect to financial statements of PocketCard Inc.
23.18 Consent of KPMG LLP with respect to financial statements of Whiplash, Inc.
23.19* Consent of Katten Muchin Zavis (contained in its opinion to be filed as Exhibit 5 hereto).
24.1** Power of Attorney (included on signature page hereto).
24.2 Power of Attorney of David D. Hiller
24.3 Power of Attorney of Thomas J. Meredith
27 Financial Data Schedule
</TABLE>
- ---------------------
* To be filed by amendment
** Previously filed
(b) Financial Statement Schedules
No financial statement schedules are required to be filed with this
Registration Statement.
Item 17. Undertakings
The Registrant hereby undertakes:
(1) To provide to the Underwriters at the closing specified in the
underwriting agreement, certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to each
purchaser.
(2) 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 foregoing provisions, or otherwise, the
Registrant has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(3) For purposes of determining any liability under the Securities Act, (a)
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by 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 and (b) 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-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chicago, State of
Illinois, on the 14th day of February, 2000.
divine interVentures, inc.
/s/ Michael P. Cullinane
By:__________________________________
Michael P. Cullinane
Executive Vice President, Chief
Financial Officer and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on February 14, 2000.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
* Chairman of the Board and Chief Executive
___________________________________________ Officer
Andrew J. Filipowski
/s/ Michael P. Cullinane Executive Vice President, Chief Financial
___________________________________________ Officer, Treasurer, Principal Financial and
Michael P. Cullinane Accounting Officer and Director
* President, Chief Operating Officer and
___________________________________________ Director
Scott Hartkopf
* Executive Vice President and Director
___________________________________________
Paul L. Humenansky
* Director
___________________________________________
Robert Bernard
* Director
___________________________________________
Michael J. Birck
* Director
___________________________________________
James E. Cowie
* Director
___________________________________________
Andrea Cunningham
* Director
___________________________________________
Thomas Danis
* Director
___________________________________________
Michael H. Forster
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
* Director
___________________________________________
Arthur P. Frigo
* Director
___________________________________________
Gian Fulgoni
* Director
___________________________________________
George Garrick
* Director
___________________________________________
Craig D. Goldman
* Director
___________________________________________
Arthur W. Hahn
/s/ David D. Hiller Director
___________________________________________
David D. Hiller
* Director
___________________________________________
Jeffrey D. Jacobs
* Director
___________________________________________
Gregory K. Jones
* Director
___________________________________________
Steven Neil Kaplan
* Director
___________________________________________
Richard P. Kiphart
* Director
___________________________________________
Ronald D. Lachman
* Director
___________________________________________
Eric Larson
* Director
___________________________________________
William Lederer
* Director
___________________________________________
Michael Leitner
* Director
___________________________________________
Lawrence F. Levy
/s/ Thomas J. Meredith Director
___________________________________________
Thomas J. Meredith
* Director
___________________________________________
Teresa L. Pahl
</TABLE>
II-8
<PAGE>
Exhibit 1
.Shares
divine interVentures, inc.
Class A Common Stock
UNDERWRITING AGREEMENT
----------------------
[ ], 2000
Credit Suisse First Boston Corporation
Donaldson, Lufkin & Jenrette Securities Corporation
Bear, Stearns & Co. Inc.
FleetBoston Robertson Stephens Inc.
William Blair & Company, L.L.C.
DLJdirect Inc.
As Representatives of the Several Underwriters,
c/o Credit Suisse First Boston Corporation,
Eleven Madison Avenue,
New York, NY 10010-3629
Dear Sirs:
1. Introductory. divine interVentures, inc., a Delaware corporation
("Company"), proposes to issue and sell . shares ("Firm Securities") of its
Class A common stock ("Securities") and also proposes to issue and sell to the
Underwriters, at the option of the Underwriters, an aggregate of not more than .
additional shares ("Optional Securities") of its Securities as set forth below.
The Firm Securities and the Optional Securities are herein collectively called
the "Offered Securities". (As part of the offering contemplated by this
Agreement, Credit Suisse First Boston Corporation ("CSFBC") (the "Designated
Underwriter") has agreed to reserve out of the Firm Securities purchased by it
under this Agreement, up to . shares, for sale to the Company's directors,
officers, employees and other parties associated with the Company (collectively,
"Participants"), as set forth in the Prospectus (as defined herein) under the
heading "Underwriting" (the "Directed Share Program"). The Firm Securities to
be sold by the Designated Underwriter pursuant to the Directed Share Program
(the "Directed Shares") will be sold by the Designated Underwriter pursuant to
this Agreement at the public offering price. Any Directed Shares not orally
confirmed for purchase by a Participant by the end of the business day on which
this Agreement is executed will be offered to the public by the Underwriters as
set forth in the Prospectus. The Company hereby agrees with the several
Underwriters named in Schedule A hereto ("Underwriters") as follows:
2. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, the several Underwriters that:
(a) A registration statement (No. 333-92851), including a form of
prospectus, has been filed with the Securities and Exchange Commission
("Commission") and either (i) has been declared effective under the
Securities Act of 1933 ("Act") and is not proposed to be amended or (ii) is
proposed to be amended by amendment or post-effective amendment. If such
registration statement ("initial registration statement") has been declared
effective, either (i) an additional registration statement ("additional
registration statement") relating to the Offered Securities may have been
filed with the
<PAGE>
Commission pursuant to Rule 462(b) ("Rule 462(b)") under the
Act and, if so filed, has become effective upon filing pursuant to such
Rule and the Offered Securities all have been duly registered under the Act
pursuant to the initial registration statement and, if applicable, the
additional registration statement or (ii) such an additional registration
statement is proposed to be filed with the Commission pursuant to Rule
462(b) and will become effective upon filing pursuant to such Rule and upon
such filing the Offered Securities will all have been duly registered under
the Act pursuant to the initial registration statement and such additional
registration statement. If the Company does not propose to amend the
initial registration statement or if an additional registration statement
has been filed and the Company does not propose to amend it, and if any
post-effective amendment to either such registration statement has been
filed with the Commission prior to the execution and delivery of this
Agreement, the most recent amendment (if any) to each such registration
statement has been declared effective by the Commission or has become
effective upon filing pursuant to Rule 462(c) ("Rule 462(c)") under the Act
or, in the case of the additional registration statement, Rule 462(b). For
purposes of this Agreement, "Effective Time" with respect to the initial
registration statement or, if filed prior to the execution and delivery of
this Agreement, the additional registration statement means (i) if the
Company has advised the Representatives that it does not propose to amend
such registration statement, the date and time as of which such
registration statement, or the most recent post-effective amendment thereto
(if any) filed prior to the execution and delivery of this Agreement, was
declared effective by the Commission or has become effective upon filing
pursuant to Rule 462(c), or (ii) if the Company has advised the
Representatives that it proposes to file an amendment or post-effective
amendment to such registration statement, the date and time as of which
such registration statement, as amended by such amendment or post-effective
amendment, as the case may be, is declared effective by the Commission. If
an additional registration statement has not been filed prior to the
execution and delivery of this Agreement but the Company has advised the
Representatives that it proposes to file one, "Effective Time" with respect
to such additional registration statement means the date and time as of
which such registration statement is filed and becomes effective pursuant
to Rule 462(b). "Effective Date" with respect to the initial registration
statement or the additional registration statement (if any) means the date
of the Effective Time thereof. The initial registration statement, as
amended at its Effective Time, including all information contained in the
additional registration statement (if any) and deemed to be a part of the
initial registration statement as of the Effective Time of the additional
registration statement pursuant to the General Instructions of the Form on
which it is filed and including all information (if any) deemed to be a
part of the initial registration statement as of its Effective Time
pursuant to Rule 430A(b) ("Rule 430A(b)") under the Act, is hereinafter
referred to as the "Initial Registration Statement". The additional
registration statement, as amended at its Effective Time, including the
contents of the initial registration statement incorporated by reference
therein and including all information (if any) deemed to be a part of the
additional registration statement as of its Effective Time pursuant to Rule
430A(b), is hereinafter referred to as the "Additional Registration
Statement". The Initial Registration Statement and the Additional
Registration Statement are herein referred to collectively as the
"Registration Statements" and individually as a "Registration Statement".
The form of prospectus relating to the Offered Securities, as first filed
with the Commission pursuant to and in accordance with Rule 424(b) ("Rule
424(b)") under the Act or (if no such filing is required) as included in a
Registration Statement, is hereinafter referred to as the "Prospectus". No
document has been or will be prepared or distributed in reliance on Rule
434 under the Act.
(b) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement: (i) on the Effective
Date of the Initial Registration Statement, the Initial Registration
Statement conformed in all respects to the requirements of the Act and the
rules and regulations of the Commission ("Rules and Regulations") and did
not include 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, (ii) on the Effective Date of the
Additional Registration Statement (if any), each Registration Statement
conformed, or will conform, in all respects to the requirements of the Act
and the Rules and Regulations and did not include, or will not include, any
untrue statement of a material fact and did not omit, or will not omit,
2
<PAGE>
to state any material fact required to be stated therein or necessary to
make the statements therein not misleading and (iii) on the date of this
Agreement, the Initial Registration Statement and, if the Effective Time of
the Additional Registration Statement is prior to the execution and
delivery of this Agreement, the Additional Registration Statement each
conforms, and at the time of filing of the Prospectus pursuant to Rule
424(b) or (if no such filing is required) at the Effective Date of the
Additional Registration Statement in which the Prospectus is included, each
Registration Statement and the Prospectus will conform, in all respects to
the requirements of the Act and the Rules and Regulations, and neither of
such documents includes, or will include, any untrue statement of a
material fact or omits, or will omit, to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading. If the Effective Time of the Initial Registration Statement is
subsequent to the execution and delivery of this Agreement: on the
Effective Date of the Initial Registration Statement, the Initial
Registration Statement and the Prospectus will conform in all respects to
the requirements of the Act and the Rules and Regulations, neither of such
documents will include any untrue statement of a material fact or will omit
to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, and no Additional Registration
Statement has been or will be filed. The two preceding sentences do not
apply to statements in or omissions from a Registration Statement or the
Prospectus based upon written information furnished to the Company by any
Underwriter through the Representatives specifically for use therein, it
being understood and agreed that the only such information is that
described as such in Section 7(b) hereof.
(c) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware, with
power and authority (corporate and other) to own its properties and conduct
its business as described in the Prospectus; and the Company is duly
qualified to do business as a foreign corporation in good standing in all
other jurisdictions in which its ownership or lease of property or the
conduct of its business requires such qualification.
(d) (i) Each wholly-owned subsidiary of the Company (each, a
"Subsidiary") has been duly incorporated and is an existing corporation in
good standing under the laws of the jurisdiction of its incorporation, with
power and authority (corporate and other) to own its properties and conduct
its business as described in the Prospectus; and each Subsidiary of the
Company is duly qualified to do business as a foreign corporation in good
standing in all other jurisdictions in which its ownership or lease of
property or the conduct of its business requires such qualification; all of
the issued and outstanding capital stock of each Subsidiary of the Company
has been duly authorized and validly issued and is fully paid and
nonassessable; and the capital stock of each Subsidiary owned by the
Company, directly or through Subsidiaries, is owned free from liens,
encumbrances and defects; and (ii) each entity in which the Company
directly or indirectly through its Subsidiaries and each private equity
fund in which it holds an interest (each, a "Partnership Company") is
validly incorporated and is in good standing under the laws of the
jurisdiction of its incorporation, or, in the case of any Partnership
Company which is organized as a limited partnership, has been duly
organized and is an existing partnership in good standing under the laws of
the jurisdiction under which it is organized; each Partnership Company has
the power and authority (corporate and/or other, as required) to own its
properties and conduct its business as described in the Offering Document;
the Company owns its interests in the Subsidiaries and Partnership
Companies, in each case in the amounts and percentages disclosed in the
Prospectus; and each Partnership Company is duly qualified to do business
as a foreign corporation or, as the case may be, partnership in good
standing in all other jurisdictions in which its ownership or lease or
property or the conduct of its business requires such qualification; all of
the issued and outstanding capital stock held directly or indirectly by the
Company of each incorporated Partnership Company has been duly authorized
and validly issued and is fully paid and nonassessable; and the capital
stock or partnership interest of each Partnership Company owned by the
Company, directly or indirectly, is owned free from liens, encumbrances and
defects in each instance where the absence of the foregoing would not
individually in the case of the Company and any Subsidiary, or in any other
case in the aggregate, have a material adverse effect on the condition
3
<PAGE>
(financial or other), business, properties or results of operations of the
Company, the Subsidiaries and the Partnership Companies taken as a whole (a
"Material Adverse Effect").
(e) The Offered Securities and all other outstanding shares of capital
stock of the Company have been duly authorized; all outstanding shares of
capital stock of the Company are, and, when the Offered Securities have
been delivered and paid for in accordance with this Agreement on each
Closing Date (as defined below), such Offered Securities will have been,
validly issued, fully paid and nonassessable and will conform to the
description thereof contained in the Prospectus; the stockholders of the
Company have no preemptive rights with respect to the Securities and the
authorized issued and outstanding capital stock of the Company is as set
forth in the Prospectus in the column entitled "Actual" under the caption
"Capitalization".
(f) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person that would
give rise to a valid claim against the Company or any Underwriter for a
brokerage commission, finder's fee or other like payment in connection with
this offering.
(g) 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 owned or to be owned by such person or to require
the Company to include such securities in the securities registered
pursuant to a Registration Statement or in any securities being registered
pursuant to any other registration statement filed by the Company under the
Act.
(h) The Offered Securities have been approved for listing on the
Nasdaq Stock Market's National Market.
(i) No consent, approval, authorization, or order of, or filing with,
any governmental agency or body or any court is required for the
consummation of the transactions contemplated by this Agreement in
connection with the issuance and sale of the Offered Securities by the
Company, except such as have been obtained and made under the Act and such
as may be required under state securities laws.
(j) The execution, delivery and performance of this Agreement, and the
issuance and sale of the Offered Securities will not result in a breach or
violation of any of the terms and provisions of, or constitute a default
under, any statute, any rule, regulation or order of any governmental
agency or body or any court, domestic or foreign, having jurisdiction over
the Company any Subsidiary or any of their properties, or any agreement or
instrument to which the Company or any such Subsidiary is a party or by
which the Company or any such Subsidiary is bound or to which any of the
properties of the Company or any such Subsidiary is subject, or the charter
or by-laws of the Company or any such Subsidiary, and the Company has full
power and authority to authorize, issue and sell the Offered Securities as
contemplated by this Agreement.
(k) This Agreement has been duly authorized, executed and delivered by
the Company.
(l) The Company and its Subsidiaries have good and marketable title to
all real properties and all other properties and assets owned by them, in
each case free from liens, encumbrances and defects that would materially
affect the value thereof or materially interfere with the use made or to be
made thereof by them; and the Company and its Subsidiaries hold any leased
real or personal property under valid and enforceable leases with no
exceptions that would materially interfere with the use made or to be made
thereof by them.
(m) The Company, the Subsidiaries and the Partnership Companies,
possess adequate certificates, authorities or permits issued by appropriate
governmental agencies or bodies necessary
4
<PAGE>
to conduct the business now operated by them and have not received any
notice of proceedings relating to the revocation or modification of any
such certificate, authority or permit that, if determined adversely to the
Company, any Subsidiary, or any Partnership Company, would have a Material
Adverse Effect.
(n) No labor dispute with the employees of the Company, any Subsidiary
or any Partnership Company or any of their respective principal suppliers,
manufacturers, customers or contractors exists or, to the knowledge of the
Company, is imminent, that might have a Material Adverse Effect.
(o) The Company, the Subsidiaries and the Partnership Companies each
possess or can acquire on reasonable terms, adequate trademarks, trade
names and other rights to inventions, know-how, patents, copyrights,
confidential information and other intellectual property (collectively,
"intellectual property rights") necessary to conduct the business now
operated by them, or presently employed by them, and none of them have
received any notice of infringement of or conflict with asserted rights of
others with respect to any intellectual property rights that, if determined
adversely to the Company, any Subsidiary or any Partnership Company would
individually or in the aggregate have a Material Adverse Effect.
(p) There are no pending actions, suits or proceedings against or
affecting the Company, any Subsidiary or any Partnership Company, or any of
their respective properties that, if determined adversely to the Company,
any Subsidiary or any Partnership Company, would individually or in the
aggregate have a Material Adverse Effect, or would materially and adversely
affect the ability of the Company to perform its obligations under this
Agreement, or which are otherwise material in the context of the sale of
the Offered Securities; and no such actions, suits or proceedings are
threatened or, to the Company's knowledge, contemplated.
(q) Neither the Company, nor any of its directors or officers are a
party to any agreement the terms of which restrict the ability of the
Company to conduct its business as described in the Prospectus or any of
its directors or officers to act in such capacity on behalf of the Company,
and the Company and each Partnership Company, and the Partnership Companies
between themselves, conduct their business on arm's length terms.
(r) Neither the Company, any Subsidiary or any Partnership Company is
in violation of any statute, any rule, regulation, decision or order of any
governmental agency or body or any court, domestic or foreign, relating to
the use, disposal or release of hazardous or toxic substances or relating
to the protection or restoration of the environment or human exposure to
hazardous or toxic substances (collectively, "environmental laws"), owns or
operates any real property contaminated with any substance that is subject
to any environmental laws, is liable for any off-site disposal or
contamination pursuant to any environmental laws, or is subject to any
claim relating to any environmental laws, which violation, contamination,
liability or claim would individually or in the aggregate have a Material
Adverse Effect; and the Company is not aware of any pending investigation
which might lead to such a claim.
(s) Each of the Company, the Subsidiaries and the Partnership
Companies, has timely filed all necessary federal and state income and
franchise tax returns and has paid all taxes shown thereon as due, and
there is no tax deficiency that has been or, to the Company's knowledge,
might be asserted against the Company or any Subsidiary or Partnership
Company other than in each instance such as would not have a Material
Adverse Effect. All tax liabilities are adequately provided for on the
books of the Company and its Subsidiaries and, to the best of the Company's
knowledge and belief, the Partnership Companies.
(t) The accountants who certified the financial statements and
supporting schedules included in the Prospectus and the financial
statements and supporting schedules of LiveontheNet, Inc. since its
5
<PAGE>
inception to the year ended December 31, 1998 are independent public
accountants as required by the Act and the Rules and Regulations.
(u) The financial statements included in each Registration Statement
and the Prospectus present fairly the financial position of the Company,
its consolidated Subsidiaries and each of Blueridge Technologies, Inc., I-
Street, Inc., LiveontheNet.com. Inc., Opinionware.com, and Outtask.com,
Inc. (the "Audited Partnership Companies") and their respective
subsidiaries as of the dates shown and their results of operations and cash
flows for the periods shown, and such financial statements have been
prepared in conformity with the generally accepted accounting principles in
the United States applied on a consistent basis. In addition, the
information contained in the Registration Statement and the Prospectus
represents a true and fair view of [the statements of Partnership
Companies' revenues and] the fully diluted percentage of common stock of
such Partnership Company owned directly or indirectly by the Company, and
the schedules included in each Registration Statement present fairly the
information required to be stated therein; and the assumptions used in
preparing the pro forma financial statements included in each Registration
Statement and the Prospectus provide a reasonable basis for presenting the
significant effects directly attributable to the transactions or events
described therein, the related pro forma adjustments give appropriate
effect to those assumptions, and the pro forma columns therein reflect the
proper application of those adjustments to the corresponding historical
amounts.
(v) Except as disclosed in the Prospectus, since the date of the
latest audited financial statements included in the Prospectus there has
been no material adverse change, nor any development or event involving a
prospective material adverse change, in the condition (financial or other),
business, properties or results of operations of the Company, any
Subsidiary or any Partnership Company, taken as a whole, and there has been
no dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock.
(w) The Company is not and is not required to be registered under
Section 8 of the United States Investment Company Act of 1940, as amended
(the "Investment Company Act") and at all times maintains satisfactory
controls and procedures to provide accurate data upon which to evaluate its
status with respect thereto; the Company shall use the proceeds of the
offering, to acquire interests in current and future Partnership Companies,
and for working capital and other general corporate purposes and pending
the Company's use of the net proceeds, it will invest them primarily in
cash, cash equivalents or direct or guaranteed obligations of the United
States; and the Company is not and, after giving effect to the offering and
sale of the Offered Securities and the application of the proceeds thereof
as described in the Offering Document, will not be an "investment company"
as such term is defined in the Investment Company Act.
(x) Neither the Company, nor any of its affiliates (as defined in Rule
501(b) of Regulation D under the Act), or any person acting on behalf of
any of them has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D under the Act) in
connection with the offer and sale of the Company's Series C and Series D
Common Stock, and the offer and sale of such securities has been conducted
in a manner which will not lead to the integration of such offering with
the offering of Common Stock to which this Agreement relates.
(y) The Company represents and warrants to the Underwriters that (i)
the Registration Statement, the Prospectus and any preliminary prospectus
comply, and any further amendments or supplements thereto will comply, with
any applicable laws or regulations of foreign jurisdictions in which the
Prospectus or any preliminary prospectus, as amended or supplemented, if
applicable, are distributed in connection with the Directed Share Program,
and that (ii) no authorization, approval, consent, license, order,
registration or qualification of or with any government, governmental
instrumentality or court, other than such as have been obtained, is
necessary under the securities law
6
<PAGE>
and regulations of foreign jurisdictions in which the Directed Shares are
offered outside the United States.
(z) The Company has not offered, or caused the Underwriters to offer,
any offered Securities to any person pursuant to the Directed Share Program
with the specific intent to unlawfully influence (i) a customer or supplier
of the Company to alter the customer's or supplier's level or type of
business with the Company or (ii) a trade journalist or publication to
write or publish favorable information about the Company or its products.
3. Purchase, Sale and Delivery of Offered Securities. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and the Underwriters agree, severally and not jointly, to purchase
from the Company, at a purchase price of $. per share, the respective numbers of
shares of Firm Securities set forth opposite the names of the Underwriters in
Schedule A hereto.
The Company will deliver the Firm Securities to the Representatives for the
accounts of the Underwriters, against payment of the purchase price in Federal
(same day) funds by official bank check or checks or wire transfer to an account
at a bank acceptable to Credit Suisse First Boston Corporation ("CSFBC") drawn
to the order of . at the office of ., at 9:00 A.M., New York time, on ., or at
such other time not later than seven full business days thereafter as CSFBC and
the Company determine, such time being herein referred to as the "First Closing
Date". For purposes of Rule 15c6-1 under the Securities Exchange Act of 1934,
the First Closing Date (if later than the otherwise applicable settlement date)
shall be the settlement date for payment of funds and delivery of securities for
all the Offered Securities sold pursuant to the offering. The certificates for
the Firm Securities so to be delivered will be in definitive form, in such
denominations and registered in such names as CSFBC requests and will be made
available for checking and packaging at the office of Katten Muchin Zavis,
Chicago, at least 24 hours prior to the First Closing Date.
In addition, upon written notice from CSFBC given to the Company from time
to time not more than 30 days subsequent to the date of the Prospectus, the
Underwriters may purchase all or less than all of the Optional Securities at the
purchase price per Security to be paid for the Firm Securities. The Company
agrees to sell to the Underwriters the number of shares of Optional Securities
specified in such notice and the Underwriters agree, severally and not jointly,
to purchase such Optional Securities. Such Optional Securities shall be
purchased for the account of each Underwriter in the same proportion as the
number of shares of Firm Securities set forth opposite such Underwriter's name
bears to the total number of shares of Firm Securities (subject to adjustment by
CSFBC to eliminate fractions) and may be purchased by the Underwriters only for
the purpose of covering over-allotments made in connection with the sale of the
Firm Securities. No Optional Securities shall be sold or delivered unless the
Firm Securities previously have been, or simultaneously are, sold and delivered.
The right to purchase the Optional Securities or any portion thereof may be
exercised from time to time and to the extent not previously exercised may be
surrendered and terminated at any time upon notice by CSFBC to the Company.
Each time for the delivery of and payment for the Optional Securities,
being herein referred to as an "Optional Closing Date", which may be the First
Closing Date (the First Closing Date and each Optional Closing Date, if any,
being sometimes referred to as a "Closing Date"), shall be determined by CSFBC
but shall be not later than five full business days after written notice of
election to purchase Optional Securities is given.
The Company will deliver the Optional Securities being purchased on each
Optional Closing Date to the Representatives for the accounts of the several
Underwriters, against payment of the purchase price therefor in Federal (same
day) funds by official bank check or checks or wire transfer to an account at a
bank acceptable to CSFBC drawn to the order of ., at the office of .. The
certificates for the Optional Securities being purchased on each Optional
Closing Date will be in definitive form, in such denominations and registered in
such names as CSFBC requests upon reasonable notice prior to such Optional
Closing Date and
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will be made available for checking and packaging at the office of . at a
reasonable time in advance of such Optional Closing Date.
As compensation for the Underwriters' commitments, the Company will pay to
the Representatives for the Underwriters' proportionate accounts the sum of .%
of the aggregate principal amount of the Offered Securities purchased by the
Underwriters on each Closing Date. Such payment will be made on each Closing
Date with respect to the Offered Securities purchased on such Closing Date.
4. Offering by Underwriters. It is understood that the several Underwriters
propose to offer the Offered Securities for sale to the public as set forth in
the Prospectus.
5. Certain Agreements of the Company. The Company agrees with the several
Underwriters that:
(a) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement, the Company will
file the Prospectus with the Commission pursuant to and in accordance with
subparagraph (1) (or, if applicable and if consented to by CSFBC,
subparagraph (4)) of Rule 424(b) not later than the earlier of (A) the
second business day following the execution and delivery of this Agreement
or (B) the fifteenth business day after the Effective Date of the Initial
Registration Statement.
The Company will advise CSFBC promptly of any such filing pursuant to Rule
424(b). If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement and an additional
registration statement is necessary to register a portion of the Offered
Securities under the Act but the Effective Time thereof has not occurred as
of such execution and delivery, the Company will file the additional
registration statement or, if filed, will file a post-effective amendment
thereto with the Commission pursuant to and in accordance with Rule 462(b)
on or prior to 10:00 P.M., New York time, on the date of this Agreement or,
if earlier, on or prior to the time the Prospectus is printed and
distributed to any Underwriter, or will make such filing at such later date
as shall have been consented to by CSFBC.
(b) The Company will advise CSFBC promptly of any proposal to amend or
supplement the initial or any additional registration statement as filed or
the related prospectus or the Initial Registration Statement, the
Additional Registration Statement (if any) or the Prospectus and will not
effect such amendment or supplementation without CSFBC's consent; and the
Company will also advise CSFBC promptly of the effectiveness of each
Registration Statement (if its Effective Time is subsequent to the
execution and delivery of this Agreement) and of any amendment or
supplementation of a Registration Statement or the Prospectus and of the
institution by the Commission of any stop order proceedings in respect of a
Registration Statement and will use its best efforts to prevent the
issuance of any such stop order and to obtain as soon as possible its
lifting, if issued.
(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with
sales by any Underwriter or dealer, any event occurs as a result of which
the Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if it is necessary at any time to
amend the Prospectus to comply with the Act, the Company will promptly
notify CSFBC of such event and will promptly prepare and file with the
Commission, at its own expense, an amendment or supplement which will
correct such statement or omission or an amendment which will effect such
compliance. Neither CSFBC's consent to, nor the Underwriters' delivery of,
any such amendment or supplement shall constitute a waiver of any of the
conditions set forth in Section 6.
8
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(d) As soon as practicable, but not later than the Availability Date
(as defined below), the Company will make generally available to its
securityholders an earnings statement covering a period of at least 12
months beginning after the Effective Date of the Initial Registration
Statement (or, if later, the Effective Date of the Additional Registration
Statement) which will satisfy the provisions of Section 11(a) of the Act.
For the purpose of the preceding sentence, "Availability Date" means the
45th day after the end of the fourth fiscal quarter following the fiscal
quarter that includes such Effective Date, except that, if such fourth
fiscal quarter is the last quarter of the Company's fiscal year,
"Availability Date" means the 90th day after the end of such fourth fiscal
quarter.
(e) The Company will furnish to the Representatives copies of each
Registration Statement (five (5) of which will be signed and will include
all exhibits), each related preliminary prospectus, and, so long as a
prospectus relating to the Offered Securities is required to be delivered
under the Act in connection with sales by any Underwriter or dealer, the
Prospectus and all amendments and supplements to such documents, in each
case in such quantities as CSFBC requests. The Prospectus shall be so
furnished on or prior to 3:00 P.M., New York time, on the business day
following the later of the execution and delivery of this Agreement or the
Effective Time of the Initial Registration Statement. All other documents
shall be so furnished as soon as available. The Company will pay the
expenses of printing and distributing to the Underwriters all such
documents.
(f) The Company will arrange for the qualification of the Offered
Securities for sale under the laws of such jurisdictions as CSFBC
designates and will continue such qualifications in effect so long as
required for the distribution.
(g) During the period of 10 years hereafter, the Company will furnish
to the Representatives and, upon request, to each of the other
Underwriters, as soon as practicable after the end of each fiscal year, a
copy of its annual report to stockholders for such year; and the Company
will furnish to the Representatives (i) as soon as available, a copy of
each report and any definitive proxy statement of the Company filed with
the Commission under the Securities Exchange Act of 1934 or mailed to
stockholders, and (ii) from time to time, such other information concerning
the Company as CSFBC may reasonably request.
(h) The Company will pay all expenses incident to the performance of
its obligations under this Agreement, for any filing fees and other
expenses (including fees and disbursements of counsel) incurred in
connection with qualification of the Offered Securities for sale and
determination of their eligibility for investment under the laws of such
jurisdictions as CSFBC designates and the printing of memoranda relating
thereto, for any fees charged by investment rating agencies for the rating,
if any, of the Offered Securities, for the filing fee incident to, and the
reasonable fees and disbursements of counsel to the Underwriters in
connection with, the review by the National Association of Securities
Dealers, Inc. of the Offered Securities, for any travel expenses of the
Company's officers and employees and any other expenses of the Company in
connection with attending or hosting meetings with prospective purchasers
of the Offered Securities and for expenses incurred in distributing
preliminary prospectuses and the Prospectus (including any amendments and
supplements thereto) to the Underwriters. In addition to the foregoing, the
Company will pay to the Representatives on behalf of the Underwriters on
the First Closing Date the sum of $. as a nonaccountable reimbursement of
the Underwriters' other expenses. Such amount may be deducted from the
purchase price for the Offered Securities set forth in Section 3.
(i) For a period of 180 days after the date of the initial public
offering of the Offered Securities, the Company will not offer, sell,
contract to sell, pledge or otherwise dispose of, directly or indirectly,
or file with the Commission a registration statement under the Act relating
to, any additional shares of its Securities or securities convertible into
or exchangeable or exercisable for any shares of its Securities, or
publicly disclose the intention to make any such offer, sale, pledge,
disposition or filing, without the prior written consent of CSFBC except
issuances of Securities pursuant to the conversion
9
<PAGE>
or exchange of convertible or exchangeable securities or the exercise of
warrants or options, in each case outstanding on the date hereof or grants
of employee stock options pursuant to the terms of a plan in effect on the
date hereof, issuances of Securities pursuant to the exercise of such
options.
(j) In connection with the Directed Share Program, the Company will
ensure that the Directed Shares will be restricted to the extent required
by the National Association of Securities Dealers, Inc. (the "NASD") or the
NASD rules from sale, transfer, assignment, pledge or hypothecation for a
period of three months following the date of the effectiveness of the
Registration Statement. The Designated Underwriter will notify the Company
as to which Participants will need to be so restricted. The Company will
direct the transfer agent to place stop transfer restrictions upon such
securities for such period of time.
(k) The Company will pay all fees and disbursements of counsel
incurred by the Underwriters in connection with the Directed Share Program
and stamp duties, similar taxes or duties or other taxes, if any, incurred
by the underwriters in connection with the Directed Share Program.
Furthermore, the Company covenants with the Underwriters that the
Company will comply with all applicable securities and other applicable
laws, rules and regulations in each foreign jurisdiction in which the
Directed Shares are offered in connection with the Directed Share Program.
6. Conditions of the Obligations of the Underwriters. The obligations of
the several Underwriters to purchase and pay for the Firm Securities on the
First Closing Date and the Optional Securities to be purchased on each Optional
Closing Date will be subject to the accuracy of the representations and
warranties on the part of the Company herein, to the accuracy of the statements
of Company officers made pursuant to the provisions hereof, to the performance
by the Company of its obligations hereunder and to the following additional
conditions precedent:
(a) The Representatives shall have received a letter, dated the date
of delivery thereof (which, if the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this
Agreement, shall be on or prior to the date of this Agreement or, if the
Effective Time of the Initial Registration Statement is subsequent to the
execution and delivery of this Agreement, shall be prior to the filing of
the amendment or post-effective amendment to the registration statement to
be filed shortly prior to such Effective Time), of KPMG, LLP confirming
that they are independent public accountants within the meaning of the Act
and the applicable published Rules and Regulations and stating to the
effect that:
(i) in their opinion the financial statements and schedules and
summary of earnings examined by them and included in the Registration
Statements comply as to form in all material respects with the
applicable accounting requirements of the Act and the related
published Rules and Regulations;
(ii) they have performed the procedures specified by the American
Institute of Certified Public Accountants for a review of interim
financial information as described in Statement of Auditing Standards
No. 71, Interim Financial Information, on the unaudited financial
statements of the Company and each Audited Partnership Company
included in the Registration Statements;
(iii) (A) on the basis of the review referred to in clause (ii) above,
a reading of the latest available interim financial statements of
the Company, inquiries of officials of the Company who have
responsibility for financial and accounting matters and other
specified procedures, nothing came to their attention that caused
them to believe that:
(I) the unaudited financial statements included in the
Registration Statements do not comply as to form in all
material respects with the applicable accounting
10
<PAGE>
requirements of the Act and the related published Rules and
Regulations or any material modifications should be made to
such unaudited financial statements for them to be in
conformity with generally accepted accounting principles;
(II) at the date of the latest available balance sheet read
by such accountants, or at a subsequent specified date not
more than three business days prior to the date of such
letter, there was any change in the capital stock or any
increase in short-term indebtedness or long-term debt of the
Company and its consolidated Subsidiaries or, at the date of
the latest available balance sheet read by such accountants,
there was any decrease in consolidated net current assets or
net assets, as compared with amounts shown on the latest
balance sheet included in the Prospectus; or
(III) for the period from the closing date of the latest
income statement of the Company included in the Prospectus
to the closing date of the latest available income statement
to the Company read by such accountants there were any
decreases, as compared with the corresponding period of the
previous year and with the period of corresponding length
ended the date of the latest income statement included in
the Prospectus, in consolidated net sales or net operating
income, or in the total or per share amounts of consolidated
income before extraordinary items or net income, in each
case of the Company
[except in all cases set forth in clauses ( ) and ( ) above for
changes, increases or decreases which the Prospectus discloses have
occurred or may occur or which are described in such letter];
(B) on the basis of the review referred to in clause (ii) above,
a reading of the latest available interim financial statements of
each Audited Partnership Company, inquiries of officials of the
relevant Audited Partnership Company who have responsibility for
financial and accounting matters and other specified procedures,
nothing came to their attention that caused them to believe that:
(I) the unaudited financial statements of the relevant
Audited Partnership Company included in the Registration
Statements do not comply as to form in all material respects
with the applicable accounting requirements of the Act and
the related published Rules and Regulations or any material
modifications should be made to such unaudited financial
statements for them to be in conformity with generally
accepted accounting principles;
(II) at the date of the latest available balance sheet of
the relevant Audited Partnership Company read by such
accountants, or at a subsequent specified date not more than
three business days prior to the date of such letter, there
was any change in the capital stock or any increase in
short-term indebtedness or long-term debt of that Audited
Partnership Company and its consolidated subsidiaries or, at
the date of the latest available balance sheet read by such
accountants, there was any decrease in consolidated net
current assets or net assets, as compared with amounts shown
on the latest balance sheet included in the Prospectus; or
(III) for the period from the closing date of the latest
income statement of the relevant Audited Partnership Company
included in the Prospectus to the closing date of the latest
available income statement read by such accountants there
were any decreases, as compared with the corresponding
period of the previous year and with the period of
corresponding length ended the date of the latest income
statement included in the Prospectus, in consolidated net
sales or net operating income, or in the total or per share
amounts of consolidated income before extraordinary items or
net income
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<PAGE>
[except in all cases set forth in clauses ( ) and ( ) above
for changes, increases or decreases which the Prospectus discloses have
occurred or may occur or which are described in such letter]; and
(iv) they have compared specified dollar amounts (or percentages
derived from such dollar amounts) and other financial information
contained in the Registration Statements (in each case to the extent
that such dollar amounts, percentages and other financial information
are derived from the general accounting records of the Company and its
Subsidiaries subject to the internal controls of the Company's
accounting system, the general accounting records of any Audited
Partnership Company or its Subsidiaries or in, either case, are
derived directly from such records by analysis or computation) with
the results obtained from inquiries, a reading of such general
accounting records and other procedures specified in such letter and
have found such dollar amounts, percentages and other financial
information to be in agreement with such results, except as otherwise
specified in such letter.
For purposes of this subsection, (i) if the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of this
Agreement, "Registration Statements" shall mean the initial registration
statement as proposed to be amended by the amendment or post-effective
amendment to be filed shortly prior to its Effective Time, (ii) if the
Effective Time of the Initial Registration Statement is prior to the
execution and delivery of this Agreement but the Effective Time of the
Additional Registration is subsequent to such execution and delivery,
"Registration Statements" shall mean the Initial Registration Statement and
the additional registration statement as proposed to be filed or as
proposed to be amended by the post-effective amendment to be filed shortly
prior to its Effective Time, and (iii) "Prospectus" shall mean the
prospectus included in the Registration Statements.
(b) The Representatives shall have received a letter, dated the date of
delivery thereof (which, if the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement, shall
be on or prior to the date of this Agreement or, if the Effective Time of
the Initial Registration Statement is subsequent to the execution and
delivery of this Agreement, shall be prior to the filing of the amendment
or post-effective amendment to the registration statement to be filed
shortly prior to such Effective Time), of Arthur Andersen LLP confirming
that they are independent public accountants to LiveontheNet, Inc. within
the meaning of the Act and the applicable published Rules and Regulations
and stating to the effect that in their opinion the financial statements
and schedules and summary of earnings of LiveontheNet, Inc. examined by
them and included (or incorporated by reference) in the Registration
Statements comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published Rules and
Regulations.
(c) If the Effective Time of the Initial Registration Statement is not
prior to the execution and delivery of this Agreement, such Effective Time
shall have occurred not later than 10:00 P.M., New York time, on the date
of this Agreement or such later date as shall have been consented to by
CSFBC. If the Effective Time of the Additional Registration Statement (if
any) is not prior to the execution and delivery of this Agreement, such
Effective Time shall have occurred not later than 10:00 P.M., New York
time, on the date of this Agreement or, if earlier, the time the Prospectus
is printed and distributed to any Underwriter, or shall have occurred at
such later date as shall have been consented to by CSFBC. If the Effective
Time of the Initial Registration Statement is prior to the execution and
delivery of this Agreement, the Prospectus shall have been filed with the
Commission in accordance with the Rules and Regulations and Section 5(a) of
this Agreement. Prior to such Closing Date, no stop order suspending the
effectiveness of a Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or, to the
knowledge of the Company or the Representatives, shall be contemplated by
the Commission.
(d) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred (i)any change, or any development or event
involving a prospective change, in the
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<PAGE>
condition (financial or other), business, properties or results of
operations of the Company and its Subsidiaries taken as one enterprise
which, in the judgment of a majority in interest of the Underwriters
including the Representatives, is material and adverse and makes it
impractical or inadvisable to proceed with completion of the public
offering or the sale of and payment for the Offered Securities; (ii)
any downgrading in the rating of any debt securities of the Company by
any "nationally recognized statistical rating organization" (as
defined for purposes of Rule 436(g) under the Act), or any public
announcement that any such organization has under surveillance or
review its rating of any debt securities of the Company (other than an
announcement with positive implications of a possible upgrading, and
no implication of a possible downgrading, of such rating); (iii) any
material suspension or material limitation of trading in securities
generally on the New York Stock Exchange, or any setting of minimum
prices for trading on such exchange, or any suspension of trading of
any securities of the Company on any exchange or in the over-the-
counter market; (iv) any banking moratorium declared by U.S. Federal
or New York authorities; or (v) any outbreak or escalation of major
hostilities in which the United States is involved, any declaration of
war by Congress or any other substantial national or international
calamity or emergency if, in the judgment of a majority in interest of
the Underwriters including the Representatives, the effect of any such
outbreak, escalation, declaration, calamity or emergency makes it
impractical or inadvisable to proceed with completion of the public
offering or the sale of and payment for the Offered Securities.
(e) The Representatives shall have received an opinion, dated
such Closing Date, of Katten, Muchin Zavis, counsel for the Company,
to the effect that:
( ) The Company has been duly incorporated and is an
existing corporation in good standing under the laws of the State
of Delaware, and each of [list Partnership Companies incorporated
in Delaware, Illinois, California and New York] has been duly
incorporated and is an existing corporation in good standing
under the laws of the state of [ ] with corporate power and
authority to own its properties and conduct its business as
described in the Prospectus; and the Company and each of [list
Partnership Companies incorporated in Delaware, Illinois,
California and New York] is duly qualified to do business as a
foreign corporation in good standing in all other jurisdictions
in which its ownership or lease of property or the conduct of its
business requires such qualification;
( ) The Offered Securities delivered on such Closing Date
and all other outstanding shares of the Common Stock of the
Company have been duly authorized and validly issued, are fully
paid and nonassessable and conform to the description thereof
contained in the Prospectus; and the stockholders of the Company
have no preemptive rights with respect to the Securities;
( ) There are no contracts, agreements or understandings
known to such counsel 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 owned or to be owned by such person or
to require the Company to include such securities in the
securities registered pursuant to the Registration Statement or
in any securities being registered pursuant to any other
registration statement filed by the Company under the Act;
( ) No consent, approval, authorization or order of, or
filing with, any governmental agency or body or any court is
required for the consummation of the transactions contemplated by
this Agreement in connection with the issuance or sale of the
Offered Securities by the Company, except such as have been
obtained and made under the Act and such as may be required under
state securities laws;
( ) There are no pending actions, suits or proceedings
against or affecting the Company, any Subsidiary or any
Partnership Company, or any of their respective properties that,
if determined adversely to the Company, any Subsidiary or any
Partnership Company, would individually or in the aggregate have
a Material Adverse Effect, or would materially and
13
<PAGE>
adversely affect the ability of the Company to perform its
obligations under this Agreement, or which are otherwise material
in the context of the sale of the Offered Securities; and no such
actions, suits or proceedings are threatened or, to the Company's
knowledge, contemplated.
( ) Neither the Company nor any of its directors or officers
are a party to any agreement the terms of which restrict the
ability of the Company to conduct its business as described in
the Prospectus or any of its directors or officers to act in such
capacity on behalf of the Company and the Company and each
Partnership Company, and the Partnership Companies between
themselves, conduct their business on arm's length terms.
( ) The execution, delivery and performance of this
Agreement and the issuance and sale of the Offered Securities
will not result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any statute, any
rule, regulation or order of any governmental agency or body or
any court having jurisdiction over the Company or any Subsidiary
of the Company or any of their properties, or any agreement or
instrument to which the Company or any such Subsidiary is a party
or by which the Company or any such Subsidiary is bound or to
which any of the properties of the Company or any such Subsidiary
is subject, or the charter or by-laws of the Company or any such
Subsidiary, and the Company has full power and authority to
authorize, issue and sell the Offered Securities as contemplated
by this Agreement;
( ) The Initial Registration Statement was declared
effective under the Act as of the date and time specified in such
opinion, the Additional Registration Statement (if any) was filed
and became effective under the Act as of the date and time (if
determinable) specified in such opinion, the Prospectus either
was filed with the Commission pursuant to the subparagraph of
Rule 424(b) specified in such opinion on the date specified
therein or was included in the Initial Registration Statement or
the Additional Registration Statement (as the case may be), and,
to the best of the knowledge of such counsel, no stop order
suspending the effectiveness of a Registration Statement or any
part thereof has been issued and no proceedings for that purpose
have been instituted or are pending or contemplated under the
Act, and each Registration Statement and the Prospectus, and each
amendment or supplement thereto, as of their respective effective
or issue dates, complied as to form in all material respects with
the requirements of the Act and the Rules and Regulations; such
counsel have no reason to believe that any part of a Registration
Statement or any amendment thereto, as of its effective date or
as of such Closing Date, contained any untrue statement of a
material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading or that the Prospectus or any amendment or supplement
thereto, as of its issue date or as of such Closing Date,
contained any untrue statement of a material fact or omitted to
state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were
made, not misleading; the descriptions in the Registration
Statements and Prospectus of statutes, legal and governmental
proceedings and contracts and other documents are accurate and
fairly present the information required to be shown; and such
counsel do not know of any legal or governmental proceedings
required to be described in a Registration Statement or the
Prospectus which are not described as required or of any
contracts or documents of a character required to be described in
a Registration Statement or the Prospectus or to be filed as
exhibits to a Registration Statement which are not described and
filed as required; it being understood that such counsel need
express no opinion as to the financial statements or other
financial data contained in the Registration Statements or the
Prospectus; and
( ) This Agreement has been duly authorized, executed and
delivered by the Company.
(f) The Representatives shall have received an opinion, dated
such Closing Date, of Kirpatrick & Lockhart LLP, special counsel for
the Company, to the effect that the Company is not and, after giving
effect to the offering and sale of the Offered Securities and the
application of the proceeds
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<PAGE>
thereof as described in the Prospectus, will not be an "investment
company" as defined in the Investment Company Act of 1940.
(g) The Representatives shall have received from Shearman &
Sterling, counsel for the Underwriters, such opinion or opinions,
dated such Closing Date, with respect to the incorporation of the
Company, the validity of the Offered Securities delivered on such
Closing Date, the Registration Statements, the Prospectus and other
related matters as the Representatives may require, and the Company
shall have furnished to such counsel such documents as they request
for the purpose of enabling them to pass upon such matters.
(h) The Representatives shall have received a certificate, dated
such Closing Date, of the President or any Vice President and a
principal financial or accounting officer of the Company in which such
officers, to the best of their knowledge after reasonable
investigation, shall state that:the representations and warranties of
the Company in this Agreement are true and correct; the Company has
complied with all agreements and satisfied all conditions on its part
to be performed or satisfied hereunder at or prior to such Closing
Date; no stop order suspending the effectiveness of any Registration
Statement has been issued and no proceedings for that purpose have
been instituted or are contemplated by the Commission; the Additional
Registration Statement (if any) satisfying the requirements of
subparagraphs (1) and (3) of Rule 462(b) was filed pursuant to Rule
462(b), including payment of the applicable filing fee in accordance
with Rule III (a) or (b) under the Act, prior to the time the
Prospectus was printed and distributed to any Underwriter; and,
subsequent to the date of the most recent financial statements in the
Prospectus, there has been no material adverse change, nor any
development or event involving a prospective material adverse change,
in the condition (financial or other), business, properties or results
of operations of the Company, the Subsidiaries and the Partnership
Companies taken as a whole except as set forth in or contemplated by
the Prospectus or as described in such certificate.
(i) The Representatives shall have received a letter, dated such
Closing Date, of KPMG, LLP which meets the requirements of subsection
(a) of this Section, except that the specified date referred to in
such subsection will be a date not more than three days prior to such
Closing Date for the purposes of this subsection.
The Company will furnish the Representatives with such conformed
copies of such opinions, certificates, letters and documents as the
Representatives reasonably request. CSFBC may in its sole discretion
waive on behalf of the Underwriters compliance with any conditions to
the obligations of the Underwriters hereunder, whether in respect of
an Optional Closing Date or otherwise.
7. Indemnification and Contribution. (a) The Company will
indemnify and hold harmless each Underwriter, its partners, directors
and officers and each person, if any, who controls such Underwriter
within the meaning of Section 15 of the Act, against any losses,
claims, damages or liabilities, joint or several, to which such
Underwriter may become subject, under the 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, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out of or are
based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse each Underwriter
for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such
loss, claim, damage, liability or action as such expenses are
incurred; 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 an untrue statement or
alleged untrue statement in or omission or alleged omission from any
of such documents in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representatives specifically for use
15
<PAGE>
therein, it being understood and agreed that the only such information
furnished by any Underwriter consists of the information described as
such in subsection (b) below.
The Company agrees to indemnify and hold harmless the Designated
Underwriter and each person, if any, who controls the Designated
Underwriter within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act (the "Designated Entities"),
from and against any and all losses, claims, damages and liabilities
(including, without limitation, any legal or other expenses reasonably
incurred in connection with defending or investigating any such action
or claim) (i) caused by any untrue statement or alleged untrue
statement of a material fact contained in any material prepared by or
with the consent of the Company for distribution to Participants in
connection with the Directed Share Program 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; (ii) caused by the failure of any Participant to pay for
and accept delivery of Directed Shares that the Participant agreed to
purchase; or (iii) related to, arising out of, or in connection with
the Directed Share Program, other than losses, claims, damages or
liabilities (or expenses relating thereto) that are finally judicially
determined to have resulted from the bad faith or gross negligence of
the Designated Entities.
(b) Each Underwriter will severally and not jointly indemnify
and hold harmless the Company, its directors and officers and each
person, if any, who controls the Company within the meaning of Section
15 of the Act, against any losses, claims, damages or liabilities to
which the Company may become subject, under the 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, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out of or are
based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but
only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon
and in conformity with written information furnished to the Company by
such Underwriter through the Representatives specifically for use
therein, and will reimburse any legal or other expenses reasonably
incurred by the Company in connection with investigating or defending
any such loss, claim, damage, liability or action as such expenses are
incurred, it being understood and agreed that the only such
information furnished by any Underwriter consists of the following
information in the Prospectus furnished on behalf of each Underwriter:
the concession and reallowance figures appearing in the . paragraph
under the caption "Underwriting" and the information contained in the
. paragraph under the caption "Underwriting".
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the
indemnifying parry under subsection (a) or (b) above, notify the
indemnifying parry of the commencement thereof; but the omission so to
notify the indemnifying party will not relieve it from any liability
which it may have to any indemnified party otherwise than under
subsection (a) or (b) above. In case any such action is brought
against any indemnified party and it notifies the indemnifying party
of the commencement thereof, the indemnifying party will be entitled
to participate therein and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel satisfactory to such indemnified party
(who shall not, except with the consent of the indemnified party, be
counsel to the indemnifying party), and after notice from the
indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party will not be liable
to such indemnified party under this Section for any legal or other
expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation.
Notwithstanding anything contained herein to the contrary, if
indemnity may be sought pursuant to the last paragraph in Section 7(a)
hereof in respect of such action or proceeding, then in addition to
such separate firm for the indemnified parties, the indemnifying party
shall be liable for the reasonable fees and expenses of not more than
one separate firm (in addition to any local counsel) for the
Designated Underwriter for the defense of any losses, claims, damages
and liabilities arising out of the Directed Share Program, and all
persons, if any, who control the Designated Underwriter within the
meaning of either Section 15 of the Act of Section 20 of the Exchange
Act. No indemnifying party
16
<PAGE>
shall, without the prior written consent of the indemnified party,
effect any settlement of any pending or threatened action in respect
of which any indemnified party is or could have been a party and
indemnity could have been sought hereunder by such indemnified party
unless such settlement (i) includes an unconditional release of such
indemnified party from all liability on any claims that are 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 an indemnified party.
(d) If the indemnification provided for in this Section is
unavailable or insufficient to hold harmless an indemnified party
under subsection (a) or (b) above, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as
a result of the losses, claims, damages or liabilities referred to in
subsection (a) or (b) above (i) in such proportion as is appropriate
to reflect the relative benefits received by the Company on the one
hand and the Underwriters on the other from the offering of the
Securities or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and
the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or
liabilities as well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters. The relative
fault 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 Underwriters and the
parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission.
The amount paid by an indemnified party as a result of the losses,
claims, damages or liabilities referred to in the first sentence of
this subsection (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection
with investigating or defending any action or claim which is the
subject of this subsection (d). Notwithstanding the provisions of this
subsection (d), no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the
Securities 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 in this subsection (d) to contribute are
several in proportion to their respective underwriting obligations and
not joint.
(e) The obligations of the Company under this Section shall be
in addition to any liability which the Company may otherwise have and
shall extend, upon the same terms and conditions, to each person, if
any, who controls any Underwriter within the meaning of the Act; and
the obligations of the Underwriters under this Section shall be in
addition to any liability which the respective Underwriters may
otherwise have and shall extend, upon the same terms and conditions,
to each director of the Company, to each officer of the Company who
has signed a Registration Statement and to each person, if any, who
controls the Company within the meaning of the Act.
8. Default of Underwriters. If any Underwriter or Underwriters
default in their obligations to purchase Offered Securities hereunder
on either the First or any Optional Closing Date and the number of
shares of Offered Securities that such defaulting Underwriter or
Underwriters agreed but failed to purchase does not exceed 10% of the
total number of shares of Offered Securities that the Underwriters are
obligated to purchase on such Closing Date, CSFBC may make
arrangements satisfactory to the Company for the purchase of such
Offered Securities by other persons, including any of the
Underwriters, but if no such arrangements are made by such Closing
Date, the non-defaulting Underwriters shall be obligated severally, in
proportion to their respective commitments hereunder, to purchase the
Offered Securities that such defaulting Underwriters agreed but failed
to purchase on such Closing Date. If any Underwriter or
17
<PAGE>
Underwriters so default and the aggregate number of shares of Offered
Securities with respect to which such default or defaults occur
exceeds 10% of the total number of shares of Offered Securities that
the Underwriters are obligated to purchase on such Closing Date and
arrangements satisfactory to CSFBC and the Company for the purchase of
such Offered Securities by other persons are not made within 36 hours
after such default, this Agreement will terminate without liability on
the part of any non-defaulting Underwriter or the Company, except as
provided in Section 9 (provided that if such default occurs with
respect to Optional Securities after the First Closing Date, this
Agreement will not terminate as to the Firm Securities or any Optional
Securities purchased prior to such termination). As used in this
Agreement, the term "Underwriter" includes any person substituted for
an Underwriter under this Section. Nothing herein will relieve a
defaulting Underwriter from liability for its default.
9. Survival of Certain Representations and Obligations. The
respective indemnities, agreements, representations, warranties and
other statements of the Company or its officers and of the several
Underwriters set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation, or
statement as to the results thereof, made by or on behalf of any
Underwriter, the Company or any of their respective representatives,
officers or directors or any controlling person, and will survive
delivery of and payment for the Offered Securities. If this Agreement
is terminated pursuant to Section 8 or if for any reason the purchase
of the Offered Securities by the Underwriters is not consummated, the
Company shall remain responsible for the expenses to be paid or
reimbursed by it pursuant to Section 5 and the respective obligations
of the Company and the Underwriters pursuant to Section 7 shall remain
in effect, and if any Offered Securities have been purchased hereunder
the representations and warranties in Section 2 and all obligations
under Section 5 shall also remain in effect. If the purchase of the
Offered Securities by the Underwriters is not consummated for any
reason other than solely because of the termination of this Agreement
pursuant to Section 8 or the occurrence of any event specified in
clause (iii), (iv) or (v) of Section 6(c), the Company will reimburse
the Underwriters for all out-of-pocket expenses (including fees and
disbursements of counsel) reasonably incurred by them in connection
with the offering of the Offered Securities.
10. Notices. All communications hereunder will be in writing
and, if sent to the Underwriters, will be mailed, delivered or
telegraphed and confirmed to the Representatives, c/o Credit Suisse
First Boston Corporation, Eleven Madison Avenue, New York, N.Y. 10010-
3629, Attention: Investment Banking Department--Transactions Advisory
Group, or, if sent to the Company, will be mailed, delivered or
telegraphed and confirmed to it at Divine Interventures, Inc. 4225
Naperville Road, Suite 400, Lisle, IL 60532, Attention: [Larry S.
Freedman], with a copy to Katten Muchin Zavis, 525 West Monroe Street,
Suite 1600, Chicago, IL 60661-3693, Attention: Matthew S. Brown
provided, however, that any notice to an Underwriter pursuant to
Section 7 will be mailed, delivered or telegraphed and confirmed to
such Underwriter.
11. Successors. This Agreement will inure to the benefit of and
be binding upon the parties hereto and their respective successors and
the officers and directors and controlling persons referred to in
Section 7, and no other person will have any right or obligation
hereunder.
12. Representation of Underwriters. The Representatives will act
for the several Underwriters in connection with this financing, and
any action under this Agreement taken by the Representatives jointly
or by CSFBC will be binding upon all the Underwriters.
13. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, but
all such counterparts shall together constitute one and the same
Agreement.
18
<PAGE>
14. Applicable Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, without regard
to principles of conflicts of laws.
The Company hereby submits to the non-exclusive jurisdiction of
the Federal and state courts in the Borough of Manhattan in The City of New York
in any suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.
19
<PAGE>
If the foregoing is in accordance with the Representatives' understanding
of our agreement, kindly sign and return to the Company one of the counterparts
hereof, whereupon it will become a binding agreement between the Company and the
several Underwriters in accordance with its terms.
Very truly yours,
divine interVentures, inc.
By
----------------------------
Title:
The foregoing Underwriting Agreement is hereby
confirmed and accepted as of the date first above
written.
Credit Suisse First Boston Corporation
Donaldson, Lufkin & Jenrette Securities Corporation
Bear, Stearns & Co. Inc.
FleetBoston Robertson Stephens Inc.
William Blair & Company, L.L.C.
DLJdirect Inc.
Acting on behalf of themselves and as the
Representatives of the several
Underwriters
By Credit Suisse First Boston Corporation
By
----------------------------
Title:
20
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Underwriter Number of
----------- Firm Securities
---------------
<S> <C>
Credit Suisse First Boston Corporation $ .
Donaldson, Lufkin & Jenrette Securities Corporation .
Bear, Stearns & Co. Inc. .
FleetBoston Robertson Stephens Inc. .
William Blair & Company, L.L.C. .
DLJdirect Inc.
----------------
Total $
================
</TABLE>
21
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED BY-LAWS
OF
divine interVentures, inc.
(Amended and Restated August 13, 1999)
ARTICLE I
---------
OFFICES
-------
Section 1.1. Registered Office. The registered office of divine
----------- -----------------
interVentures, inc. (the "Corporation") shall be in the City of Wilmington,
County of New Castle, State of Delaware.
Section 1.2. Other Offices. The Corporation may also have offices at such
----------- -------------
other places both within and without the State of Delaware as the Board of
Directors of the Corporation (the "Board of Directors") may from time to time
determine or the business of the Corporation may require.
ARTICLE II
----------
MEETINGS OF STOCKHOLDERS
------------------------
Section 2.1. Place of Meeting. All meetings of the stockholders for the
----------- ----------------
election of directors shall be held at such place either within or without the
State of Delaware as shall be designated from time to time by the Board of
Directors and stated in the notice of the meeting. Meetings of stockholders for
any other purpose may be held at such time and place, within or without the
State of Delaware, as shall be stated by the Chairman of the Board, President or
Chief Executive Officer in his or her, or the Board of Directors in its, notice
of the meeting or in a duly executed waiver of notice thereof.
Section 2.2. Time of Annual Meeting. Annual meetings of stockholders shall
----------- ----------------------
be held at 10:00 A.M., Central time, on the fourth Wednesday in May, if not a
legal holiday, or if a legal holiday, then on the next day that is not a
Saturday, Sunday or legal holiday, or at such other time and date as shall be
designated from time to time by the Board of Directors and stated in the notice
of the meeting, at which stockholders shall elect directors to hold office for
the term provided in the Amended and Restated Certificate of Incorporation of
the Corporation (the "Certificate of Incorporation") and conduct such other
business as shall be considered.
Section 2.3. Notice of Annual Meetings. Except as otherwise required by
----------- -------------------------
law, written notice of the annual meeting stating the place, date and hour of
the meeting shall be given to each
<PAGE>
stockholder entitled to vote at such meeting not fewer than ten (10) nor more
than sixty (60) days before the date of the meeting.
Section 2.4. Stockholder Proposals and Nominations for Annual Meetings.
----------- ---------------------------------------------------------
Nominations of persons for election to the Board of Directors and the proposal
of business to be transacted by the stockholders at an annual meeting of
stockholders may be made (i) pursuant to the Corporation's notice with respect
to such meeting, (ii) by, or at the direction of, the Board of Directors or
(iii) by any stockholder of record of the Corporation who was a stockholder of
record at the time of the giving of the notice provided for in the following
paragraph, who is entitled to vote at the meeting and who has complied with the
notice procedures set forth in this Article II, Section 2.4.
For nominations or other business to be properly brought before an annual
meeting by a stockholder pursuant to clause (iii) of the foregoing paragraph,
(a) the stockholder must have given timely notice thereof in writing to the
Secretary of the Corporation at the principal executive offices of the
Corporation, (b) such business must be a proper matter for stockholder action
under the General Corporation Law of the State of Delaware (the "DGCL"), (c) if
the stockholder, or the beneficial owner on whose behalf any such proposal or
nomination is made, has provided the Corporation with a Solicitation Notice, as
that term is defined in this Article II, Section 2.4 , such stockholder or
beneficial owner must, in the case of a proposal, have delivered a proxy
statement and form of proxy to holders of at least the percentage of the
Corporation's voting shares required under applicable law to carry any such
proposal, or, in the case of a nomination or nominations, have delivered a proxy
statement and form of proxy to holders of a percentage of the Corporation's
voting shares reasonably believed by such stockholder or beneficial holder to be
sufficient to elect the nominee or nominees proposed to be nominated by such
stockholder (the number of voting shares required to carry the proposal or elect
the nominees being the "Required Number"), and must, in either case, have
included in such materials the Solicitation Notice and (d) if no Solicitation
Notice relating thereto has been timely provided pursuant to this Article II,
Section 2.4, the stockholder or beneficial owner proposing such business or
nomination must not have solicited proxies for a number of shares equal to or
greater than the Required Number. To be timely, a stockholder's notice shall be
delivered to the Secretary of the Corporation at the principal executive offices
of the Corporation not less than forty-five (45) nor more than seventy-five (75)
days prior to the first anniversary (the "Anniversary") of the date on which the
Corporation first mailed its proxy materials for the preceding year's annual
meeting of stockholders; provided, however, that if the date of the annual
meeting is advanced more than thirty (30) days prior to, or delayed by more than
thirty (30) days after, the anniversary of the preceding year's annual meeting,
notice by the stockholder to be timely must be so delivered not later than the
close of business on the later of (i) the 90/th/ day prior to such annual
meeting or (ii) the 10/th/ day following the day on which public announcement of
the date of such annual meeting is first made. 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 as
would be required to be disclosed in solicitations of proxies for the election
of such nominee as a director pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as
-2-
<PAGE>
amended (the "Exchange Act"), and such person's written consent to serve as a
director if elected; (b) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of such business, 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, (ii) the class and number of shares of the
Corporation that are owned beneficially and of record by such stockholder and
such beneficial owner, and (iii) whether either such stockholder or such
beneficial owner intends to deliver a proxy statement and form of proxy to
holders of, in the case of a proposal, at least the percentage of the
Corporation's voting shares required under applicable law to carry the proposal
or, in the case of a nomination or nominations, a sufficient number of holders
of the Corporation's voting shares to elect such nominee or nominees (an
affirmative statement of such intent, a "Solicitation Notice").
Notwithstanding anything in the second sentence of the second paragraph of
this Article II, Section 2.4 to the contrary, in the event that the number of
directors to be elected to the Board of Directors is increased and there is no
public announcement naming all of the nominees for director or specifying the
size of the increased Board of Directors made by the Corporation at least fifty-
five (55) days prior to the Anniversary, a stockholder's notice required by
these Amended and Restated By-laws (these "By-laws") 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 of the Corporation at the
principal executive offices of the Corporation not later than the close of
business on the 10/th/ day following the day on which such public announcement
is first made by the Corporation.
Only persons nominated in accordance with the procedures set forth in this
Article II, Section 2.4 shall be eligible to serve as directors, and only such
business shall be conducted at an annual meeting of stockholders as shall have
been brought before the meeting in accordance with the procedures set forth in
this Article II, Section 2.4. The chair of the meeting shall have the power and
the duty to determine whether a nomination or any business proposed to be
brought before the meeting has been made in accordance with the procedures set
forth in these By-laws and, if any proposed nomination or business is not in
compliance with these By-laws, to declare that such defective proposed business
or nomination shall not be presented for stockholder action at the meeting and
shall be disregarded.
Notwithstanding the foregoing provisions of this Article II, Section 2.4, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to matters set forth
in this Article II, Section 2.4. Nothing in this Article II, Section 2.4 shall
be deemed to affect any rights of stockholders to request inclusion of proposals
in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange
Act.
-3-
<PAGE>
For purposes of these By-laws, "public announcement" shall mean disclosure
in a press release reported by the Dow Jones News Service, Associated Press, PR
Newswire, Business Wire or a 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.
Section 2.5. Special Meetings of Stockholders. Special meetings of the
----------- --------------------------------
stockholders of the Corporation may be called and conducted only in the manner
provided in the Certificate of Incorporation.
Section 2.6. Notice of Special Meetings. Written notice of a special
----------- --------------------------
meeting, stating the place, date and hour of the meeting and the purpose or
purposes for which the meeting is called, shall be given by the Secretary of the
Corporation, not fewer than ten (10) nor more than sixty (60) days before the
date of the meeting, to each stockholder entitled to vote at such meeting.
Section 2.7. Business at Special Meetings. 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.
Section 2.8. Stockholder Nominations for Special Meetings. 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 (i) by or at the direction of the Board of
Directors or (ii) by any stockholder of record of the Corporation who is a
stockholder of record at the time of giving notice provided for in this
paragraph, who shall be entitled to vote at the meeting and who complies with
the notice procedures set forth in Article II, Section 2.4. Nominations by
stockholders of persons for election to the Board of Directors may be made at
such a special meeting of stockholders if the stockholder's notice required by
the second paragraph of Article II, Section 2.4 shall be delivered to the
Secretary of the Corporation at the principal executive offices of the
Corporation not later than the close of business on the later of the 90/th/ day
prior to such special meeting or the 10/th/ 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.
Notwithstanding the foregoing provisions of this Article II, Section 2.8, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to matters set forth
in this Article II, Section 2.8.
Section 2.9. Written Consent. Any action required or permitted to be
----------- ---------------
taken at any annual or special meeting of stockholders may be taken without a
meeting, without prior notice and without a vote, only as permitted by, and in
the manner provided in, the Certificate of Incorporation.
Section 2.10. Fixing of Record Date. In order that the Corporation may
------------ ---------------------
determine the stockholders entitled to notice of, or to vote at, any meeting of
stockholders or any adjournment
-4-
<PAGE>
thereof, or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which shall not precede
the date upon which the resolution fixing the record date is adopted and which
shall be (i) not more than sixty (60) nor less than ten (10) days before the
date of a meeting, and (ii) not more than sixty (60) days prior to any other
action. A determination of stockholders of record entitled to notice of, or to
vote at, a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for any adjourned meeting.
Section 2.11. Voting Lists. The officer who has charge of the stock ledger
------------ ------------
of the Corporation shall prepare and make, at least ten (10) days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list 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 list shall also be produced and kept at the time and place of the meeting
during the whole time thereof and may be inspected by any stockholder who is
present.
Section 2.12. Quorum and Adjournments. At any meeting of stockholders,
------------ -----------------------
the presence in person or by proxy of the holders of shares entitled to cast a
majority of all the votes which could be cast at such meeting by the holders of
all of the outstanding shares of stock of the Corporation entitled to vote on
every matter that is to be voted on without regard to class at such meeting
shall constitute a quorum for purposes of such vote, except as otherwise
provided by the law of the State of Delaware or by the Certificate of
Incorporation. If, however, such quorum shall not be present or represented at
any such meeting of the stockholders, the holders of a majority of the voting
power of the stock entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented; provided that if the adjournment is for more than thirty (30) days,
or if after the adjournment a new record date is fixed by the directors for the
adjourned meeting, a new notice shall be transmitted to the stockholders of
record entitled to vote at the adjourned meeting. At such adjourned meeting at
which a quorum shall be present or represented, any business may be transacted
which might have been transacted at the meeting as originally notified.
Section 2.13. Vote Required. At any meeting of stockholders duly called
------------ -------------
and held at which a quorum is present, (i) in all matters other than the
election of directors, a majority of the votes which could be cast at such
meeting upon a given question and (ii) in the case of the election of directors,
a plurality of the votes which could be cast at such meeting upon such election,
in each case by such holders who are present in person or by proxy, shall be
necessary in addition to any vote or other action that may be expressly required
by the provisions of the Certificate of
-5-
<PAGE>
Incorporation or the law of the State of Delaware, to decide such question or
election, and shall decide such question or election if no such additional vote
or other action is so required.
Section 2.14. Voting Rights. Unless otherwise provided in the Certificate
------------ -------------
of Incorporation, each stockholder having voting power shall at every meeting of
the stockholders be entitled to one (1) vote in person or by proxy for each
share of the capital stock having voting power held by such stockholder. At any
meeting of the stockholders, every stockholder entitled to vote may vote in
person or by proxy authorized by an instrument in writing or by a transmission
permitted by law filed in accordance with the procedure established for the
meeting, but no proxy shall be voted on after three (3) years from its date,
unless the proxy provides for a longer period. Any copy, facsimile
telecommunication or other reliable reproduction of the writing or transmission
created pursuant to this paragraph may be substituted or used in lieu of the
original writing or transmission for any and all purposes for which the original
writing or transmission could be used; provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission. All voting may (except where otherwise
required by law) be by a voice vote; provided, however, that upon demand
therefor by a stockholder entitled to vote or by his or her proxy, a stock vote
shall be taken. Every stock vote shall be taken by ballots, each of which shall
state the name of the stockholder or proxy voting and such other information as
may be required under the procedure established for the meeting. The Corporation
may, and to the extent required by law shall, in advance of any meeting of
stockholders, appoint one or more inspectors to act at the meeting, count the
votes, decide the results and make a written report thereof. The Corporation may
designate one or more persons as alternate inspectors to replace any inspector
who fails to act. If no inspector or alternate is able to act at a meeting of
stockholders, the person presiding at the meeting may, and to the extent
required by law shall, appoint one or more inspectors to act at the meeting.
Each inspector, before entering upon the discharge of 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.
Section 2.15. Presiding Over Meetings. The Chairman of the Board of
------------ -----------------------
Directors shall preside at all meetings of the stockholders. In the absence or
inability to act of the Chairman, the Vice Chairman, the President or a Vice
President (in that order) shall preside, and in their absence or inability to
act, another person designated by one of them shall preside. The Secretary of
the Corporation shall act as secretary of each meeting of the stockholders. In
the event of his or her absence or inability to act, the chairman of the meeting
shall appoint a person who need not be a stockholder to act as secretary of the
meeting.
Section 2.16. Conducting Meetings. Meetings of the stockholders shall be
------------ -------------------
conducted in a fair manner but need not be governed by any prescribed rules of
order. The presiding officer of the meeting shall establish an agenda for the
meeting. The presiding officer's rulings on procedural matters shall be final.
The presiding officer is authorized to impose reasonable time limits on the
remarks of individual stockholders and may take such steps as such officer may
deem
-6-
<PAGE>
necessary or appropriate to assure that the business of the meeting is conducted
in a fair and orderly manner.
ARTICLE III
-----------
DIRECTORS
---------
Section 3.1. General Powers. The business and affairs of the Corporation
----------- --------------
shall be under the direction of, and managed by, a board comprised of directors,
which may exercise all such powers of the Corporation and do all such lawful
acts and things as are not required by law, the Certificate of Incorporation or
these By-laws to be done by the stockholders. Directors need not be residents of
the State of Delaware or stockholders of the Corporation. The number of
directors shall be determined in the manner provided in the Certificate of
Incorporation.
Section 3.2. Election. Directors shall be elected and serve in the manner
----------- --------
provided in the Certificate of Incorporation.
Section 3.3. Removal. Except as otherwise provided by law, directors may
----------- -------
be removed only in the manner provided in the Certificate of Incorporation.
Section 3.4. Vacancies. Any vacancies occurring in the Board of Directors
----------- ---------
and newly created directorships shall be filled in the manner provided in the
Certificate of Incorporation.
Section 3.5. Place of Meetings. The Board of Directors of the Corporation
----------- -----------------
may hold meetings, both regular and special, either within or without the State
of Delaware. The first meeting of each newly elected Board of Directors shall be
held immediately following the adjournment of the annual meeting of the
stockholders at the same place as such annual meeting, and no notice of such
meeting shall be necessary to the newly elected directors in order to legally
constitute the meeting, provided a quorum shall be present. In the event such
meeting is not held at such time and place, the meeting may be held at such time
and place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 3.6 Participation by Conference Telephone. Unless otherwise
----------- -------------------------------------
restricted by the Certificate of Incorporation or these By-laws, members of the
Board of Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors, 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 participation by
such means shall constitute presence in person at such meeting.
Section 3.7. Regular Meetings. Regular meetings of the Board of Directors
----------- ----------------
may be held, without notice, at such time and at such place as shall from time
to time be determined by the Board of Directors.
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<PAGE>
Section 3.8. Special Meetings. Special meetings of the Board of Directors
----------- ----------------
may be called by the Chairman of the Board, the Chief Executive Officer or the
President of the Corporation on at least one day's notice to each director,
either personally, or by courier, telephone, telefax, mail, telegram or e-mail.
Special meetings shall be called by the Chairman, the Chief Executive Officer or
the President in like manner and on like notice at the written request of three
or more of the directors comprising the Board of Directors stating the purpose
or purposes for which such meeting is requested. Notice of any meeting of the
Board of Directors for which a notice is required may be waived in writing
signed by the person or persons entitled to such notice, whether before or after
the time of such meeting, and such waiver shall be equivalent to the giving of
such notice. Attendance of a director at any such meeting shall constitute a
waiver of notice thereof, except where a director attends a meeting for the
express purpose of objecting to the transaction of any business because such
meeting is not lawfully convened. Neither the business to be transacted at, nor
the purpose of, any meeting of the Board of Directors for which a notice is
required need be specified in the notice, or waiver of notice, of such meeting.
The Chairman shall preside at all meetings of the Board of Directors. In the
absence or inability to act of the Chairman, then the Vice Chairman (if one
shall have been chosen by the Board), the Chief Executive Officer, the President
or the Chief Financial Officer (in that order) shall preside, and in their
absence or inability to act, another director designated by one of them shall
preside.
Section 3.9. Quorum; No Action on Certain Matters. At all meetings of the
----------- ------------------------------------
Board of Directors, a majority of the then duly elected directors shall
constitute a quorum for the transaction of business, and the act of a majority
of the directors present at any meeting at which there is a quorum shall be the
act of the Board of Directors, except as may be otherwise specifically provided
by law or the Certificate of Incorporation. If a quorum shall not be present at
any meeting of the Board of Directors, the directors present thereat may adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
Section 3.10. Resignations. Any director of the Corporation may resign at
------------ ------------
any time by giving written notice to the Board of Directors, the Chairman, the
Chief Executive Officer or the President. Such resignation shall take effect at
the time specified therein and, unless tendered to take effect upon acceptance
thereof, the acceptance of such resignation shall not be necessary to make it
effective.
Section 3.11. Informal Action. Unless otherwise restricted by the
------------ ---------------
Certificate of Incorporation or these By-laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee consent thereto in writing and the writing or writings are filed with
the minutes of proceedings of the Board of Directors or committee.
Section 3.12. Presumption of Assent. A director of the Corporation who is
------------ ---------------------
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be conclusively presumed to have assented to the action
taken unless his or her dissent shall be
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<PAGE>
entered in the minutes of the meeting or unless he or she shall file his or her
written dissent to such action with the person acting as the secretary of the
meeting before the adjournment thereof or shall forward such dissent by
registered mail to the secretary of the Corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a director
who voted in favor of such action.
Section 3.13. Compensation of Directors. In the discretion of the Board
------------ -------------------------
of Directors, the directors may be paid their expenses, if any, of attendance at
each meeting of the Board of Directors or a committee thereof, may be paid a
stated salary or a fixed sum for attendance at each meeting of the Board of
Directors or a committee thereof and may be awarded other compensation for their
service as directors. No such payment or award shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
ARTICLE IV
----------
COMMITTEES OF DIRECTORS
-----------------------
Section 4.1. Appointment and Powers. The Board of Directors may designate
----------- ----------------------
one or more committees, each committee to consist of one or more of the
directors of the Corporation. The resolution of the Board of Directors
appointing the members of any such committee shall be adopted by a majority of
the entire Board of Directors. The Board of Directors may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not such
member or members 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. Any such committee, to the extent provided in the
resolution of the Board of Directors and permitted by law, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers which may require it; but no
such committee shall have the power or authority in reference to the following
matters: (a) approving or adopting, or recommending to the stockholders, any
action or matter expressly required by the DGCL to be submitted to stockholders
for approval or (b) adopting, amending or repealing any of these By-laws.
Section 4.2. Removal. Any member of any committee appointed by the Board
----------- -------
of Directors, or the entire membership of such committee, may be removed, with
or without cause, by the vote of a majority of the Board of Directors.
Section 4.3. Committee Minutes. Each committee shall keep regular minutes
----------- -----------------
of its meetings and shall file such minutes and all written consents executed by
its members with the Secretary of the Corporation. Each committee may determine
the procedural rules for meeting
-9-
<PAGE>
and conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings; a majority of the members shall
constitute a quorum unless the committee shall consist of one (1) or two (2)
members, in which event one (1) member shall constitute a quorum; and all
matters shall be determined by a majority vote of the members present. Action
may be taken by any committee without a meeting if all members thereof consent
thereto in writing and the writing or writings are filed with the minutes of the
proceedings of such committee.
ARTICLE V
---------
NOTICES
-------
Section 5.1. Manner of Notice. Whenever, under applicable law or the
----------- ----------------
Certificate of Incorporation or these By-laws, notice is required to be given to
any director or stockholder, unless otherwise provided in the Certificate of
Incorporation or these By-laws, such notice may be given in writing, by courier
or mail, addressed to such director or stockholder, at such director's or
stockholder's address as it appears on the records of the Corporation, with
freight or postage thereon prepaid, and such notice shall be deemed to be given
at the time when the same shall have been deposited with such courier or in the
United States mail. Notice may be given orally if such notice is confirmed in
writing in a manner provided therein. Notice to directors may also be given by
telegram, mailgram, telex, telecopier or e-mail.
Section 5.2. Waiver. Whenever any notice is required to be given under
----------- ------
applicable law or the provisions of the Certificate of Incorporation or these
By-laws, a 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.
ARTICLE VI
----------
OFFICERS
--------
Section 6.1. Number and Qualifications. The officers of the Corporation
----------- -------------------------
shall be chosen by the Board of Directors and shall be a Chairman of the Board,
a Chief Executive Officer, a President, a Chief Financial Officer, one or more
Vice Presidents, a Secretary and a Treasurer. The Board of Directors may also
choose a Vice Chairman for the Board, one or more Assistant Secretaries and
Assistant Treasurers and such additional officers as the Board of Directors may
deem necessary or appropriate from time to time. Membership on the Board of
Directors shall not be a prerequisite to the holding of any other office. Any
number of offices may be held by the same person, unless the Certificate of
Incorporation or these By-laws otherwise provide.
Section 6.2. Election. The Board of Directors at its first meeting after
----------- --------
each annual meeting of stockholders shall elect a Chairman of the Board, a Chief
Executive Officer, a
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<PAGE>
President, a Chief Financial Officer, one or more Vice Presidents, a Secretary
and a Treasurer, and may choose a Vice Chairman of the Board, one or more
Assistant Secretaries and Assistant Treasurers and such other officers as the
Board of Directors shall deem desirable.
Section 6.3. Other Officers and Agents. The Board of Directors may choose
----------- -------------------------
such other officers and agents as it shall deem necessary, which officers and
agents 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.
Section 6.4. Salaries. The salaries or other compensation of the officers
----------- --------
and agents of the Corporation shall be fixed from time to time by the Board of
Directors, and no officer shall be prevented from receiving such salary or other
compensation by reason of the fact that such officer is also a director of the
Corporation.
Section 6.5. Term of Office. The officers of the Corporation shall hold
----------- --------------
office until their successors are chosen and qualified or until their earlier
resignation or removal. Any officer elected or appointed by the Board of
Directors may be removed at any time, either with or without cause, by the
affirmative vote of a majority of the directors then in office at any meeting of
the Board of Directors. If a vacancy shall exist in any office of the
Corporation, the Board of Directors may elect any person to fill such vacancy,
such person to hold office as provided in Article VI, Section 6.1.
Section 6.6. The Chairman of the Board. The Chairman of the Board shall
----------- -------------------------
preside at all meetings of the stockholders and of the Board of Directors and
shall see that orders and resolutions of the Board of Directors are carried into
effect. The Chairman of the Board shall perform such other duties as the Board
of Directors may from time to time prescribe.
Section 6.7. The Chief Executive Officer. The Chief Executive Officer
----------- ---------------------------
shall be the principal executive officer of the Corporation and shall, in
general, supervise and control all of the business and affairs of the
Corporation, unless otherwise provided by the Board of Directors. In the absence
of the Chairman of the Board, the Chief Executive Officer shall preside at all
meetings of the stockholders and of the Board of Directors and shall see that
orders and resolutions of the Board of Directors are carried into effect. The
Chief Executive Officer may sign bonds, mortgages, certificates for shares and
all other contracts and documents, whether or not under the seal of the
Corporation, except in cases where the signing and execution thereof shall be
expressly delegated by law, the Board of Directors or these By-laws to some
other officer or agent of the Corporation. The Chief Executive Officer shall
have general powers of supervision and shall be the final arbiter of all
differences between officers of the Corporation, and the Chief Executive
Officer's decision as to any matter affecting the Corporation shall be final and
binding as between the officers of the Corporation, subject only to the Board of
Directors. The Chief Executive Officer shall perform such other duties as the
Board of Directors may from time to time prescribe.
-11-
<PAGE>
Section 6.8. The President. Unless another party has been designated as
----------- -------------
Chief Operating Officer, the President shall be the Chief Operating Officer of
the Corporation responsible for the day-to-day active management of the business
of the Corporation, under the general supervision of the Chief Executive
Officer. In the absence of the Chief Executive Officer, the President shall
perform the duties of the Chief Executive Officer and, when so acting, shall
have all the powers of and be subject to all the restrictions upon the Chief
Executive Officer. The President shall have concurrent power with the Chief
Executive Officer to sign bonds, mortgages, certificates for shares and other
contracts and documents, whether or not under the seal of the Corporation,
except in cases where the signing and execution thereof shall be expressly
delegated by law, the Board of Directors or these By-laws to some other officer
or agent of the Corporation. In general, the President shall perform all duties
incident to the office of the President and such other duties as the Chief
Executive Officer or the Board of Directors may from time to time prescribe.
Section 6.9. The Chief Financial Officer. The Chief Financial Officer
----------- ---------------------------
shall be the principal financial and accounting officer of the Corporation. The
Chief Financial Officer shall: (a) have charge of and be responsible for the
maintenance of adequate books of account for the Corporation; (b) have charge
and custody of all funds and securities of the Corporation, and be responsible
therefor and for the receipt and disbursement thereof; and (c) perform all the
duties incident to the office of the Chief Financial Officer and such other
duties as the Chief Executive Officer, the President or the Board of Directors
may from time to time prescribe. If required by the Board of Directors, the
Chief Financial Officer shall give a bond for the faithful discharge of the
Chief Financial Officer's duties in such sum and with such surety or sureties as
the Board of Directors may determine.
Section 6.10. The Vice Presidents. In the absence of the President or in
------------ -------------------
the event of the President's inability or refusal to act, the Vice Presidents
(in the order designated, or in the absence of any designation, then in the
order of their election) shall perform the duties of the President and, when so
acting, shall have all the powers of, and be subject to all the restrictions
upon, the President. The Vice Presidents shall perform such other duties and
have such other powers as the Chief Executive Officer, the President or the
Board of Directors may from time to time prescribe.
Section 6.11. The Secretary. The Secretary shall attend all meetings of
------------ -------------
the Board of Directors and all meetings of the stockholders and record all the
proceedings of the meetings of the Corporation and of the Board of Directors in
a book to be kept for that purpose and shall perform like duties for the
committees of the Board of Directors when required. The Secretary shall give,
or cause to be given, or cause to be given notice of all meetings of the
stockholders and special meetings of the Board of Directors and shall perform
such other duties as the Chief Executive Officer, the President or the Board of
Directors may from time to time prescribe. The Secretary shall have custody of
the corporate seal of the Corporation, and the Secretary or an Assistant
Secretary shall have authority to affix the same to any instrument requiring it,
and when so affixed, it may be attested by the Secretary's signature or by the
signature of such Assistant
-12-
<PAGE>
Secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the Corporation and to attest the affixing by such
officer's signature.
Section 6.12. The Treasurer. In the absence of the Chief Financial
------------ -------------
Officer or in the event of the Chief Financial Officer's inability or refusal to
act, the Treasurer shall perform the duties of the Chief Financial Officer, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the Chief Financial Officer. The Treasurer shall perform such
other duties and have such other powers as the Chief Executive Officer, the
President, the Chief Financial Officer or the Board of Directors may from time
to time prescribe.
Section 6.13. The Assistant Secretary. The Assistant Secretary, or if
------------ -----------------------
there be more than one, the Assistant Secretaries in the order determined by the
Board of Directors (or if there be no such determination, then in the order of
their election), shall, in the absence of the Secretary or in the event of the
Secretary's inability or refusal to act, perform the duties and exercise the
powers of the Secretary and shall perform such other duties and have such other
powers as the Chief Executive Officer, the President or the Board of Directors
may from time to time prescribe.
Section 6.14. The Assistant Treasurer. The Assistant Treasurer, or if
------------ -----------------------
there shall be more than one, the Assistant Treasurers in the order determined
by the Board of Directors (or if there be no such determination, then in the
order of their election), shall, in the absence of the Treasurer or in the event
of the Treasurer's inability or refusal to act, perform the duties and exercise
the powers of the Treasurer and shall perform such other duties and have such
other powers as the Chief Executive Officer, the President, the Chief Financial
Officer or the Board of Directors may from time to time prescribe.
ARTICLE VII
-----------
CERTIFICATES OF STOCK, TRANSFERS AND RECORD DATES
-------------------------------------------------
Section 7.1. Form of Certificates. Every holder of stock in the
----------- --------------------
Corporation shall be entitled to have a certificate signed by, or in the name
of, the Corporation by (a) the Chairman of the Board, the Vice-Chairman of the
Board or the President of the Corporation, and (b) the Secretary, the Treasurer,
an Assistant Secretary or an Assistant Treasurer of the Corporation, certifying
the number of shares owned by such holder in the Corporation. If the Corporation
shall be authorized to issue more than one class of stock or more than one
series of any class, the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights shall be set forth in full or summarized on the face or back of
the certificate which the Corporation shall issue to represent such class or
series of stock; provided that, except as otherwise provided in Section 202 of
the DGCL, in lieu of the foregoing requirements, there may be set forth, on the
face or back of the certificate which the Corporation shall issue to represent
such class or series of stock, a statement that the Corporation will furnish
-13-
<PAGE>
without charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Subject to the foregoing,
certificates of stock of the Corporation shall be in such form as the Board of
Directors may from time to time prescribe.
Section 7.2. Facsimile Signatures. Where a certificate is countersigned
----------- --------------------
(i) by a transfer agent other than the Corporation or its employee or (ii) by a
registrar other than the Corporation or its employee, any other signatures on
the certificate may be facsimile. In case any officer, transfer agent or
registrar who has signed, or whose facsimile signature has been placed upon, a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if such person were such officer, transfer agent or registrar at
the date of issue.
Section 7.3. Lost Certificates. The Board of Directors may direct a new
----------- -----------------
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or such owner's legal representative, to advertise the same in
such manner as the Corporation shall require and/or give the Corporation a bond
in such sum as it may direct as indemnity against any claim that may be made
against the Corporation or its transfer agent or registrar with respect to the
certificate alleged to have been lost, stolen or destroyed.
Section 7.4. Transfers of Shares. All transfers of shares of the stock of
----------- -------------------
the Corporation are subject to the terms, conditions and restrictions, if any,
of the Certificate of Incorporation. Transfers of shares of the capital stock of
the Corporation shall be made on the books of the Corporation by the registered
holder thereof, or by his attorney thereunder authorized by power of attorney
duly executed and filed with the Secretary of the Corporation, or with a
transfer agent appointed as provided in Article VII, Section 7.5, and, if
certificated shares, on surrender of the certificate or certificates for the
shares properly endorsed and the payment of all taxes thereon. The person in
whose names shares of stock are registered on the books of the Corporation shall
be considered the owner thereof for all purposes as regards the Corporation; but
whenever any transfer of shares is made for collateral security, and not
absolutely, that fact, if known to the Secretary, shall be stated in the entry
of transfer. The Board of Directors may, from time to time, make any additional
rules and regulations as it may deem expedient, not inconsistent with these By
laws, concerning the issue, transfer and registration of certificates for shares
of the stock of the Corporation.
Section 7.5. Transfer Agents and Registrants The Board of Directors may
----------- -------------------------------
appoint one or more transfer agents and one or more registrars for the stock of
the Corporation.
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<PAGE>
Section 7.6. Registered Stockholders. The Corporation shall be entitled to
----------- -----------------------
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends and to vote as such owner and to hold liable for
calls and assessments a person registered on its books as the owner of shares,
and shall not be bound to recognize any equitable or other claim to, or interest
in, such share or shares on the part of any other person, whether or not the
Corporation shall have express or other notice thereof, except as otherwise
provided by the law of the State of Delaware.
ARTICLE VII
-----------
CONFLICT OF INTERESTS
---------------------
Section 8.1. Contract or Relationship Not Void. No contract or
----------- ---------------------------------
transaction between the Corporation and one or more of its directors or
officers, or between the Corporation and any other corporation, partnership,
association or other organization in which one or more of its directors or
officers are directors or officers or have a financial interest shall be void or
voidable solely for this reason, or solely because such director or officer is
present at, or participates in, the meeting of the Board of Directors or
committee thereof which authorizes the contract or transaction, or solely
because such director's or officer's vote is counted for such purpose, if:
(i) the material facts as to such director's or officer's relationship
or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the board
or committee in good faith authorizes the contract or transaction by
the affirmative vote of a majority of the disinterested directors,
even though the disinterested directors be less than a quorum; or
(ii) the material facts as to such director's or officer's relationship
or interest and as to the contract or transaction are disclosed or
are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by
vote of the stockholders; or
(iii) the contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified by the Board of
Directors, a committee thereof, or the stockholders.
Section 8.2. Quorum. Common or interested directors may be counted in
----------- ------
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
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<PAGE>
ARTICLE IX
----------
GENERAL PROVISIONS
------------------
Section 9.1. Dividends. Dividends upon the capital stock of the
----------- ---------
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property or in
shares of the capital stock or rights to acquire the same, subject to the
provisions of the Certificate of Incorporation. Before payment of any
dividend, there may be set aside out of any funds of the Corporation available
for dividends such sum or sums as the directors from time to time, in their
absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation, or for such other purpose as the directors shall
think conducive to the interest of the Corporation, and the directors may modify
or abolish any such reserve in the manner in which it was created.
Section 9.2. Checks. All checks or demands for money and notes of the
----------- ------
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 9.3. Fiscal Year. The fiscal year of the Corporation shall be
----------- -----------
fixed by resolution of the Board of Directors.
Section 9.4. Seal. The corporate seal shall have inscribed thereon the
----------- ----
name of the Corporation and the words "Corporate Seal, Delaware." The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
Section 9.5. Stock in Other Corporations. Shares of any other corporation
----------- ---------------------------
which may from time to time be held by this Corporation may be represented and
voted at any meeting of stockholders of such corporation by the Chairman, the
Chief Executive Officer, the President, the Chief Financial Officer or a Vice
President of the Corporation, or by any proxy appointed in writing by the
Chairman, the Chief Executive Officer, the President, the Chief Financial
Officer or a Vice President of the Corporation, or by any other person or
persons thereunto authorized by the Board of Directors. Shares represented by
certificates standing in the name of the Corporation may be endorsed for sale or
transfer in the name of the Corporation by the Chairman, the Chief Executive
Officer, the President, the Chief Financial Officer or any Vice President of the
Corporation or by any other officer or officers thereunto authorized by the
Board of Directors. Shares belonging to the Corporation need not stand in the
name of the Corporation, but may be held for the benefit of the Corporation in
the individual name of the Chief Financial Officer or of any other nominee
designated for the purpose of the Board of Directors.
-16-
<PAGE>
ARTICLE X
---------
AMENDMENTS
----------
These By-laws may be altered, amended or repealed, and new by-laws may be
adopted, only in the manner provided in the Certificate of Incorporation.
<PAGE>
EXHIBIT 4.1
Description of Specimen Stock Certificate for Class A Common Stock of
divine interVentures, inc. (the "Company")
Face of Certificate:
The front of the specimen stock certificate for the Company's Class A
Common Stock (the "Certificate") contains the logo of the Company above the name
of the Company and the Class A Common Stock's CUSIP number 255404. The
Certificate is signed by Larry S. Freedman, Secretary of the Company, and Andrew
J. Filipowski, Chief Executive Officer of the Company. The Company's corporate
seal appears in the middle of the lower edge of the Certificate. The face of the
Certificate also contains the following language:
"This certifies that ____________________ is the owner of ____________
fully-paid and non-assessable shares of Class A Common Stock, par value $.001
each, of divine interVentures, inc. (the "Corporation"), a Delaware corporation.
The shares represented by this certificate are transferable on the books of the
Corporation by the holder of record 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 Corporation's 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."
Reverse of Certificate:
The back of the certificate contains the following language:
"The Corporation will furnish without charge to each stockholder who so
requests, the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof of the
Corporation and the qualifications, limitations or restrictions of such
preferences and/or rights. Any such request is to be addressed to the Secretary
of the Corporation at its principal office or to the transfer agent named on the
face of this certificate."
The reverse of the Certificate also contains standard stock transfer
instructions.
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Exhibit 10.1
divine interVentures, inc.
1999 STOCK INCENTIVE PLAN, as amended
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divine interVentures, inc.
1999 STOCK INCENTIVE PLAN, as amended
1. ESTABLISHMENT AND PURPOSE.
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The divine interVentures, inc. 1999 Stock Incentive Plan, as amended (the
"Plan") is established by divine interVentures, inc. (the "Company") to attract
and retain persons eligible to participate in the Plan; motivate Participants to
achieve long-term Company goals; and further align Participants' interests with
those of the Company's other stockholders. The Plan is adopted and amended as
of October 1, 1999, subject to approval by the Company's stockholders within 12
months after such adoption date. Unless the Plan is earlier discontinued by the
Board as provided herein, no Award shall be granted hereunder on or after
October 1, 2009.
Certain terms used herein are defined as set forth in Section 11.
2. ADMINISTRATION; ELIGIBILITY.
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The Plan shall be administered by a Committee; provided, however, that, if
at any time no Committee shall be in office, the Plan shall be administered by
the Board. The Plan may be administered by different Committees with respect to
different groups of Eligible Individuals. As used herein, the term
"Administrator" means the Board or any of its Committees as shall be
administering the Plan.
The Administrator shall have plenary authority to grant Awards pursuant to
the terms of the Plan to Eligible Individuals. Participation shall be limited
to such persons as are selected by the Administrator. Awards may be granted as
alternatives to, in exchange or substitution for, or replacement of, awards
outstanding under the Plan or any other plan or arrangement of the Company or a
Subsidiary (including a plan or arrangement of a business or entity, all or a
portion of which is acquired by the Company or a Subsidiary). The provisions of
Awards need not be the same with respect to each Participant.
Among other things, the Administrator shall have the authority, subject to
the terms of the Plan:
(a) to select the Eligible Individuals to whom Awards may from time to
time be granted;
(b) to determine whether and to what extent Stock Options, Stock
Appreciation Rights, Stock Awards or any combination thereof are to be
granted hereunder;
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(c) to determine the number of shares of Stock to be covered by each Award
granted hereunder;
(d) to approve forms of agreement for use under the Plan;
(e) to determine the terms and conditions, not inconsistent with the terms
of this Plan, of any Award granted hereunder (including, but not
limited to, the option price, any vesting restriction or limitation,
any vesting acceleration or forfeiture waiver and any right of
repurchase, right of first refusal or other transfer restriction
regarding any Award and the shares of Stock relating thereto, based on
such factors or criteria as the Administrator shall determine);
(f) subject to Section 8(a), to modify, amend or adjust the terms and
conditions of any Award, at any time or from time to time, including,
but not limited to, with respect to (i) performance goals and targets
applicable to performance-based Awards pursuant to the terms of the
Plan and (ii) extension of the post-termination exercisability period
of Stock Options;
(g) to determine to what extent and under what circumstances Stock and
other amounts payable with respect to an Award shall be deferred;
(h) to determine the Fair Market Value; and
(i) to determine the type and amount of consideration to be received by
the Company for any Stock Award issued under Section 6.
The Administrator shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable, to interpret the terms and provisions of the
Plan and any Award issued under the Plan (and any agreement relating thereto)
and to otherwise supervise the administration of the Plan.
Except to the extent prohibited by applicable law, the Administrator may
allocate all or any portion of its responsibilities and powers to any one or
more of its members and may delegate all or any portion of its responsibilities
and powers to any other person or persons selected by it. Any such allocation or
delegation may be revoked by the Administrator at any time. The Administrator
may authorize any one or more of their members or any officer of the Company to
execute and deliver documents on behalf of the Administrator.
Any determination made by the Administrator or pursuant to delegated
authority pursuant to the provisions of the Plan with respect to any Award shall
be made in the sole discretion of the
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Administrator or such delegate at the time of the grant of the Award or, unless
in contravention of any express term of the Plan, at any time thereafter. All
decisions made by the Administrator or any appropriately delegated officer
pursuant to the provisions of the Plan shall be final and binding on all
persons, including the Company and Participants.
No member of the Administrator, and no officer of the Company, shall be
liable for any action taken or omitted to be taken by such individual or by any
other member of the Administrator or officer of the Company in connection with
the performance of duties under this Plan, except for such individual's own
willful misconduct or as expressly provided by law.
3. STOCK SUBJECT TO PLAN.
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Subject to adjustment as provided in this Section 3, the aggregate number
of shares of Stock which may be delivered under the Plan shall not exceed
65,000,000 shares; provided, however, that, as of January 1 of each year,
commencing with the year 2001, the maximum number of shares of Stock which may
be delivered under the Plan shall automatically increase by a number equal to
the lesser of (i) 10% of the total number of shares of Stock then outstanding,
assuming for this purpose the conversion into Stock of all then outstanding
securities that are convertible by their terms (directly or indirectly) into
Stock, or (ii) 300,000,000 shares.
To the extent any shares of Stock covered by an Award are not delivered to
a Participant or beneficiary thereof because the Award expires, is forfeited,
canceled or otherwise terminated, or the shares of Stock are not delivered
because the Award is settled in cash or used to satisfy the applicable tax
withholding obligation, such shares shall not be deemed to have been delivered
for purposes of determining the maximum number of shares of Stock available for
delivery under the Plan.
Subject to adjustment as provided in this Section 3, the maximum number of
shares that may be covered by Stock Options Stock Appreciation Rights and Stock
Awards, in the aggregate, granted to any one Participant during any calendar
year shall be 10,000,000 shares.
In the event of any Company stock dividend, stock split, combination or
exchange of shares, recapitalization or other change in the capital structure of
the Company, corporate separation or division of the Company (including, but not
limited to, a split-up, spin-off, split-off or distribution to Company
stockholders other than a normal cash dividend), sale by the Company of all or a
substantial portion of its assets (measured on either a stand-alone or
consolidated basis), reorganization, rights offering, partial or complete
liquidation, or any other corporate transaction, Company share offering or other
event involving the Company and having an effect similar to any of the
foregoing, the Administrator may make such substitution or adjustments in the
(A) number and kind of shares that may be delivered under the Plan, (B)
additional maximums imposed in the
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immediately preceding paragraph, (C) number and kind of shares subject to
outstanding Awards, (D) exercise price of outstanding Stock Options and Stock
Appreciation Rights and (E) other characteristics or terms of the Awards as it
may determine appropriate in its sole discretion to equitably reflect such
corporate transaction, share offering or other event; provided, however, that
the number of shares subject to any Award shall always be a whole number.
4. STOCK OPTIONS.
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Stock Options may be granted alone or in addition to other Awards granted
under the Plan and may be of two types: Incentive Stock Options and Non-
Qualified Stock Options. Any Stock Option granted under the Plan shall be in
such form as the Administrator may from time to time approve.
The Administrator shall have the authority to grant any Participant
Incentive Stock Options, Non-Qualified Stock Options or both types of Stock
Options (in each case with or without Stock Appreciation Rights). Incentive
Stock Options may be granted only to employees of the Company and its
subsidiaries (within the meaning of Section 424(f) of the Code). To the extent
that any Stock Option is not designated as an Incentive Stock Option or, even if
so designated, does not qualify as an Incentive Stock Option, it shall
constitute a Non-Qualified Stock Option.
Stock Options shall be evidenced by option agreements, each in a form
approved by the Administrator. An option agreement shall indicate on its face
whether it is intended to be an agreement for an Incentive Stock Option or a
Non-Qualified Stock Option. The grant of a Stock Option shall occur as of the
date the Administrator determines.
Anything in the Plan to the contrary notwithstanding, no term of the Plan
relating to Incentive Stock Options shall be interpreted, amended or altered,
nor shall any discretion or authority granted under the Plan be exercised, so as
to disqualify the Plan under Section 422 of the Code or, without the consent of
the Optionee affected, to disqualify any Incentive Stock Option under Section
422 of the Code.
Stock Options granted under this Section 4 shall be subject to the
following terms and conditions and shall contain such additional terms and
conditions as the Administrator shall deem desirable:
(a) Exercise Price. The exercise price per share of Stock purchasable
under a Stock Option shall be determined by the Administrator. If the
Stock Option is intended to qualify as an Incentive Stock Option, the
exercise price per share shall be not less than the Fair Market Value
per share on the date the Stock Option is granted, or if granted
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to an individual who is a Ten Percent Holder, not less than 110% of
such Fair Market Value per share.
(b) Option Term. The term of each Stock Option shall be fixed by the
Administrator, but no Incentive Stock Option shall be exercisable more
than 10 years (or five years in the case of an individual who is a Ten
Percent Holder) after the date the Incentive Stock Option is granted.
(c) Exercisability. Except as otherwise provided herein, Stock Options
shall be exercisable at such time or times, and subject to such terms
and conditions, as shall be determined by the Administrator. If the
Administrator provides that any Stock Option is exercisable only in
installments, the Administrator may at any time waive such installment
exercise provisions, in whole or in part, based on such factors as the
Administrator may determine. In addition, the Administrator may at any
time, in whole or in part, accelerate the exercisability of any Stock
Option.
(d) Method of Exercise. Subject to the provisions of this Section 4, Stock
Options may be exercised, in whole or in part, at any time during the
option term by giving written notice of exercise to the Company
specifying the number of shares of Stock subject to the Stock Option
to be purchased.
The option price of any Stock Option shall be paid in full in cash (by
certified or bank check or such other instrument as the Company may
accept) or, unless otherwise provided in the applicable option
agreement, by one or more of the following: (i) in the form of
unrestricted Stock already owned by the Optionee (or, in the case of
the exercise of a Non-Qualified Stock Option, Restricted Stock subject
to a Stock Award hereunder) based in any such instance on the Fair
Market Value of the Stock on the date the Stock Option is exercised;
(ii) by certifying ownership of shares of Stock owned by the Optionee
to the satisfaction of the Administrator for later delivery to the
Company as specified by the Company; (iii) by irrevocably authorizing
a third party to sell shares of Stock (or a sufficient portion of the
shares) acquired upon exercise of the Stock Option and remit to the
Company a sufficient portion of the sale proceeds to pay the entire
exercise price and any tax withholding resulting from such exercise;
or (iv) by any combination of cash and/or any one or more of the
methods specified in clauses (i), (ii) and (iii). Notwithstanding the
foregoing, a form of payment shall not be permitted to the extent it
would cause the Company to recognize compensation expense (or
additional compensation expense) with respect to the Stock Option for
financial reporting purposes.
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If payment of the option exercise price of a Non-Qualified Stock
Option is made in whole or in part in the form of Restricted Stock,
the number of shares of Stock to be received upon such exercise equal
to the number of shares of Restricted Stock used for payment of the
option exercise price shall be subject to the same forfeiture
restrictions to which such Restricted Stock was subject, unless
otherwise determined by the Administrator.
No shares of Stock shall be issued upon exercise of a Stock Option
until full payment therefor has been made. Upon exercise of a Stock
Option (or a portion thereof), the Company shall have a reasonable
time to issue the Stock for which the Stock Option has been exercised,
and the Optionee shall not be treated as a stockholder for any
purposes whatsoever prior to such issuance. No adjustment shall be
made for cash dividends or other rights for which the record date is
prior to the date such Stock is recorded as issued and transferred in
the Company's official stockholder records, except as otherwise
provided herein or in the applicable option agreement.
(e) Transferability of Stock Options. Except as otherwise provided in the
applicable option agreement, a Non-Qualified Stock Option (i) shall be
transferable by the Optionee to a Family Member of the Optionee,
provided that (A) any such transfer shall be by gift with no
consideration and (B) no subsequent transfer of such Stock Option
shall be permitted other than by will or the laws of descent and
distribution, and (ii) shall not otherwise be transferable except by
will or the laws of descent and distribution. An Incentive Stock
Option shall not be transferable except by will or the laws of descent
and distribution. A Stock Option shall be exercisable, during the
Optionee's lifetime, only by the Optionee or by the guardian or legal
representative of the Optionee, it being understood that the terms
"holder" and "Optionee" include the guardian and legal representative
of the Optionee named in the applicable option agreement and any
person to whom the Stock Option is transferred (X) pursuant to clause
(i) of the first sentence of this Section 4(e) or pursuant to the
applicable option agreement or (Y) by will or the laws of descent and
distribution. Notwithstanding the foregoing, references herein to the
termination of an Optionee's employment or provision of services shall
mean the termination of employment or provision of services of the
person to whom the Stock Option was originally granted.
(f) Termination by Death. Unless otherwise provided in the applicable
option agreement, if an Optionee's employment or provision of services
terminates by reason of death, any Stock Option held by such Optionee
may thereafter be exercised, to the extent then exercisable, or on
such accelerated basis as the Administrator may determine, for a
period of one year from the date of such death or until the expiration
of the stated term of such Stock Option, whichever period is shorter.
In the event of termination of
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employment or provision of services due to death, if an Incentive
Stock Option is exercised after the expiration of the exercise periods
that apply for purposes of Section 422 of the Code, such Stock Option
will thereafter be treated as a Non-Qualified Stock Option.
(g) Termination by Reason of Disability. Unless otherwise provided in the
applicable option agreement, if an Optionee's employment or provision
of services terminates by reason of Disability, any Stock Option held
by such Optionee may thereafter be exercised by the Optionee, to the
extent it was exercisable at the time of termination, or on such
accelerated basis as the Administrator may determine, for a period of
three years from the date of such termination of employment or
provision of services or until the expiration of the stated term of
such Stock Option, whichever period is shorter; provided, however,
that if the Optionee dies within such period, an unexercised Stock
Option held by such Optionee shall, notwithstanding the expiration of
such period, continue to be exercisable to the extent to which it was
exercisable at the time of death for a period of 12 months from the
date of such death or until the expiration of the stated term of such
Stock Option, whichever period is shorter. In the event of termination
of employment or provision of services by reason of Disability, if an
Incentive Stock Option is exercised after the expiration of the
exercise periods that apply for purposes of Section 422 of the Code,
such Stock Option will thereafter be treated as a Non-Qualified Stock
Option.
(h) Termination by Reason of Retirement. Unless otherwise provided in the
applicable option agreement, if an Optionee's employment or provision
of services terminates by reason of Retirement, any Stock Option held
by such Optionee may thereafter be exercised by the Optionee, to the
extent it was exercisable at the time of such Retirement, or on such
accelerated basis as the Administrator may determine, for a period of
three years from the date of such termination of employment or
provision of services or until the expiration of the stated term of
such Stock Option, whichever period is shorter; provided, however,
that if the Optionee dies within such period, any unexercised Stock
Option held by such Optionee shall, notwithstanding the expiration of
such period, continue to be exercisable to the extent to which it was
exercisable at the time of death for a period of 12 months from the
date of such death or until the expiration of the stated term of such
Stock Option, whichever period is shorter. In the event of termination
of employment or provision of services by reason of Retirement, if an
Incentive Stock Option is exercised after the expiration of the
exercise periods that apply for purposes of Section 422 of the Code,
such Stock Option will thereafter be treated as a Non-Qualified Stock
Option.
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(i) Other Termination. Unless otherwise provided in the applicable option
agreement, if an Optionee's employment or provision of services
terminates for any reason other than death, Disability or Retirement,
any Stock Option held by such Optionee shall thereupon terminate;
provided, however, that, if such termination of employment or
provision of services is involuntary on the part of the Optionee and
without Cause, such Stock Option, to the extent then exercisable, or
on such accelerated basis as the Administrator may determine, may be
exercised for the lesser of 90 days from the date of such termination
of employment or provision of services or the remainder of such Stock
Option's term, and provided, further, that if the Optionee dies within
such period, any unexercised Stock Option held by such Optionee shall,
notwithstanding the expiration of such period, continue to be
exercisable to the extent to which it was exercisable at the time of
death for a period of 12 months from the date of such death or until
the expiration of the stated term of such Stock Option, whichever
period is shorter. In the event of termination of employment or
provision of services for any reason other than death, Disability or
Retirement, if an Incentive Stock Option is exercised after the
expiration of the exercise periods that apply for purposes of Section
422 of the Code, such Stock Option will thereafter be treated as a
Non-Qualified Stock Option.
(j) Participant Loans. The Administrator may in its discretion authorize
the Company to:
(i) lend to an Optionee an amount equal to such portion of the
exercise price of a Stock Option as the Administrator may
determine; or
(ii) guarantee a loan obtained by an Optionee from a third-party for
the purpose of tendering such exercise price.
The terms and conditions of any loan or guarantee, including the term,
interest rate, whether the loan is with recourse against the Optionee
and any security interest thereunder, shall be determined by the
Administrator, except that no extension of credit or guarantee shall
obligate the Company for an amount to exceed the lesser of (i) the
aggregate Fair Market Value on the date of exercise, less the par
value, of the shares of Stock to be purchased upon the exercise of the
Stock Option, and (ii) the amount permitted under applicable laws or
the regulations and rules of the Federal Reserve Board and any other
governmental agency having jurisdiction.
5. STOCK APPRECIATION RIGHTS.
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Stock Appreciation Rights may be granted in conjunction with all or part of
any Stock Option granted under the Plan. In the case of a Non-Qualified Stock
Option, such rights may be granted
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either at or after the time of grant of such Stock Option. In the case of an
Incentive Stock Option, such rights may be granted only at the time of grant of
such Stock Option. A Stock Appreciation Right shall terminate and no longer be
exercisable upon the termination or exercise of the related Stock Option.
A Stock Appreciation Right may be exercised by an Optionee in accordance
with this Section 5 by surrendering the applicable portion of the related Stock
Option in accordance with procedures established by the Administrator. Upon such
exercise and surrender, the Optionee shall be entitled to receive an amount
determined in the manner prescribed in this Section 5. Stock Options which have
been so surrendered shall no longer be exercisable to the extent the related
Stock Appreciation Rights have been exercised.
Stock Appreciation Rights shall be subject to such terms and conditions as
shall be determined by the Administrator, including the following:
(i) Stock Appreciation Rights shall be exercisable only at such
time or times and to the extent that the Stock Options to which
they relate are exercisable in accordance with the provisions
of Section 4 and this Section 5.
(ii) Upon the exercise of a Stock Appreciation Right, an Optionee
shall be entitled to receive an amount in cash, shares of Stock
or both equal in value to the excess of the Fair Market Value
of one share of Stock over the exercise price per share
specified in the related Stock Option, multiplied by the number
of shares in respect of which the Stock Appreciation Right
shall have been exercised, with the Administrator having the
right to determine the form of payment.
(iii) A Stock Appreciation Right shall be transferable only to, and
shall be exercisable only by, such persons permitted with
respect to the underlying Stock Option in accordance with
Section 4(e).
6. STOCK AWARDS OTHER THAN OPTIONS.
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Stock Awards may be directly issued under the Plan (without any intervening
options), subject to such terms, conditions, performance requirements,
restrictions, forfeiture provisions, contingencies and limitations as the
Administrator shall determine. Stock Awards may be issued which are fully and
immediately vested upon issuance or which vest in one or more installments over
the Participant's period of employment or other service to the Company or upon
the attainment of specified performance objectives, or the Company may issue
Stock Awards which entitle the Participant to receive a specified number of
vested shares of Stock upon the attainment of one or more performance goals or
service requirements established by the Administrator.
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Shares representing a Stock Award shall be evidenced in such manner as the
Administrator may deem appropriate, including book-entry registration or
issuance of one or more certificates (which may bear appropriate legends
referring to the terms, conditions and restrictions applicable to such Award).
The Administrator may require that any such certificates be held in custody by
the Company until any restrictions thereon shall have lapsed and that the
Participant deliver a stock power, endorsed in blank, relating to the Stock
covered by such Award.
A Stock Award may be issued in exchange for any consideration which the
Administrator may deem appropriate in each individual instance, including,
without limitation:
(i) cash or cash equivalents;
(ii) past services rendered to the Company or any Affiliate; or
(iii) future services to be rendered to the Company or any Affiliate
(provided that, in such case, the par value of the stock
subject to such Stock Award shall be paid in cash or cash
equivalents, unless the Administrator provides otherwise).
A Stock Award that is subject to restrictions on transfer and/or forfeiture
provisions may be referred to as an award of "Restricted Stock" or "Restricted
Stock Units."
7. CHANGE IN CONTROL PROVISIONS.
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(a) Impact of Event. Notwithstanding any other provision of the Plan to
the contrary, in the event of a Change in Control:
(i) Any Stock Options and Stock Appreciation Rights outstanding as
of the date such Change in Control is determined to have
occurred and not then exercisable and vested shall become fully
exercisable and vested to the full extent of the original
grant;
(ii) The restrictions applicable to any outstanding Stock Award
shall lapse, and the Stock relating to such Award shall become
free of all restrictions and become fully vested and
transferable to the full extent of the original grant;
(iii) All outstanding repurchase rights of the Company with respect
to any outstanding Awards shall terminate; and
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(iv) Outstanding Awards shall be subject to any agreement of merger
or reorganization that effects such Change in Control, which
agreement shall provide for:
(A) The continuation of the outstanding Awards by the Company,
if the Company is a surviving corporation;
(B) The assumption of the outstanding awards by the surviving
corporation or its parent or subsidiary;
(C) The substitution by the surviving corporation or its parent
or subsidiary of equivalent awards for the outstanding
Awards; or
(D) Settlement of each share of Stock subject to an outstanding
Award for the Change in Control Price (less, to the extent
applicable, the per share exercise price).
(v) In the absence of any agreement of merger or reorganization
effecting such Change in Control, each share of Stock subject
to an outstanding Award shall be settled for the Change in
Control Price (less, to the extent applicable, the per share
exercise pr ice).
(b) Definition of Change in Control. For purposes of the Plan, a "Change
in Control" shall mean the happening of any of the following events:
(i) An acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
"Person") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 25% or more of
either (1) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (2) the
combined voting power of the then outstanding voting securities
of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities");
excluding, however, the following: (1) any acquisition directly
from the Company, other than an acquisition by virtue of the
exercise of a conversion privilege unless the security being so
converted was itself acquired directly from the Company, (2)
any acquisition by the Company; (3) any acquisition by any
employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the
Company; (4) any acquisition by Andrew J. Filipowski or any of
his Permitted Transferees (as defined in the Company's Second
Amended and Restated Certificate of Incorporation), or (5) any
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acquisition by any Person pursuant to a transaction which
complies with clauses (1), (2) and (3) of subsection (iii) of
this Section 7(b); or
(ii) Within any period of 24 consecutive months, a change in the
composition of the Board such that the individuals who,
immediately prior to such period, constituted the Board (such
Board shall be hereinafter referred to as the "Incumbent
Board") cease for any reason to constitute at least a majority
of the Board; provided, however, for purposes of this Section
7(b), that any individual who becomes a member of the Board
during such period, whose election, or nomination for election
by the Company's stockholders, was approved by a vote of at
least a majority of those individuals who are members of the
Board and who were also members of the Incumbent Board (or
deemed to be such pursuant to this proviso) shall be considered
as though such individual were a member of the Incumbent Board;
but, provided further, that any such individual whose initial
assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in
Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act) or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board shall
not be so considered as a member of the Incumbent Board; or
(iii) The approval by the stockholders of the Company of a
reorganization, merger or consolidation or sale or other
disposition of all or substantially all of the assets of the
Company ("Corporate Transaction"); excluding, however, such a
Corporate Transaction pursuant to which (1) all or
substantially all of the individuals and entities who are the
beneficial owners, respectively, of the outstanding Company
Common Stock and Outstanding Company Voting Securities
immediately prior to such Corporate Transaction will
beneficially own, directly or indirectly, more than 60% of,
respectively, the outstanding shares of common stock, and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the
case may be, of the corporation resulting from such Corporate
Transaction (including, without limitation, a corporation which
as a result of such transaction owns the Company or all or
substantially all of the Company's assets, either directly or
through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such
Corporate Transaction, of the outstanding Company Common Stock
and Outstanding Company Voting Securities, as the case may be,
(2) no Person (other than the Company; any employee benefit
plan (or related trust) sponsored or maintained by the Company,
by any corporation controlled by the Company, or by such
corporation resulting from such Corporate Transaction) will
beneficially own, directly or indirectly, more than
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25% of, respectively, the outstanding shares of common stock of
the corporation resulting from such Corporate Transaction or
the combined voting power of the outstanding voting securities
of such corporation entitled to vote generally in the election
of directors, except to the extent that such ownership existed
with respect to the Company prior to the Corporate Transaction,
and (3) individuals who were members of the Board immediately
prior to the approval by the stockholders of the Corporation of
such Corporate Transaction will constitute at least a majority
of the members of the board of directors of the corporation
resulting from such Corporate Transaction; or
(iv) The approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company, other than to a
corporation pursuant to a transaction which would comply with
clauses (1), (2) and (3) of subsection (iii) of this Section
7(b), assuming for this purpose that such transaction were a
Corporate Transaction.
(c) Change in Control Price. For purposes of the Plan, "Change in Control
Price" means the higher of (i) the highest reported sales price,
regular way, of a share of Stock in any transaction reported on the
New York Stock Exchange Composite Tape or other national securities
exchange on which such shares are listed or on Nasdaq, as applicable,
during the 60-day period prior to and including the date of a Change
in Control, and (ii) if the Change in Control is the result of a
tender or exchange offer or a Corporate Transaction, the highest price
per share of Stock paid in such tender or exchange offer or Corporate
Transaction. To the extent that the consideration paid in any such
transaction described above consists all or in part of securities or
other non-cash consideration, the value of such securities or other
non-cash consideration shall be determined in the sole discretion of
the Board.
8. MISCELLANEOUS.
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(a) Amendment. The Board may amend, alter, or discontinue the Plan, but no
amendment, alteration or discontinuation shall be made which would
adversely affect the rights of a Participant under an Award
theretofore granted without the Participant's consent, except such an
amendment (i) made to avoid an expense charge to the Company or an
Affiliate, or (ii) made to permit the Company or an Affiliate a
deduction under the Code. No such amendment shall be made without the
approval of the Company's stockholders to the extent such approval is
required by law, agreement or the rules of any stock exchange or
market on which the Stock is listed.
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The Administrator may amend the terms of any Stock Option or other
Award theretofore granted, prospectively or retroactively, but no such
amendment shall adversely affect the rights of the holder thereof
without the holder's consent.
Notwithstanding anything in the Plan to the contrary, if any right
under this Plan would cause a transaction to be ineligible for pooling
of interests accounting that would, but for the right hereunder, be
eligible for such accounting treatment, the Administrator may modify
or adjust the right so that pooling of interests accounting shall be
available, including the substitution of Common Stock having a Fair
Market Value equal to the cash otherwise payable hereunder for the
right which caused the transaction to be ineligible for pooling of
interests accounting.
(b) Unfunded Status of Plan. It is intended that this Plan be an
"unfunded" plan for incentive and deferred compensation. The
Administrator may authorize the creation of trusts or other
arrangements to meet the obligations created under this Plan to
deliver Common Stock or make payments, provided that, unless the
Administrator otherwise determines, the existence of such trusts or
other arrangements is consistent with the "unfunded" status of this
Plan.
(c) General Provisions.
(i) The Administrator may require each person purchasing or
receiving shares pursuant to an Award to represent to and agree
with the Company in writing that such person is acquiring the
shares without a view to the distribution thereof. The
certificates for such shares may include any legend which the
Administrator deems appropriate to reflect any restrictions on
transfer.
All certificates for shares of Stock or other securities
delivered under the Plan shall be subject to such stock
transfer orders and other restrictions as the Administrator may
deem advisable under the rules, regulations and other
requirements of the Commission, any stock exchange or market on
which the Stock is then listed and any applicable Federal or
state securities law, and the Administrator may cause a legend
or legends to be put on any such certificates to make
appropriate reference to such restrictions.
(ii) Nothing contained in the Plan shall prevent the Company or any
Affiliate from adopting other or additional compensation
arrangements for its employees.
(iii) The adoption of the Plan shall not confer upon any employee,
director, consultant or advisor any right to continued
employment, directorship or service, nor shall
14
<PAGE>
it interfere in any way with the right of the Company or any
Subsidiary or Affiliate to terminate the employment or service
of any employee, consultant or advisor at any time.
(iv) No later than the date as of which an amount first becomes
includible in the gross income of the Participant for Federal
income tax purposes with respect to any Award under the Plan,
the Participant shall pay to the Company, or make arrangements
satisfactory to the Company regarding the payment of, any
Federal, state, local or foreign taxes of any kind required by
law to be withheld with respect to such amount. Unless
otherwise determined by the Administrator, withholding
obligations may be settled with Stock, including Stock that is
part of the Award that gives rise to the withholding
requirement. The obligations of the Company under the Plan
shall be conditional on such payment or arrangements, and the
Company, its Subsidiaries and its Affiliates shall, to the
extent permitted by law, have the right to deduct any such
taxes from any payment otherwise due to the Participant. The
Administrator may establish such procedures as it deems
appropriate for the settlement of withholding obligations with
Stock.
(v) The Administrator shall establish such procedures as it deems
appropriate for a Participant to designate a beneficiary to
whom any amounts payable in the event of the Participant's
death are to be paid.
(vi) Any amounts owed to the Company or an Affiliate by the
Participant of whatever nature may be offset by the Company
from the value of any shares of Common Stock, cash or other
thing of value under this Plan or an Agreement to be
transferred to the Participant, and no shares of Common Stock,
cash or other thing of value under this Plan or an Agreement
shall be transferred unless and until all disputes between the
Company and the Participant have been fully and finally
resolved and the Participant has waived all claims to such
against the Company or an Affiliate.
(vii) The grant of an Award shall in no way affect the right of the
Company to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its
business or assets.
(viii) If any payment or right accruing to a Participant under this
Plan (without the application of this Section (8)(c)(viii)),
either alone or together with other payments or rights accruing
to the Participant from the Company or an Affiliate ("Total
Payments") would constitute a "parachute payment" (as defined
in
15
<PAGE>
Section 280G of the Code and regulations thereunder), such
payment or right shall be reduced to the largest amount or
greatest right that will result in no portion of the amount
payable or right accruing under this Plan being subject to an
excise tax under Section 4999 of the Code or being disallowed
as a deduction under Section 280G of the Code; provided,
however, that the foregoing shall not apply to the extent
provided otherwise in an Award or in the event the Participant
is party to an agreement with the Company or an Affiliate that
explicitly provides for an alternate treatment of payments or
rights that would constitute "parachute payments." The
determination of whether any reduction in the rights or
payments under this Plan is to apply shall be made by the
Administrator in good faith after consultation with the
Participant, and such determination shall be conclusive and
binding on the Participant. The Participant shall cooperate in
good faith with the Administrator in making such determination
and providing the necessary information for this purpose. The
foregoing provisions of this Section 8(c)(viii) shall apply
with respect to any person only if, after reduction for any
applicable Federal excise tax imposed by Section 4999 of the
Code and Federal income tax imposed by the Code, the Total
Payments accruing to such person would be less than the amount
of the Total Payments as reduced, if applicable, under the
foregoing provisions of this Plan and after reduction for only
Federal income taxes.
(ix) To the extent that the Administrator determines that the
restrictions imposed by the Plan preclude the achievement of
the material purposes of the Awards in jurisdictions outside
the United States, the Administrator in its discretion may
modify those restrictions as it determines to be necessary or
appropriate to conform to applicable requirements or practices
of jurisdictions outside of the United States.
(x) The headings contained in this Plan are for reference purposes
only and shall not affect the meaning or interpretation of this
Plan.
(xi) If any provision of this Plan shall for any reason be held to
be invalid or unenforceable, such invalidity or
unenforceability shall not effect any other provision hereby,
and this Plan shall be construed as if such invalid or
unenforceable provision were omitted.
(xii) This Plan shall inure to the benefit of and be binding upon
each successor and assign of the Company. All obligations
imposed upon a Participant, and all rights granted to the
Company hereunder, shall be binding upon the Participant's
heirs, legal representatives and successors.
16
<PAGE>
(xiii) This Plan and each agreement granting an Award constitute the
entire agreement with respect to the subject matter hereof and
thereof, provided that in the event of any inconsistency
between this Plan and such agreement, the terms and conditions
of the Plan shall control.
(xiv) In the event there is an effective registration statement under
the Securities Act pursuant to which shares of Stock shall be
offered for sale in an underwritten offering, a Participant
shall not, during the period requested by the underwriters
managing the registered public offering, effect any public sale
or distribution of shares of Stock received, directly or
indirectly, as an Award or pursuant to the exercise or
settlement of an Award.
(xv) None of the Company, an Affiliate or the Administrator shall
have any duty or obligation to disclose affirmatively to a
record or beneficial holder of Stock or an Award, and such
holder shall have no right to be advised of, any material
information regarding the Company or any Affiliate at any time
prior to, upon or in connection with receipt or the exercise of
an Award or the Company's purchase of Stock or an Award from
such holder in accordance with the terms hereof.
(xvi) This Plan, and all Awards, agreements and actions hereunder,
shall be governed by, and construed in accordance with, the
laws of the state of Delaware (other than its law respecting
choice of law).
9. DEFERRAL OF AWARDS.
------------------
The Administrator (in its sole discretion) may permit a Participant to:
(a) have cash that otherwise would be paid to such Participant as a result
of the exercise of a Stock Appreciation Right or the settlement of a
Stock Award credited to a deferred compensation account established for
such Participant by the Administrator as an entry on the Company's
books;
(b) have Stock that otherwise would be delivered to such Participant as a
result of the exercise of a Stock Option or a Stock Appreciation Right
converted into an equal number of Stock units; or
(c) have Stock that otherwise would be delivered to such Participant as a
result of the exercise of a Stock Option or Stock Appreciation Right
or the settlement of a Stock
17
<PAGE>
Award converted into amounts credited to a deferred compensation
account established for such Participant by the Administrator as an
entry on the Company's books. Such amounts shall be determined by
reference to the Fair Market Value of the Stock as of the date on
which they otherwise would have been delivered to such Participant.
A deferred compensation account established under this Section 9 may be
credited with interest or other forms of investment return, as determined by the
Administrator. A Participant for whom such an account is established shall have
no rights other than those of a general creditor of the Company. Such an
account shall represent an unfunded and unsecured obligation of the Company and
shall be subject to the terms and conditions of the applicable agreement between
such Participant and the Company. If the deferral or conversion of awards is
permitted or required, the Administrator (in its sole discretion) may establish
rules, procedures and forms pertaining to such awards, including (without
limitation) the settlement of deferred compensation accounts established under
this Section 9.
10. AUTOMATIC ANNUAL OPTION GRANTS TO NON-EMPLOYEE DIRECTORS.
--------------------------------------------------------
(a) Annual Grants. On December 1 of each year, commencing December 1,
1999, each person who serves as a Non-Employee Director on such date
shall automatically receive a Non-Qualified Stock Option to purchase
50,000 shares of Stock.
(b) Exercisability. Any Stock Option granted to a Non-Employee Director
under this Section 10 shall be exercisable in full as of the grant
date. Notwithstanding the foregoing, in the event that such Non-
Employee Director's service as a Director has terminated prior to the
first anniversary of the grant date of such Stock Option for any
reason other than death, Disability or retirement at or after age 65,
the Company shall have the right to repurchase the shares obtained
upon exercise of such Stock Option at a price per share equal to the
lesser of (i) the exercise price per share under such Stock Option or
(ii) the Fair Market Value per share as of the date the shares are
repurchased (the "Repurchase Right"). Notwithstanding the foregoing,
the Administrator may at any time waive the Repurchase Right, in whole
or in part, based on such factors as the Administrator may determine.
(c) Termination by Death, Disability or Retirement. The Repurchase Right
of the Company with respect to any shares obtained upon exercise of a
Stock Option granted to a Non-Employee Director under this Section 10
shall terminate in full upon the termination of such Non-Employee
Director's service as a Director because of death, Disability or
retirement at or after age 65.
18
<PAGE>
(d) Exercise. The exercise price of any Stock Option granted to a Non-
Employee Director under this Section 10 shall equal 100% of the Fair
Market Value per share as of the grant date, payable in one of the
forms described in Section 4(d).
(e) Option Term. Any Stock Option granted to a Non-Employee Director under
this Section 10 shall terminate on the earliest of (i) the tenth
anniversary of the grant date, (ii) the date 90 days after the
termination of such Non-Employee Director's service as a Director for
any reason other than death, Disability or retirement at of after age
65 or (iii) the date one year after the termination of such Non-
Employee Director's service as a Director because of death, Disability
or retirement at or after age 65.
(f) Transferability. A Stock Option granted to a Non-Employee Director
under this Section 10 shall be transferable by such Non-Employee
Director to the same extent as a Stock Option granted pursuant to
Section 4, and shall be exercisable by any such person as would be
permitted to exercise such Stock Option if granted pursuant to Section
4, in each case as provided in Section 4(e).
11. DEFINITIONS.
-----------
For purposes of this Plan, the following terms are defined as set forth
below:
(a) "Affiliate" means a corporation or other entity controlled by the
Company and designated by the Administrator as such.
(b) "Award" means a Stock Appreciation Right, Stock Option or Stock Award.
(c) "Board" means the Board of Directors of the Company.
(d) "Cause" means (i) the conviction of the Participant foR committing a
felony under Federal law or the law of the state in which such action
occurred, (ii) dishonesty in the course of fulfilling the
Participant's duties as an employee or director of, or consultant or
advisor to, the Company or (iii) willful and deliberate failure on the
part of the Participant to perform such duties in any material
respect. Notwithstanding the foregoing, if the Participant and the
Company or the Affiliate have entered into an employment or services
agreement which defines the term "Cause" (or a similar term), such
definition shall govern for purposes of determining whether such
Participant has been terminated for Cause for purposes of this Plan.
The determination of Cause shall be made by the Administrator, in its
sole discretion.
19
<PAGE>
(e) "Code" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor thereto.
(f) "Commission" means the Securities and Exchange Commission or any
successor agency.
(g) "Committee" means a committee of Directors appointed by the Board to
administer this Plan.
(h) "Company" means divine interVentures, inc., a Delaware corporation.
(i) "Director" means a member of the Company's Board of Directors.
(j) "Disability" means mental or physical illness that entitles the
Participant to receive benefits under the long-term disability plan of
the Company or an Affiliate, or if the Participant is not covered by
such a plan or the Participant is not an employee of the Company or an
Affiliate, a mental or physical illness that renders a Participant
totally and permanently incapable of performing the Participant's
duties for the Company or an Affiliate; provided, however, that a
Disability shall not qualify under this Plan if it is the result of
(i) a willfully self-inflicted injury or willfully self-induced
sickness; or (ii) an injury or disease contracted, suffered or
incurred while participating in a criminal offense. Notwithstanding
the foregoing, if the Participant and the Company or an Affiliate have
entered into an employment or services agreement which defines the
term "Disability" (or a similar term), such definition shall govern
for purposes of determining whether such Participant suffers a
Disability for purposes of this Plan. The determination of Disability
shall be made by the Administrator, in its sole discretion. The
determination of Disability for purposes of this Plan shall not be
construed to be an admission of disability for any other purpose.
(k) "Effective Date" means October 1, 1999.
(l) "Eligible Individual" means any officer, employee or director of the
Company or a Subsidiary or Affiliate, or any consultant or advisor
providing services to the Company or a Subsidiary or Affiliate.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor thereto.
(n) "Fair Market Value" means, as of any given date, the fair market value
of the Stock as determined by the Administrator or under procedures
established by the Administrator. Unless otherwise determined by the
Administrator:
20
<PAGE>
(i) For purposes of any Award made as of the Underwriting Date, the
Fair Market Value shall be deemed to be equal to the price per
share at which the Stock is to be sold to the public in the
initial public offering of the Stock; and
(ii) After the Underwriting Date, the Fair Market Value per share
shall be the closing sales price per share of the Stock on
Nasdaq (or the principal stock exchange or market on which the
Stock is then traded) on the date as of which such value is
being determined or the last previous day on which a sale was
reported.
(o) "Family Member" means any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, former spouse, sibling, niece,
nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law or sister-in-law of a Participant (including adoptive
relationships); any person sharing the Participant's household (other
than a tenant or employee); any trust in which the Participant and any
of these persons have substantially all of the beneficial interest;
any foundation in which the Participant and any of these persons
control the management of the assets; any corporation, partnership,
limited liability company or other entity in which the Participant and
any of these other persons are the direct and beneficial owners of
substantially all of the equity interests (provided the Participant
and these other persons agree in writing to remain the direct and
beneficial owners of all such equity interests); and any personal
representative of the Participant upon the Participant's death for
purposes of administration of the Participant's estate or upon the
Participant's incompetency for purposes of the protection and
management of the assets of the Participant.
(p) "Incentive Stock Option" means any Stock Option intended to be and
designated as an "incentive stock option" within the meaning of
Section 422 of the Code.
(q) "Nasdaq" means The Nasdaq Stock Market, including the Nasdaq National
Market and the Nasdaq SmallCap Market.
(r) "Non-Employee Director" means a Director who is not an officer or
employee of the Company.
(s) "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
21
<PAGE>
(t) "Optionee" means a person who holds a Stock Option.
(u) "Participant" means a person granted an Award.
(v) "Retirement" means retirement from active employment under a pension
plan of the Company or any subsidiary or Affiliate, or under an
employment contract with any of them, or termination of employment or
provision of services at or after age 55 under circumstances which the
Administrator, in its sole discretion, deems equivalent to retirement.
(w) "Stock" means Class A Common Stock, par value $0.001 per share, of the
Company.
(x) "Stock Appreciation Right" means a right granted under Section 5.
(y) "Stock Award" means an Award, other than a Stock Option or Stock
Appreciation Right, made in Stock or denominated in shares of Stock.
(z) "Stock Option" means an option granted under Section 4 or Section 10.
(aa) "Subsidiary" means any company during any period in which it is a
"subsidiary corporation" (as such term is defined in Section 424(f) of
the Code) with respect to the Company.
(bb) "Ten Percent Holder" means an individual who owns, or is deemed to
own, stock possessing more than 10% of the total combined voting power
of all classes of stock of the Company or of any parent or subsidiary
corporation of the Company, determined pursuant to the rules
applicable to Section 422(b)(6) of the Code.
(cc) "Underwriting Agreement" means the agreement between the Company and
the underwriter or underwriters managing the initial public offering
of the Stock.
(dd) "Underwriting Date" means the date on which the Underwriting Agreement
is executed in connection with an initial underwritten public offering
of the Stock.
In addition, certain other terms used herein have the definitions given to
them in the first places in which they are used.
22
<PAGE>
EXHIBIT 10.2
FORM OF
INCENTIVE STOCK OPTION AGREEMENT
--------------------------------
(Reverse Vesting)
THIS INCENTIVE STOCK OPTION AGREEMENT (this "Agreement"), dated as of
_____________ (the "Grant Date"), is between divine interVentures, inc., a
Delaware corporation (the "Company"), and __________________ (the "Participant")
relating to an option granted under the divine interVentures, inc. 1999 Stock
Incentive Plan (the "Plan"). Capitalized terms used in this Agreement without
definition shall have the meanings ascribed to such terms in the Plan.
1. Grant of Option, Option Price and Term.
--------------------------------------
(a) The Company grants to the Participant an Incentive Stock Option (the
"Option") to purchase 1,000,000 shares (the "Option Shares") of the Company's
class A common stock, $.001 par value per share ("Stock"), at a price of $0.75
per share (the "Option Price"), subject to the provisions of the Plan and the
terms and conditions herein.
(b) The term of this Option shall be a period of ten (10) years from the
Grant Date (the "Option Period"). During the Option Period, the Option shall be
vested as of the date set forth below according to the percentage set forth
opposite such date:
Date Cumulative Percentage Vested
---- ----------------------------
Notwithstanding the vesting provisions above, the Option shall be fully
exercisable as of the Grant Date; provided, however, that the Participant's
rights with respect to Option Shares shall be subject to such limitations or
other restrictions as shall be specified in the Restricted Stock Agreement to be
entered into by the Participant upon exercise of the Option pursuant to Section
2 hereof.
Notwithstanding the foregoing, in the event the Participant incurs a
termination of employment for any reason whatsoever as an employee of the
Company or an Affiliate, the provisions of Section 4 of the Plan relating to
termination of employment shall apply.
(c) The Option granted hereunder is designated as an Incentive Stock
Option which is not transferable by the Participant except by will or the laws
of descent and distribution.
(d) The Company shall not be required to issue any fractional shares of
Stock.
2. Exercise.
--------
The Option may only be exercised by the delivery to the Company of a
properly completed written notice, in form satisfactory to the Administrator,
which notice shall specify
<PAGE>
the number of Option Shares to be purchased and the aggregate Option Price for
such shares, together with payment in full of such aggregate Option Price.
Payment shall only be made as specified in the Plan. If any part of the payment
of the Option Price is made in shares of Stock, such shares shall be valued by
using their Fair Market Value as of the date of exercise of the Option.
The Option may not be exercised unless the Participant (a) enters into (i)
a Restricted Stock Agreement substantially in the form attached hereto and (ii)
any other document (a "Private Issuance Document") the Company determines
necessary to ensure that the Option Shares are issued pursuant to an available
exemption from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), and applicable state securities laws, and (b)
there has been compliance with all the preceding provisions of this Section 2.
For all purposes of this Stock Option Agreement, the date of the exercise of the
Option shall be the date upon which there is compliance with all such
requirements. Notwithstanding the foregoing, the Participant shall not be
required to enter into a Restricted Stock Agreement or a Private Issuance
Document upon exercise of the Option in the event that, at the time of such
exercise, (a) the Option is fully vested, (b) the Company has consummated an
initial public offering of the Stock registered under the Securities Act, and
(c) there is an effective Registration Statement on Form S-8 of the Company
under the Securities Act covering the issuance of the Option Shares upon
exercise of the Option.
The Option shall be transferable only to, and shall be exercisable only by,
such persons permitted in accordance with Section 4(e) of the Plan.
3. Payment of Withholding Taxes.
----------------------------
If the Company is obligated to withhold an amount on account of any tax
imposed as a result of the exercise of the Option, the Participant shall be
required to pay such amount to the Company, as provided in the Plan. The
Participant acknowledges and agrees that the Participant is responsible for the
tax consequences associated with the grant of the Option and its exercise.
4. Changes in Company's Capital Structure.
--------------------------------------
The existence of the Option will not affect in any way the right or
authority of the Company or its stockholders to make or authorize (a) any
adjustment, recapitalization, reorganization or other changes in the Company's
capital structure or its business; (b) any merger or consolidation of the
Company; (c) any issuance of bonds, debentures, preferred or prior preference
stock ahead of or affecting the Stock or the rights thereof; (d) the dissolution
or liquidation of the Company; (e) any sale or transfer of all or any part of
the Company's assets or business; or (f) any other corporate act or proceeding,
whether of a similar character or otherwise. In the event of a Change in Control
or other corporate transaction provided for in the Plan, the Participant shall
have such rights, and the Administrator shall take such actions, as are provided
for in the Plan.
2
<PAGE>
5. Plan.
----
The Option is granted pursuant to the Plan, and the Option and this
Agreement are in all respects governed by the Plan and subject to all of the
terms and provisions thereof, whether such terms and provisions are incorporated
in this Agreement by reference or are expressly cited.
6. Employment Rights.
-----------------
No provision of this Agreement or of the Option granted hereunder shall
give the Participant any right to continue in the employ of the Company or any
Affiliate of the Company, create any inference as to the length of employment of
the Participant, affect the right of the Company or any Affiliate of the Company
to terminate the employment of the Participant, with or without Cause, or give
the Participant any right to participate in any employee welfare or benefit plan
or other program (other than the Plan) of the Company or any Affiliate of the
Company.
7. Governing Law.
-------------
This Agreement and the Option granted hereunder shall be governed by, and
construed and enforced in accordance with, the laws of the State of Delaware,
without giving effect to provisions thereof regarding conflict of laws.
8. Waiver; Cumulative Rights.
-------------------------
The failure or delay of either party to require performance by the other
party of any provision hereof shall not affect its right to require performance
of such provision unless and until such performance has been waived in writing.
Each and every right hereunder is cumulative and may be exercised in part or in
whole from time to time.
9. Notices.
-------
Any notice which either party hereto may be required or permitted to give
the other shall be in writing and may be delivered personally or by mail,
postage prepaid, addressed to the Secretary of the Company, at its then
corporate headquarters, and the Participant at the Participant's address as
shown on the Company's payroll records, or to such other address as the
Participant, by notice to the Company, may designate in writing from time to
time.
10. Conditional Grant.
-----------------
If the Participant is a resident of a community property state, this Option
is granted upon the condition that, and the Option Shares shall be forfeited
unless, each and any person who is a spouse of the Participant at any time on or
after the Grant Date (including any person who becomes a spouse after the Grant
Date) executes a Consent of Spouse form provided by the Committee, unless the
Committee shall waive either such condition.
3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by an officer thereunto duly authorized, and the Participant has
hereunto set his hand, all as of the day and year first above written.
divine interVentures, inc. Participant:
By: _______________________________ ______________________________
Name: _______________________
Title: _______________________
<PAGE>
EXHIBIT 10.3
FORM OF
INDEMNIFICATION AGREEMENT
-------------------------
THIS INDEMNIFICATION AGREEMENT (the "Agreement") is entered into as of this
___ day of _______________________, , by and between divine interVentures,
inc., a Delaware corporation (the "Corporation"), and _________________
("Indemnitee").
RECITALS
--------
a. The Corporation is aware that, because of the increased exposure to
litigation costs and risks resulting from service to corporations,
talented and experienced persons are increasingly reluctant to serve
or continue serving as directors or executive officers of corporations
unless they are protected by comprehensive liability insurance and
indemnification;
b. Plaintiffs often seek damages in such large amounts, and the costs of
litigation may be so great (whether or not the case is meritorious),
that the defense and/or settlement of such litigation is usually
beyond the personal resources of directors and executive officers;
c. Based upon their experience as business managers, the Board of
Directors of the Corporation (the "Board") has concluded that, to
retain and attract talented and experienced individuals to serve as
directors and executive officers of the Corporation, it is appropriate
for the Corporation to contractually indemnify its directors and its
executive officers, and to assume for itself liability for expenses
and damages in connection with claims against such directors and
executive officers in connection with their service to the
Corporation; and
d. The Corporation believes that it is fair and proper to protect its
directors and executive officers of the Corporation from the risk of
judgments, settlements and other expenses which may occur as a result
of their service to the Corporation.
NOW, THEREFORE, the parties, intending to be legally bound, for good and
valuable consideration, hereby agree as follows:
1. Definitions.
-----------
(a) Agent. "Agent" means a director or executive officer of the
-----
Corporation or a director, officer, employee, agent or fiduciary of another
foreign or domestic corporation, partnership, joint venture, trust or other
enterprise serving at the request, for the convenience, or to represent the
interests, of the Corporation.
<PAGE>
(b) Change in Control. "Change in Control" means the happening of any
-----------------
of the following events:
(i) An acquisition by any individual, entity or group, within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange
Act (a "Person"), of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act)
of twenty-five percent (25%) or more of either (1) the then
outstanding shares of common stock of the Corporation (the
"Outstanding Common Stock") or (2) the combined voting
power of the then outstanding voting securities of the
Corporation entitled to vote generally in the election of
directors (the "Outstanding Voting Securities"); excluding,
however, the following: (1) any acquisition directly from
the Corporation, other than an acquisition by virtue of the
exercise of a conversion privilege unless the security
being so converted was itself acquired directly from the
Corporation, (2) any acquisition by the Corporation; (3)
any acquisition by Andrew J. Filipowski or any of his
Permitted Transferees (as defined in the Certificate of
Incorporation of the Corporation), (4) any acquisition by
any employee benefit plan (or related trust) sponsored or
maintained by the Corporation or by any corporation
controlled by the Corporation; or (5) any acquisition by
any Person pursuant to a transaction which complies with
clauses (1), (2) and (3) of subsection (iii) of this
Section 1(b); or
(ii) Within any period of twenty-four (24) consecutive months, a
change in the composition of the Board such that the
individuals who, immediately prior to such period,
constituted the Board (such Board shall be hereinafter
referred to as the "Incumbent Board") cease for any reason
to constitute at least a majority of the Board; provided,
however, for purposes hereof, that any individual who
becomes a member of the Board during such period, whose
election, or nomination for election by the Corporation's
stockholders, was approved by a vote of at least a majority
of those individuals who are members of the Board and who
were also members of the Incumbent Board (or deemed to be
such pursuant to this proviso) shall be considered as
though such individual were a member of the Incumbent
Board; but, provided further, that any such individual
whose initial assumption of office occurs as a result of
either an actual or threatened election contest (as such
terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a
Person other than the Board shall not be so considered as a
member of the Incumbent Board; or
-2-
<PAGE>
(iii) The approval by the stockholders of the Corporation of a
reorganization, merger or consolidation or sale or other
disposition of all or substantially all of the assets of
the Corporation ("Corporate Transaction"); excluding,
however, such a Corporate Transaction pursuant to which (1)
all or substantially all of the individuals and entities
who are the beneficial owners, respectively, of the
Outstanding Common Stock and Outstanding Voting Securities
immediately prior to such Corporate Transaction will
beneficially own, directly or indirectly, more than sixty
percent (60%) of, respectively, the outstanding shares of
common stock, and the combined voting power of the
outstanding voting securities entitled to vote generally in
the election of directors, as the case may be, of the
corporation resulting from such Corporate Transaction
(including, without limitation, a corporation which as a
result of such transaction owns the Corporation or all or
substantially all of the Corporation's assets, either
directly or through one or more subsidiaries) in
substantially the same proportions as their ownership,
immediately prior to such Corporate Transaction, of the
Outstanding Common Stock and Outstanding Voting Securities,
as the case may be, (2) no Person (other than the
Corporation or any employee benefit plan (or related trust)
sponsored or maintained by the Corporation, by any
corporation controlled by the Corporation or by such
corporation resulting from such Corporate Transaction) will
beneficially own, directly or indirectly, more than twenty-
five percent (25%) of, respectively, the outstanding shares
of common stock of the corporation resulting from such
Corporate Transaction or the combined voting power of the
outstanding voting securities of such corporation entitled
to vote generally in the election of directors, except to
the extent that such ownership existed with respect to the
Corporation prior to the Corporate Transaction, and (3)
individuals who were members of the Board immediately prior
to the approval by the stockholders of the Corporation of
such Corporate Transaction will constitute at least a
majority of the members of the board of directors of the
corporation resulting from such Corporate Transaction; or
(iv) The approval by the stockholders of the Corporation of a
complete liquidation or dissolution of the Corporation,
other than to a corporation pursuant to a transaction which
would comply with clauses (1), (2) and (3) of subsection
(iii) of this Section 1(b), assuming for this purpose that
such transaction were a Corporate Transaction.
(c) Corporation. "Corporation" means divine interVentures, inc., a
-----------
Delaware corporation, its successors or assigns, or any Subsidiary of the
Corporation. "Subsidiary"
-3-
<PAGE>
means, and "Subsidiaries" include, (i) any corporation of which more than
fifty percent (50%) of the outstanding voting securities are owned directly
or indirectly by the Corporation, or which is otherwise controlled by the
Corporation, and (ii) any partnership, limited liability company, joint
venture, trust or other entity of which more than fifty percent (50%) of
the equity interest is owned directly or indirectly by the Corporation, or
which is otherwise controlled by the Corporation.
(d) Exchange Act. "Exchange Act" means the Securities Exchange Act of
------------
1934, as amended.
(e) Independent Legal Counsel. "Independent Legal Counsel" means an
-------------------------
attorney or firm of attorneys that shall not have otherwise performed
services for the Corporation or any Indemnitee within the last three (3)
years, other than with respect to matters concerning the right of
Indemnitee under this Agreement or of other indemnitees under similar
indemnity agreements with the Corporation.
(f) Liabilities. "Liabilities" means losses, claims, damages,
-----------
liabilities, obligations, penalties, judgments, fines, settlement payments,
awards, costs, expenses and disbursements (and any and all costs, expenses
or disbursements in giving testimony or furnishing documents in response to
a subpoena or otherwise), including, without limitation, all reasonable
attorneys' fees, costs, expenses and disbursements, as and when incurred.
(g) Proceeding. "Proceeding" means any threatened, pending, or
----------
completed action, suit, alternative dispute resolution mechanism or other
proceeding, whether civil, criminal, administrative, investigative or any
other type whatsoever.
(h) Control. "Control" means, with respect to any person or entity,
-------
the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of such person or entity, whether
through the ownership of voting securities, by contract or otherwise.
2. Maintenance of Liability Insurance.
----------------------------------
The Corporation hereby covenants and agrees to and with Indemnitee
that, so long as Indemnitee shall continue to serve as an Agent and
thereafter so long as Indemnitee shall be subject to any claim or
Proceeding by reason of the fact that Indemnitee was an Agent or in
connection with Indemnitee's acts as such an Agent, the Corporation shall
obtain and maintain in full force and effect directors' and officers'
liability insurance ("D&O Insurance") providing reasonable amounts of
coverage from established and reputable insurers. In all policies of D&O
Insurance, Indemnitee shall be named as an insured. The Corporation shall
advise Indemnitee as to the general terms of, and the amounts of coverage
provided by, the D&O Insurance maintained by the Corporation and shall
promptly notify Indemnitee of (a) any failure by the Corporation at any
time to
-4-
<PAGE>
maintain D&O Insurance or (b) any decrease in the amounts of coverage
provided by D&O Insurance maintained by the Corporation.
3. Indemnification of Agent.
------------------------
(a) Third Party Actions. If Indemnitee is a person who was or is a
-------------------
party or is threatened to be made a party to any Proceeding (other than an
action by or in the right of the Corporation) by reason of the fact that
Indemnitee is or was, or is alleged to have been, an Agent of the
Corporation, or by reason of anything done or not done, or alleged to have
been done or not done, by Indemnitee in any such capacity or otherwise at
the request of the Corporation or of its officers, directors or
stockholders, the Corporation shall indemnify, defend and hold harmless
Indemnitee against any and all Liabilities actually and reasonably incurred
by Indemnitee in connection with the investigation, defense, settlement or
appeal of such Proceeding, so long as Indemnitee acted in good faith and in
a manner Indemnitee reasonably believed to be in, or not opposed to, the
best interests of the Corporation, and, with respect to any criminal action
or Proceeding, if Indemnitee had no reasonable cause to believe his conduct
was unlawful.
(b) Derivative Actions. If Indemnitee is a person who was or is a
------------------
party, or is threatened to be made a party, to any Proceeding by or in the
right of the Corporation to procure a judgment in its favor by reason of
the fact that Indemnitee is or was, or is alleged to have been, an Agent of
the Corporation, or by reason of anything done or not done, or alleged to
have been done or not done, by Indemnitee in any such capacity or otherwise
at the request of the Corporation or of its officers, directors or
stockholders, the Corporation shall indemnify, defend and hold harmless
Indemnitee against all Liabilities actually and reasonably incurred by such
person in connection with the investigation, defense, settlement or appeal
of such Proceeding, if Indemnitee acted in good faith and in a manner
Indemnitee reasonably believed to be in, or not opposed to, the best
interests of the Corporation; provided, however, that no indemnification
under this Section 3(b) shall be made in respect of any claim, issue or
matter for which such person is adjudged to be liable for gross negligence
or willful misconduct in the performance of Indemnitee's duties to the
Corporation, unless, and only to the extent that, the court in which such
Proceeding 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
Liabilities as the court shall deem proper.
(c) Actions Where Indemnitee Is Deceased. If Indemnitee is a person
------------------------------------
who was or is a party or is threatened to be made a party to any Proceeding
by reason of the fact that he is or was, or is alleged to have been, an
Agent of the Corporation, or by reason of anything done or not done, or
alleged to have been done or not done, by Indemnitee in any such capacity,
and prior to, during the pendency of, or after completion of, such
Proceeding, Indemnitee shall die, then the Corporation shall indemnify,
defend and hold harmless the estate, heirs and legatees of Indemnitee
against any and all Liabilities incurred by such estate, heirs or legatees
in connection with the investigation,
-5-
<PAGE>
defense, settlement or appeal of such Proceeding on the same basis as
provided for Indemnitee in Sections 3(a) and 3(b) above.
(d) Reduction of Liabilities. The Liabilities covered hereby shall be
------------------------
net of any payments to, or on behalf of, Indemnitee by D&O Insurance
carriers or others with respect to the subject Proceeding.
(e) Survival Regardless of Investigation. The indemnification and
------------------------------------
contribution provided for in this Agreement will remain in full force and
effect regardless of any investigation made by or on behalf of Indemnitee.
4. Indemnification as Witness.
--------------------------
Notwithstanding any other provision of this Agreement, to the extent
Indemnitee is, by reason of the fact that Indemnitee is or was, or is
alleged to have been, an Agent of the Corporation, involved in any
investigative Proceeding, including, but not limited to, testifying as a
witness or furnishing documents in response to a subpoena or otherwise,
Indemnitee shall be indemnified against any and all Liabilities actually
and reasonably incurred by or for Indemnitee in connection therewith.
5. Advancement of Liabilities.
--------------------------
Subject to the provisions of Section 6(c), until a determination that
Indemnitee is not entitled to be indemnified by the Corporation under the
terms hereof, and unless the provisions of Section 9 apply, the Corporation
shall reimburse Indemnitee for Liabilities previously paid by Indemnitee
and shall advance Liabilities which the Corporation reasonably determines
will be due and payable by Indemnitee. The execution and delivery of this
Agreement by the Corporation evidences the specific approval by the Board
of the reimbursement and advancement of Liabilities as provided for in this
Section 5. As a condition to such reimbursement and/or advancement,
Indemnitee shall, at the request of the Corporation, undertake in a manner
reasonably satisfactory to the Corporation to repay such amounts reimbursed
and/or advanced, without interest, if it shall ultimately be determined
pursuant to Section 7 or 9 below that Indemnitee is not entitled to be
indemnified by the Corporation under the terms of this Agreement. Subject
to the foregoing, the reimbursement and/or advances to be made hereunder
shall be paid by the Corporation to Indemnitee within twenty (20) business
days following delivery of a written request by Indemnitee to the
Corporation, which request shall be accompanied by vouchers, invoices and
similar evidence documenting the amounts incurred or to be incurred by
Indemnitee.
6. Indemnification Procedures.
--------------------------
(a) Notice by Indemnitee. Promptly after receipt by Indemnitee of
--------------------
notice of the commencement or threat of commencement of any Proceeding,
Indemnitee shall, if Indemnitee believes that indemnification with respect
thereto may be sought from the
-6-
<PAGE>
Corporation under this Agreement, deliver written notice to the Corporation
of the commencement or threat of commencement thereof, provided that any
failure to so notify the Corporation shall not relieve the Corporation of
its obligations hereunder, except to the extent that such failure or delay
increases the liability of the Corporation hereunder.
(b) D & O Insurance. If, at the time of receipt of a notice pursuant
---------------
to Section 6(a) above, the Corporation has D&O Insurance in effect, the
Corporation shall give prompt notice of the Proceeding or claim to its
insurers in accordance with the procedures set forth in the applicable
policies. The Corporation shall thereafter take all necessary or desirable
action to cause such insurers to pay all amounts payable as a result of
such Proceeding in accordance with the terms of such policies, and
Indemnitee shall not take any action (by waiver, settlement or otherwise)
which would adversely affect the ability of the Corporation to obtain
payment from its insurers.
(c) Assumption of Defense. In the event the Corporation shall be
---------------------
obligated under this Agreement to pay the Liabilities of Indemnitee, the
Corporation shall be entitled to assume the defense (with counsel
reasonably acceptable to Indemnitee, approval thereof not to be
unreasonably withheld) of the Proceeding to which the Liabilities relate.
The Corporation agrees to promptly notify Indemnitee in writing upon its
election to assume such defense. Once the Corporation (i) provides
Indemnitee with written notice of its election to assume such defense, (ii)
obtains approval from Indemnitee of its proposed counsel and (iii) retains
such counsel, the Corporation will not be liable to Indemnitee under this
Agreement for any attorney's fees or other Liabilities subsequently
incurred by Indemnitee with respect to such Proceeding, unless (x) the
Liabilities incurred by Indemnitee were previously authorized by the
Corporation or (y) counsel for Indemnitee shall have provided the
Corporation with a written opinion of counsel stating that there is a
likelihood that a conflict of interest exists between the Corporation and
Indemnitee in the conduct of any such defense.
7. Determination of Right to Indemnification.
-----------------------------------------
(a) Successful Proceeding. To the extent Indemnitee has been
---------------------
successful, on the merits or otherwise, in the defense of any Proceeding
referred to in Section 3(a) or 3(b) above, the Corporation shall indemnify
Indemnitee against all Liabilities incurred by him in connection therewith.
If Indemnitee is not wholly successful in such Proceeding, but is
successful, on the merits or otherwise, as to one or more but less than all
claims, issues or matters in such Proceeding, then the Corporation shall
indemnify Indemnitee against all Liabilities actually or reasonably
incurred by or for him in connection with each successfully resolved claim,
issue or matter. For purposes of this Section 7(a), and without limitation,
the termination of any Proceeding, or any claim, issue or matter in such a
Proceeding, by dismissal, with or without prejudice, shall be deemed to be
a successful result as to such Proceeding, claim, issue or matter, so long
as there has been no finding (either adjudicated or pursuant to Section
7(c) below) that Indemnitee (i) did not act in good faith, (ii) did not act
in a manner reasonably believed to be in, or not opposed to, the
-7-
<PAGE>
best interests of the Corporation, or (iii) with respect to any criminal
proceeding, had reasonable grounds to believe his conduct was unlawful.
(b) Other Proceedings. In the event that Indemnitee has not been
-----------------
successful in the defense of less than all claims, issues or matters of any
Proceeding referred to in Section 3(a) or 3(b) above, the Corporation shall
nevertheless indemnify Indemnitee against all Liabilities incurred by
Indemnification in connection therewith, unless and only to the extent that
the forum listed in Section 7(c) or 7(f) below determines that Indemnitee
has not met the applicable standard of conduct set forth in Section 3(a) or
3(b) above required to entitle Indemnitee to such indemnification.
(c) Forum in Event of Dispute. Subject to Section 3(f) below, the
-------------------------
determination that indemnification of Indemnitee is proper in the
circumstances because Indemnitee has met the applicable standard of conduct
set forth in Section 3(a) or 3(b) shall be made (i) by the Board, by a
majority vote of the directors who are not parties to such Proceeding, even
though less than a quorum or (ii) by a committee of such disinterested
directors designated by a majority of such disinterested directors, even
though less than a quorum, or (iii) if there are no such disinterested
directors, or if such disinterested directors shall so direct, by
Independent Legal Counsel in a written opinion, or (iv) by the stockholders
of the Corporation. The choice of which forum shall make the determination
shall be made by the Board. The forum shall act in the utmost good faith to
assure Indemnitee a complete opportunity to present to the forum
Indemnitee's case that Indemnitee has met the applicable standard of
conduct.
(d) Appeal to Court. Notwithstanding a determination by any forum
---------------
listed in Section 7(c) above that Indemnitee is not entitled to
indemnification with respect to a specific Proceeding, Indemnitee shall
have the right to apply to the court in which that Proceeding is or was
pending or any other court of competent jurisdiction for the purpose of
enforcing Indemnitee's right to indemnification pursuant to this Agreement.
(e) Indemnity for Liabilities in Enforcement of Agreement.
-----------------------------------------------------
Notwithstanding any other provision in this Agreement to the contrary, the
Corporation shall indemnify Indemnitee against all Liabilities incurred by
Indemnitee in connection with any other Proceeding between the Corporation
and Indemnitee involving the interpretation or enforcement of the rights of
Indemnitee under this Agreement, unless a court of competent jurisdiction
finds that the material claims and/or defenses of Indemnitee in any such
Proceeding were frivolous or made in bad faith.
(f) Change in Control. Notwithstanding any other provision of this
-----------------
Agreement, the Corporation agrees that if there is a Change in Control,
other than a Change in Control which has been approved, prior to such
Change in Control, by a majority vote of the members of the Board, then,
with respect to all matters thereafter arising concerning the rights of
Indemnitee to payments of Liabilities under this Agreement or any other
agreement or under the Certificate of Incorporation or By-laws of the
Corporation, as now or hereafter in effect, Independent Legal Counsel shall
be
-8-
<PAGE>
selected on behalf of Indemnitee and all persons who are the beneficiaries
of indemnification agreements with the Corporation similar to this
Agreement by a committee consisting of those persons who were members of
the Board immediately prior to such Change in Control and who are no longer
serving on the Board, and such selection shall be approved by the
Corporation, which approval shall not be unreasonably withheld. Such
Independent Legal Counsel, among other things, shall render its written
opinion to the Corporation and Indemnitee as to whether and to what extent
Indemnitee would be permitted to be indemnified under applicable law. The
Corporation agrees to abide by such opinion, to pay the reasonable fees of
such Independent Legal Counsel and to fully indemnify such Independent
Legal Counsel against any and all expenses (including attorneys' fees),
claims, liabilities and damages arising out of or relating to this
Agreement or its engagement pursuant hereto.
8. Contribution.
------------
If and to the extent that a final adjudication shall specify that the
Corporation is not obligated to indemnify Indemnitee under this Agreement
for any reason (including but not limited to the exclusion set forth in
Section 9 hereof) in respect of any Proceeding, then the Corporation shall
contribute to the amount of Liabilities reasonably incurred and paid or
payable by Indemnitee in connection with such Proceeding in such proportion
as is appropriate (i) to reflect the relative benefits received by the
Corporation, on the one hand, and Indemnitee, on the other hand, from the
transaction with respect to which such Proceeding arose, and (ii) if the
allocation provided by clause (i) is not permitted by applicable law, in
such proportion to reflect not only the relative benefits referred to in
clause (i) but also the relative fault of the Corporation, on the one hand,
and Indemnitee, on the other hand, in connection with the circumstances
which resulted in such Liabilities, as well as any other relevant equitable
considerations. The relative fault of the Corporation, on the one hand, and
Indemnitee, on the other hand, shall be determined by reference to, among
other things, the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent the circumstances
resulting in such Liabilities. The Corporation agrees that it would not be
just and equitable if contribution pursuant to this Section 8 were
determined by pro rata allocation or any other method of allocation which
does not take account of the foregoing equitable considerations.
9. Exceptions.
----------
(a) Claims Initiated by Indemnitee. Notwithstanding any other
------------------------------
provision of this Agreement, the Corporation shall not be obligated
pursuant to the terms of this Agreement to indemnify or advance Liabilities
to Indemnitee with respect to Proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except with respect to
Proceedings brought to establish or enforce a right to indemnification
under this Agreement, but such indemnification or advancement of expenses
may be provided by the Corporation in specific cases if the Board finds it
to be appropriate.
-9-
<PAGE>
(b) Unauthorized Settlements. Notwithstanding any other provision of
------------------------
this Agreement, the Corporation shall not be obligated pursuant to the
terms of this Agreement to indemnify Indemnitee under this Agreement for
any amount paid in settlement of a Proceeding without the prior written
consent of the Corporation to such settlement.
(c) No Duplicative Payment. Notwithstanding any other provision of
----------------------
this Agreement, the Corporation shall not be liable under this Agreement to
make any payment of amounts otherwise indemnifiable hereunder if and to the
extent that Indemnitee has otherwise actually received such payment under
any insurance policy, contract, agreement or otherwise.
(d) Claim Under Section 16(b). Notwithstanding any other provision of
-------------------------
this Agreement, the Corporation shall not be obligated to indemnify
Indemnitee for any payment of profits pursuant to Section 16(b) of the
Exchange Act (or any successor statute), or any related expenses, arising
from the purchase and sale by Indemnitee of securities.
(e) Unlawful Indemnification. Notwithstanding any other provision of
------------------------
this Agreement, the Corporation shall not be obligated to indemnify
Indemnitee if a final decision by a court having jurisdiction in the matter
shall determine that such indemnification is not lawful.
10. Certificate of Incorporation and By-laws.
----------------------------------------
The Corporation agrees that the Certificate of Incorporation and By-
laws of the Corporation in effect on the date hereof shall not be amended
to reduce, limit, hinder or delay (a) the rights of Indemnitee granted
hereby or (b) the ability of the Corporation to indemnify Indemnitee as
required hereby. The Corporation further agrees that it shall exercise the
powers granted to it under its Certificate of Incorporation and By-laws and
by applicable law to indemnify any Indemnitee to the fullest extent
possible as required hereby.
11. Non-exclusivity.
---------------
The provisions for indemnification and advancement of Liabilities set
forth in this Agreement shall not be deemed exclusive of any other rights
which Indemnitee may have under any provision of law, the Corporation's
Certificate of Incorporation or By-laws, the vote of the Corporation's
stockholders or disinterested directors, other agreements or otherwise.
12. Interpretation of Agreement.
---------------------------
It is understood that the parties hereto intend this Agreement to be
interpreted and enforced so as to provide indemnification to Indemnitee to
the fullest extent now or hereafter permitted by law.
-10-
<PAGE>
13. Mutual Acknowledgment.
---------------------
The Corporation and Indemnitee acknowledge that in certain instances,
federal law or applicable public policy may prohibit the Corporation from
indemnifying Indemnitee in Indemnitee's capacity as an Agent under this
Agreement or otherwise.
14. Severability.
------------
If any provision or provisions of this Agreement shall be held to be
invalid, illegal or unenforceable for any reason whatsoever, (a) the
validity, legality and enforceability of the remaining provisions of the
Agreement (including, without limitation, all portions of any paragraphs of
this Agreement containing any such provision held to be invalid, illegal or
unenforceable) shall not in any way be effected or impaired thereby, and
(b) to the fullest extent possible, the provisions of this Agreement
(including, without limitation, all portions of any paragraph of this
Agreement containing any such provision held to be invalid, illegal, or
unenforceable that are not themselves invalid, illegal or unenforceable)
shall be construed so as to give effect to the intent manifested by the
provision held invalid, illegal or unenforceable and to give effect to
Section 12 hereof.
15. Modification and Waiver.
-----------------------
No supplement, modification or amendment to this Agreement shall be
binding unless executed in writing by both of the parties hereto. No waiver
of any of the provisions of this Agreement shall be deemed, or shall
constitute, a waiver of any other provisions hereof (whether or not
similar), nor shall such waiver constitute a continuing waiver.
16. Subrogation.
-----------
In the event that the Corporation makes any payment under this
Agreement, the Corporation shall be subrogated to the extent of such
payment to all of the rights of recovery of Indemnitee, who shall execute
all papers and do all things that may be necessary to secure such rights,
including, but not limited to, the execution of such documents as shall be
necessary to enable the Corporation effectively to bring suit to enforce
such rights.
17. Survival, Successors and Assigns.
--------------------------------
Indemnitee's rights under this Agreement shall continue after
Indemnitee has ceased acting as an Agent of the Corporation. The terms of
this Agreement shall be binding on and inure to the benefit of the
Corporation and its successors and assigns and shall be binding on and
inure to the benefit of Indemnitee and Indemnitee's heirs, executors and
administrators.
-11-
<PAGE>
18. Notices.
-------
All notices, demands, consents, requests, approvals and other
communications between the parties pursuant to this Agreement must be in
writing and will be deemed given when delivered in person, one (1) business
day after being deposited with a nationally recognized overnight courier
service, three (3) business days after being deposited in the U.S. Mail,
registered or certified mail, return receipt requested, or one (1) business
day after being sent by facsimile (with receipt acknowledged), to the
Corporation at 4225 Naperville Road, Suite 400, Lisle, Illinois 60532
(Attn: General Counsel), its principal office in Chicago, Illinois, and to
Indemnitee at Indemnitee's address as shown on the Corporation's records.
The Corporation or Indemnitee may change its address for notice purposes by
delivering notice to the Corporation in accordance with this Section 18.
All notices sent to the Corporation shall also be delivered to Katten
Muchin Zavis, 525 West Monroe Street, Suite 1600, Chicago, Illinois 60661-
3693, Attention: Mark D. Wood, Esq., Facsimile No. (312) 902-1061.
19. Governing Law.
-------------
This Agreement shall be governed exclusively by and construed
according to the laws of the State of Delaware, without regard to its
principles of conflicts of laws.
20. Counterparts.
------------
This agreement may be executed in counterparts, each of which when so
executed and delivered shall be deemed an original, and such counterparts
together shall constitute one instrument.
The parties hereto have entered into this Indemnification Agreement
effective as of the date first above written.
divine interVentures, inc.
By: ___________________________________
Its: ___________________________________
INDEMNITEE:
________________________________________
________________________________________
________________________________________
(Print Address)
-12-
<PAGE>
EXHIBIT 10.4
AGREEMENT OF SUBLEASE
Between
BUDGET RENT A CAR CORPORATION,
Sublandlord
And
DIVINE INTERVENTURES, INC.
Subtenant
Dated: August 25, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
1 Sublease of Leased Premises....................................................................... 1
2 Term.............................................................................................. 2
3 Base Rent......................................................................................... 3
4 Additional Rent................................................................................... 3
5 Security.......................................................................................... 3
6 Furniture and Fixtures............................................................................ 4
7 Subtenant Improvement Allowance................................................................... 4
8 Right of First Offer.............................................................................. 4
9 Parking........................................................................................... 5
10 Signage........................................................................................... 5
11 Electricity....................................................................................... 5
12 Use............................................................................................... 5
13 Liability and Insurance........................................................................... 6
14 Fire or Casualty.................................................................................. 7
15 Assignment........................................................................................ 7
16 Repairs........................................................................................... 7
17 Surrender of Possession........................................................................... 7
18 Captions.......................................................................................... 8
19 Notices........................................................................................... 8
20 Severability/Separability......................................................................... 8
21 Binding Effect.................................................................................... 8
22 Entire Agreement.................................................................................. 8
23 Attorneys' Fees................................................................................... 8
24 Prime Lease....................................................................................... 9
25 Prime Landlord's Consent.......................................................................... 9
26 Quiet Enjoyment................................................................................... 9
27 Defaults and Remedies; Interest on Late Payments.................................................. 9
28 Utilities and Services............................................................................ 10
29 Subtenant's Obligations and Sublandlord's Right to Perform Subtenant's Obligations................ 10
30 Subtenant Not to Cause Default.................................................................... 11
31 Waiver............................................................................................ 11
32 Arbitration....................................................................................... 11
33 Authority to Bind Parties......................................................................... 11
34 Brokers........................................................................................... 11
35 Rights Cumulative................................................................................. 11
36 Governing Law..................................................................................... 11
37 Full Negotiation.................................................................................. 11
38 Changes in Writing................................................................................ 11
39 Partial Payment................................................................................... 12
40 Partial Invalidity................................................................................ 12
41 No Offer.......................................................................................... 12
42 Prime Lease Conditions............................................................................ 12
</TABLE>
<PAGE>
Exhibits
--------
A Prime Lease
B Floor Plan
C Irrevocable Letter of Credit
D Bill of Sale
E Master Landlord Non-Disturbance, Recognition, Estoppel and
Attornment Agreement
F Schedule of Occupancy and Space for Data Center
<PAGE>
SUBLEASE
This Sublease is entered into as of this 25th day of August, 1999, by and
between Budget Rent A Car Corporation, a Delaware corporation ("Sublandlord"),
and Divine Interventures, Inc., a Delaware corporation" ("Subtenant").
W I T N E S S E T H:
WHEREAS, the following facts are true:
A. By Lease Agreement Dated __________, 1991, which commenced January 1, 1992
("Prime Lease"), Sublandlord leased approximately 160,488 rentable square
feet of office space ("Leased Premises") located at 4225 Naperville Road,
Lisle, Illinois 60532 (the "Building") from Dugan/Office, L.L.C., an
Indiana limited liability company ("Master Landlord"). A copy of the Prime
Lease is attached hereto as Exhibit "A".
-----------
B. Sublandlord and Subtenant now desire to enter into a sublease whereby
Subtenant will lease a portion of the Leased Premises consisting of
approximately 25,000 square feet of office space located on the fourth
(4/th/) floor of the Building and approximately 2,500 square feet of Data
Center space located on the seventh (7/th/) floor of the Building (which
Data Center space shall be delivered to Subtenant in phases in the manner
set forth on the Schedule of Occupancy and Space for the Data Center
attached to this Sublease as Exhibit "F" (the "Data Center Schedule")) for
-----------
a total of approximately 27,500 square feet ("Subleased Premises"), as
shown on the floor plan attached to this Sublease as Exhibit "B" and
-----------
Exhibit "F", upon and subject to the terms, covenants and conditions herein
-----------
contained.
NOW THEREFORE, the parties hereto agree as follows:
1. Sublease of Leased Premises
---------------------------
Effective as of the commencement of the term of this Sublease as set forth
in paragraph 2 of this Sublease (with the exception of the Data Center
space which shall be leased by Subtenant effective upon Sublandlord's
delivery of same as more particularly set forth hereinbelow), Sublandlord
hereby subleases to Subtenant, and Subtenant hereby hires and subleases
from Sublandlord, on the terms, covenants and conditions hereinafter
provided, the Subleased Premises consisting of all that office space and
improvements, and Data Center as shown on Exhibit "B" and Exhibit "F".
----------- -----------
Subtenant accepts the Subleased Premises in their current "as-is" condition
and acknowledges that, except as may be otherwise expressly set forth
herein, Sublandlord has made no representation or warranty of any kind,
express or implied, with respect to the Subleased Premises or the condition
thereof or the use or occupation that may be made thereof and that the
Sublandlord shall in no event whatsoever be liable for any latent or patent
defects therein. Notwithstanding the foregoing, Sublandlord shall, subject
to the conditions and limitations set forth in the Prime Lease, cause the
Subleased Premises to be demised from the balance of the fourth (4/th/)
floor and from the remainder of the Data Center on the seventh (7/th/)
floor and made independently functional for Subtenant's use, at
Sublandlord's expense, with such work to be performed in a manner and to
the extent reasonably satisfactory to Subtenant; provided, however, as to
the work to be performed on the Data Center, such work shall include,
without limitation, any and all work necessary to cause the Data Center to
function for Subtenant in a manner consistent with the standards currently
being provided to Sublandlord (which shall include, but not be limited to,
supplementary HVAC, electric power and fire suppression for separately
demised portions of the Data Center). The final square footage of the
Subleased Premises is subject to final measurement by Sublandlord's
architect which is the rentable square footage the Base Rent and Additional
Rent (as hereinafter defined) will be paid on.
<PAGE>
2. Term; Delivery
--------------
The term of this Sublease shall commence upon Sublandlord's tender of
possession to Subtenant of all of the Subleased Premises to be demised by
Subtenant hereunder (except for the Data Center space which shall not be
leased by Subtenant until Sublandlord delivers same to Subtenant and such
phasing of delivery shall not affect the commencement of the term of this
Sublease as to the remainder of the Subleased Premises) in the condition
required pursuant to this Sublease, free of all tenancies except for the
Prime Lease, and shall continue until December 31, 2006, which date
Sublandlord hereby represents and warrants is coterminous with the
expiration of the current term of the Prime Lease. Notwithstanding the
foregoing, Base Rent and all Additional Rent shall commence to be due and
payable three (3) weeks following the commencement of the term of this
Sublease. Subtenant's obligation to pay Base Rent and Additional Rent on
such portions of the Data Center space as are delivered to Subtenant by
Sublandlord shall commence immediately following such delivery, and shall
be subject to any abatement in effect at that time. Sublandlord and
Subtenant hereby acknowledge and agree that in no event shall the term of
this Sublease commence unless and until Sublandlord tenders possession of
all of the Subleased Premises and not a portion thereof; provided, as set
forth hereinabove, the foregoing limitation shall not be applicable to the
phase in of the delivery of the Data Center space.
In addition to the foregoing, in the event Sublandlord fails to deliver
possession of the entire Subleased Premises (other than the Data Center
space as set forth hereinabove) on or prior to August 27, 1999 for any
reason whatsoever, including, without limitation, force majeure, then from
and after said date Subtenant shall be entitled to free rent under this
Sublease in the amount of two (2) days of such free rent for each day
following such August 27, 1999 date until Sublandlord tenders possession of
the Subleased Premises (other than the Data Center space) to Subtenant in
the condition required under this Sublease, such free rent to apply to any
and all rent due and owing under this Sublease following the expiration of
any other credits, abatements and/or allowances. Further, in the event
Sublandlord fails to tender possession of that portion of the Subleased
Premises identified on the floor plan attached to this Sublease as Exhibit
-------
"B" as the "Minimum Required Space" on or prior to August 27, 1999, then in
---
addition to any and all remedies available to Subtenant at law or in
equity, Subtenant shall be entitled to terminate this Sublease upon written
notice to Sublandlord, or Subtenant may continue to accrue additional free
rent as set forth hereinabove.
Further, Sublandlord and Subtenant acknowledge and agree that attached to
this Sublease as Exhibit "F" is the Data Center Schedule which represents
-----------
the dates upon which Sublandlord has committed to deliver portions of the
Data Center space to Subtenant as more particularly set forth therein. In
connection therewith, in the event Sublandlord fails to tender possession
of any portion of the Data Center space in the condition required by this
Sublease on or prior to the date Sublandlord committed to tender possession
of such portion of the Data Center space to Subtenant as set forth in the
Data Center Schedule, then with respect to such portion of the Data Center
space for which possession has not been tendered to Subtenant in the
condition required by this Sublease, Subtenant shall be entitled to accrue
free rent under this Sublease (which free rent shall only relate to the
Base Rent and Additional Rent that would otherwise be payable on such
portion of the Data Center space which is not so delivered to Subtenant) in
the amount of two (2) days of such free rent for each day following the
committed date of delivery of such space until Sublandlord tenders
possession of such portion of the Data Center space to Subtenant in the
condition required under this Sublease, such free rent to apply to any and
all rent due and owing under this Sublease following the expiration of any
other credits, abatements and/or allowances.
2
<PAGE>
3. Base Rent
---------
Following the expiration of any period of abatement, credit or allowances
due under this Sublease, Subtenant shall pay to Sublandlord, without notice
or demand and without abatement, deduction, counterclaim or setoff except
as may be expressly set forth in this Sublease or permitted by virtue of
the Prime Lease, a fixed annual rent (the "Base Rent"), payable in equal
monthly installments on the first day of each month as follows:
-----------------------------------
Year Rate Per RSF
-----------------------------------
1 $18.50
-----------------------------------
2 $19.06
-----------------------------------
3 $19.63
-----------------------------------
4 $20.22
-----------------------------------
5 $20.82
-----------------------------------
6 $21.45
-----------------------------------
7 $22.09
-----------------------------------
8 $22.75
(partial year)
-----------------------------------
Notwithstanding the foregoing, all rent due under this Sublease shall abate
in the following manner: (i) for the first three (3) months following the
commencement of the term of this Sublease in which rent is due (i.e., after
the expiration of the initial three (3) week abatement period set forth in
Paragraph 2 of this Sublease) all rent due hereunder shall abate, (ii) for
the fourth (4/th/) through ninth (9/th/) months, inclusive, of the term in
which rent is due Subtenant shall receive an abatement of rent equal to
sixty-eight percent (68%) of the rent due under this Sublease, and (iii)
for the tenth (10/th/) through twelfth (12/th/) months, inclusive, of the
term in which rent is due, Subtenant shall receive an abatement of rent
equal to fifty-two percent (52%) of the rent due hereunder. Following the
expiration of the twelfth (12/th/) month of the term of this Sublease in
which such rent is payable, Subtenant shall not receive an abatement of
rent in connection with the foregoing provisions of this Paragraph 3;
provided, however, the foregoing shall not waive, limit or restrict any
other abatement or credit of rent due hereunder due to any other concession
granted to Subtenant hereunder or pursuant to any other provision of this
Sublease.
4. Additional Rent
---------------
Subtenant shall pay, as additional rent ("Additional Rent"), its
Proportionate Share (hereinafter defined) of Taxes paid by Sublandlord,
together with its Proportionate Share of actual Operating Expenses paid by
Sublandlord as those terms are defined in the Prime Lease. Subtenant's
Proportionate Share is 17.135% (160,488 / 27,500) as potentially adjusted
after final space measurement.
5. Security
--------
Subtenant upon execution and delivery of this Sublease will cause its bank
to issue to Sublandlord an irrevocable letter of credit substantially in
the form attached hereto as Exhibit "C", in a sum equivalent to
-----------
$442,865.00. If Subtenant shall not be in monetary default or material non-
monetary default beyond applicable notice and cure periods at the
expiration of the second (2/nd/) full calendar year of the term of this
Sublease, the letter of credit, or any unapplied balance thereof, shall be
returned to Subtenant and upon returning the letter of credit to
Sublandlord, Subtenant will deposit with Sublandlord a cash security
deposit equal to one months gross rent at Subtenant's then escalated gross
rental rate.
3
<PAGE>
6. Furniture and Fixtures
----------------------
Subtenant shall for $10.00 and other consideration, the receipt and
sufficiency Sublandlord hereby acknowledges, purchase the furniture systems
and phone systems currently in place at the Subleased Premises, as
described on the attached Exhibit "D", Bill of Sale. In connection with the
-----------
foregoing, Sublandlord hereby represents and warrants that none of the
items to be conveyed by Sublandlord to Subtenant pursuant to said Bill of
Sale are encumbered by any lien or other security interest and Sublandlord
owns said items free and clear of any other interest whatsoever. In the
event the foregoing representation and warranty is not true, then in
addition to any and all other remedies available to Subtenant at law or in
equity, Subtenant shall be permitted to discharge any said liens or
security interests without inquiring as to the validity thereof and any and
all costs and expenses, including reasonable attorneys' fees and court
costs, incurred by Subtenant in so discharging said liens or security
interests shall be offset against the next installment or installments of
rent due under this Sublease and if no such further installments of rent
are due hereunder then Sublandlord shall reimburse said amounts to
Subtenant within thirty (30) days of Subtenant's written demand therefor.
The foregoing provision shall survive the expiration of this Sublease or
earlier termination hereof.
7. Subtenant Improvement Allowance
-------------------------------
Sublandlord will provide to Subtenant a tenant improvement allowance equal
to $11.00 per rentable square foot times the final determined rentable
square footage of the Subleased Premises. Subtenant shall be responsible to
obtain any and all approvals required by the Prime Lease prior to
Subtenant's commencement of any work which requires such approvals;
provided, however Sublandlord and Subtenant acknowledge and agree that it
shall be reasonable for Master Landlord to require Subtenant to provide to
Master Landlord lien waivers in connection with any such work as a
condition to Master Landlord's consent to same. The tenant improvement
allowance may be utilized for space planning, working drawings,
construction, furniture, fixtures and equipment, telecommunications and
data and any other expenditures related to Subtenant's physical occupancy
of the Subleased Premises. Any unused portion of the allowance up to $2.00
per rentable square foot will be credited against Subtenant's Base Rent
next becoming due hereunder.
Sublandlord will pay the tenant improvement allowance to Subtenant within
thirty (30) days of submittal by Subtenant of receipts for items covered by
such allowance. In the event Sublandlord fails to pay such tenant
improvement allowance within the time frames set forth hereinabove
Subtenant shall thereafter be entitled to offset against the rent due
hereunder such amounts which have not been paid by Sublandlord hereunder on
a timely basis.
8. Right of First Offer
--------------------
Sublandlord will provide Subtenant with a Right of First Offer ("ROFO") on
the approximately 25,000 square feet on the south half of the 5/th/ floor
of the Building. The ROFO will be triggered by a bona fide prospect's
Request for Proposal. Upon receipt of Sublandlord's notice, Subtenant shall
have fifteen (15) business days to respond if it wants to sublease the
space. The rental rate for the space shall be Subtenant's then escalated
Base Rent plus Additional Rent. The concession package (which concession
package shall include, but not be limited to, construction allowances and
parking spaces) will be adjusted proportionately, but shall not include the
furniture systems and equipment located therein. The rent credit shall be
equal to that being provided Subtenant, if any, at the time of occupancy of
the ROFO space. If the occupancy date is beyond the first year of the
sublease term there will be no rent credit.
In the event Subtenant does not exercise its ROFO and the bona fide
prospect does not sublease the space within six (6) months, Subtenant's
ROFO will be renewed and the provisions and rights contained herein shall
again apply to Subtenant.
4
<PAGE>
9. Parking
-------
Sublandlord will provide Subtenant, at no cost to Subtenant or its
officers, agents, employees or invitees, with six (6) reserved parking
spaces in the Building's heated garage. If Subtenant expands its sublease
to 50,000 square feet it will receive an additional four (4) reserved
parking spaces in the heated garage.
10. Signage
-------
If Subtenant takes approximately 50,000 square feet of the Leased Premises
it will receive the right, at its own cost and expense, to replace
Sublandlord on the Building's monument sign subject to approval by the
Master Landlord. In addition, if Subtenant takes 75,000 square feet of the
Leased Premises it will receive the right, at its own cost and expense, to
replace Sublandlord on all of the exterior signage on the Building
permitted Sublandlord under the Prime Lease, subject to approval by the
Master Landlord of same. In connection therewith, in the event Subtenant is
entitled to replace Sublandlord on either the Building's monument sign or
the exterior building signage, as the case may be, in any of such events
Sublandlord shall, at Subtenant's sole, but reasonable, cost and expense,
remove its existing signage to permit Subtenant to install Subtenant's
signage thereon and Sublandlord shall, at Sublandlord's sole cost and
expense except as set forth herein, further repair any damage caused to the
monument sign or the Building caused by such removal and to cause such
areas upon which Subtenant's signage will be installed to be in good
condition and repair in order to permit Subtenant to install its signage
thereon; provided, however, after Sublandlord has completed the repair
obligations, if any, as set forth herein, Subtenant shall reimburse to
Sublandlord one half (1/2) of the reasonable actual out-of-pocket costs and
expenses incurred by Sublandlord in so making such repairs, such amounts to
be payable by Subtenant to Sublandlord within thirty (30) days of an
invoice therefor (with such reasonable supporting documentation as
necessary to confirm the costs evidenced as payable by Sublandlord), such
amounts to be considered as Additional Rent due hereunder.
11. Electricity
-----------
The fourth floor portion of the Subleased Premises is currently separately
metered and Subtenant will be responsible for cost of the electricity
necessary to run the Subleased Premises, payable directly to the utility
company.
For the Data Center, the electrical will be billed to Subtenant by
Sublandlord on a proportionate basis, such portion to be equal to a
fraction, the numerator of which is such portion of the Data Center demised
by Subtenant hereunder and the denominator of which is the total leasable
floor area of the Data Center. Notwithstanding the foregoing, any and all
costs billed by Sublandlord to Subtenant hereunder shall be Sublandlord's
actual out-of-pocket costs with no markup or overhead.
12. Use
---
The Subleased Premises shall be used for general office purposes only.
Subtenant shall not use or occupy the Subleased Premises or permit its
employees or agents to use or occupy the Subleased Premises for any
purpose, act or thing which is in violation of the Prime Lease or any
public law, ordinance or governmental regulation or may invalidate any
policy of insurance carried on the Building or the Subleased Premises.
Subtenant shall not do or permit its employees or agents to do anything
upon the Subleased Premises which in any way may constitute waste, create a
nuisance, disturb the occupants of the Building or of neighboring property
or injure the reputation of the Building or Sublandlord.
5
<PAGE>
13. Liability and Insurance
-----------------------
Subtenant agrees that Sublandlord, Master Landlord and its officers,
employees and agents, shall not be liable to Subtenant for, and Subtenant
hereby releases said parties from, any personal injury or damage to or loss
of personal property in or about the Subleased Premises or the Building
from any cause whatsoever, other than intentional or negligent conduct by
Master Landlord or Sublandlord, or their respective officers, contractors,
employees or agents, as the case may be.
Subtenant shall defend, indemnify and save harmless Sublandlord and its
agents and employees against and from all liabilities, obligations,
damages, penalties, claims, costs, charges and expenses, including
reasonable attorneys' fees, which may be imposed upon or incurred by or
asserted against Sublandlord and/or its agents by reason of any of the
following which shall occur during the Sublease term:
a. any work or act done in, on or about the Subleased Premises or any
part thereof at the direction of Subtenant, its agents, contractors,
subcontractors, servants, employees, licensees or invitees, except if
such work or act is done or performed by Sublandlord or its agents,
contractors or employees;
b. any negligence or other wrongful act or omission on the part of
Subtenant or any of its agents, contractors, subcontractors, servants,
employees, subtenants, licensees or invitees;
c. any accident, injury or damage to any person or property occurring in,
on or about the Subleased Premises or any part thereof, unless caused
by the negligence of Sublandlord, its employees or agents; and
d. any failure on the part of Subtenant to perform or comply with any of
the covenants, agreements, terms, provisions, conditions or
limitations contained in this Sublease on its part to be performed or
complied with.
Subtenant shall at all times during the period in which it has any
occupancy rights in the Subleased Premises, maintain in full force and
effect comprehensive public liability insurance, naming Sublandlord and
Master Landlord as additional insureds, covering injury to persons in
amounts at least equal to $2,000,000 for any occurrence involving one
person, $5,000,000 involving two or more persons, per occurrence, and
damage to property of at least $1,000,000, occurring in or about the
Subleased Premises, and also covering the indemnity set forth above. All
such policies of insurance shall comply with the terms and conditions of
the Prime Lease, which is incorporated herein by reference.
Sublandlord shall defend, indemnify and save harmless Subtenant and its
agents and employees against and from all liabilities, obligations,
damages, penalties, claims, costs, charges and expenses, including
reasonable attorneys' fees, which may be imposed upon or incurred by or
asserted against Subtenant and/or its agents by reason of any of the
following which shall occur during the Sublease term:
a. any work or act done in, on or about the Subleased Premises or any
part thereof at the direction of Sublandlord, its agents, contractors,
subcontractors, servants, employees, licensees or invitees, except if
such work or act is done or performed by Subtenant or its agents,
contractors or employees;
b. any negligence or other wrongful act or omission on the part of
Sublandlord or any of its agents, contractors, subcontractors,
servants, employees, subtenants, licensees or invitees;
6
<PAGE>
c. any accident, injury or damage to any person or property occurring in,
on or about the Subleased Premises or any part thereof, unless caused
by the negligence of Subtenant, its employees or agents; and
d. any failure on the part of Sublandlord to perform or comply with any
of the covenants, agreements, terms, provisions, conditions or
limitations contained in this Sublease on its part to be performed or
complied with.
Sublandlord shall at all times during the period in which it has any
occupancy rights in the Leased Premises, maintain in full force and effect
comprehensive public liability insurance, naming Subtenant as an additional
insured, covering injury to persons in amounts at least equal to $2,000,000
for any occurrence involving one person, $5,000,000 involving two or more
persons, per occurrence, and damage to property of at least $1,000,000,
occurring in or about the Leased Premises, and also covering the indemnity
set forth above. All such policies of insurance shall comply with the terms
and conditions of the Prime Lease, which is incorporated herein by
reference.
14. Fire or Casualty
----------------
The terms of the Prime Lease shall control and prevail.
15. Assignment
----------
The terms of the Prime Lease shall control and prevail.
16. Repairs
-------
Subtenant shall, at Subtenant's sole cost and expense, keep the interior
nonstructural portions of the Subleased Premises and all systems therein in
good order, repair and condition at all times during the Sublease term, and
Subtenant shall promptly and adequately repair all damage to the interior
nonstructural portions of the Subleased Premises occurring during the
Sublease term and replace or repair all damaged or broken fixtures and
appurtenances, as well as all operating equipment, facilities and systems,
to the extent such damage occurs during the Sublease term, all with
reasonable dispatch, and in a good and workmanlike manner; provided,
however, in no event shall Subtenant be required to make any repairs
otherwise required of Subtenant hereunder which are the responsibility of
Master Landlord under the Prime Lease or which are otherwise required by
the negligence or willful misconduct of Sublandlord or its agents,
contractors, employees or agents. If Subtenant does not do so, Sublandlord
may, but need not, make such repairs and replacements, after giving
Subtenant reasonable prior written notice (which prior written notice shall
in no event be less than thirty (30) days or such longer period of time as
reasonably necessary to cure such default so long as Subtenant commences to
cure such default within such thirty (30) day period and diligently pursues
the cure thereafter), and Subtenant shall pay to Sublandlord the reasonable
cost thereof within thirty (30) days after being billed for the same.
Subtenant shall be liable for, and Subtenant shall repair any damage to the
Building, including the structural and exterior (including the roof)
portions thereof, caused by Subtenant, its agents, contractors or
employees, reasonable wear and tear excepted.
17. Surrender of Possession
-----------------------
Upon expiration of the Sublease term or upon the termination of Subtenant's
right of possession, whether by lapse of time or as otherwise herein
provided, Subtenant shall forthwith surrender the Subleased Premises to
Sublandlord in good order, repair and condition, broom clean, ordinary wear
and tear and damage by casualty or condemnation excepted. Subtenant agrees
that TIME SHALL BE OF THE ESSENCE with respect to Subtenant's obligations
to surrender possession of the Subleased Premises to Sublandlord upon the
termination of the term of this Sublease, and further agrees that in the
event that Subtenant does not promptly surrender possession of the
Subleased Premises to Sublandlord upon such termination, Sublandlord, in
addition to any other rights and remedies
7
<PAGE>
Sublandlord may have against Subtenant for such holding over, shall be
entitled to the same rights and remedies as provided to Master Landlord
under Article 23 of the Prime Lease and Subtenant shall be entitled to the
same benefits as provided to Sublandlord thereunder; provided, however,
Sublandlord hereby covenants and agrees that in the event Subtenant elects
to remain in possession of the Subleased Premises for the Holdover Period
(as defined in the Prime Lease) then Sublandlord shall provide to Master
Landlord such notice as required under the Prime Lease to effectuate the
right of Subtenant to remain in the Subleased Premises for such Holdover
Period.
18. Captions
--------
The captions in this Sublease are inserted only as a matter of convenience
and for reference and they in no way define, limit or describe the scope of
this Sublease or the intent of any provision hereof.
19. Notices
-------
Where notice is required hereunder, such notice will be deemed given if
sent to Sublandlord by certified mail, return receipt requested, postage
prepaid at the address specified above, and to Subtenant at the Subleased
Premises, by certified mail, return receipt requested, postage prepaid.
Subtenant shall not bring any action or proceeding against Sublandlord
without first having actually served Sublandlord with a copy of the
summons, complaint, or other appropriate papers at the Leased Premises,
with a copy to Peter Wemple, Vice President, Budget Rent A Car Corporation,
4225 Naperville Road, Lisle, Illinois, 60525.
20. Severability/Separability
-------------------------
Any provision of this Sublease which shall prove to be invalid, void or
illegal shall in no way affect, impair or invalidate any other provisions
hereof and such other provisions shall remain in full force and effect.
21. Binding Effect
--------------
The covenants, conditions, warranties and agreements contained in this
Sublease shall bind and inure to the benefit of Sublandlord and Subtenant
and their respective heirs, distributees, executors, administrators,
successors and assigns.
22. Entire Agreement
----------------
This Sublease, with the Exhibits annexed hereto, contains the entire
agreement between Sublandlord and Subtenant and incorporates all prior and
contemporaneous agreements, understandings, warranties, representations and
covenants. Any executory agreement hereafter made between Sublandlord and
Subtenant shall be ineffective to change, modify, waive, release,
discharge, terminate or effect an abandonment of this Sublease, in whole or
in part, unless such executory agreement is in writing and signed by the
party against whom enforcement of the change, modification, waiver,
release, discharge, termination or the effecting of the abandonment is
sought.
23. Attorneys' Fees
---------------
If any lawsuit, reference, mediation or arbitration is commenced which
arises out of or relates to this Sublease, the prevailing party shall be
entitled to recover from each other party such sums as the court, referee,
mediator or arbitrator may adjudge to be reasonable attorneys' fees in the
action, reference, mediation or arbitration, including the allocated costs
for the services of in-house counsel, in addition to costs and expenses
otherwise allowed by law.
8
<PAGE>
24. Prime Lease
-----------
This Sublease is subject and subordinate to the Prime Lease, which is
herewith incorporated by this reference into this Sublease as if fully set
forth herein. Except as may be inconsistent with the terms hereof, all the
terms, covenants and conditions in the Prime Lease shall be applicable to
this Sublease with the same force and effect as if Sublandlord were the
landlord under the Prime Lease and Subtenant were the tenant thereunder.
Sublandlord hereby represents and warrants that as of the date of this
Sublease the Prime Lease is in full force and effect and that neither the
Master Landlord nor the Sublandlord are in default thereunder nor has any
event occurred which with the passage of time or the giving of notice, or
both, would constitute a default by either party under the Prime Lease.
Sublandlord agrees not to enter into any amendment, modification, supplement
or other agreement relating to the Prime Lease which would materially and
adversely increase Subtenant's obligations hereunder or materially and
adversely decrease Subtenant's rights hereunder. Sublandlord shall not
knowingly do anything or knowingly permit its employees, agents or
contractors to do anything which results in a default of the Prime Lease or
permits the Prime Lease to be cancelled or terminated. In the event
Sublandlord shall default in its obligations under the Prime Lease which
will have a material and adverse impact upon Subtenant's rights pursuant to
this Sublease, Subtenant shall have the right, but not the obligation, upon
not less than ten (10) business days prior written notice and opportunity to
cure to Sublandlord, to cure such default by tendering performance of same
to Master Landlord and the costs and expenses incurred by Subtenant in
connection therewith shall be offset against the next installment or
installments of rent due under this Sublease. Sublandlord agrees to provide
to Subtenant copies of any and all notices (a) sent by Sublandlord to Master
Landlord, and/or (b) received by Sublandlord with respect to the Prime Lease
promptly upon Sublandlord's delivering or receipt of same, as the case may
be. With respect to any obligations to be performed by Master Landlord
under the Prime Lease, Sublandlord shall request same from Master Landlord,
upon written request from Subtenant, and use reasonable efforts to obtain
performance under the Prime Lease with respect to such obligations from
Master Landlord and Sublandlord shall exercise due diligence in connection
with obtaining such performance.
25. Prime Landlord's Consent
------------------------
This Sublease is conditioned upon Sublandlord's obtaining the Prime
Landlord's written consent to this Sublease in the form of the Master
Landlord Non-Disturbance, Recognition, Estoppel and Attornement Agreement
attached to this Sublease as Exhibit "E". If such consent is refused or if
-----------
the same is not obtained, in writing, within ten (10) days of the full
execution of this Sublease, this Sublease shall be null and void, of no
force or effect and all sums that Subtenant shall have paid or delivered
hereunder to Sublandlord shall be promptly returned to Subtenant.
26. Quiet Enjoyment
---------------
Upon Subtenant paying the rent and observing and performing the terms,
covenants and conditions on its part to be observed and performed under this
Sublease, Subtenant shall have quiet and peaceful enjoyment and possession
of the Subleased Premises during the Sublease term.
27. Defaults and Remedies: Interest on Late Payments
------------------------------------------------
If default shall be made in the payment of any installment of Base Rent or
any other sum required to be paid by Subtenant under this Sublease and such
default shall continue for ten (10) days after written notice to Subtenant,
or if default shall be made in the observance or performance of any other
covenants or conditions in this Sublease or the Prime Lease which Subtenant
is required to observe and perform and such default shall continue for
thirty (30) days after written notice to Subtenant, or if such default
cannot be cured within such thirty (30) day period and Subtenant shall not
have commenced and be diligently attempting to cure such default, or if a
default involves a hazardous
9
<PAGE>
condition and is not cured by Subtenant within three (3) days after written
notice to Subtenant, or, if such default cannot be cured within such three
(3) day period and Subtenant shall not have commenced and be diligently
attempting to cure such default, then Sublandlord may treat the occurrence
of any one or more of the foregoing events as a breach of this Sublease, and
thereupon may, with or without notice or demand of any kind to Subtenant or
any other person, have the following described remedies in addition to all
other rights and remedies provided at law or in equity or elsewhere herein.
Sublandlord may terminate this Sublease and the Sublease term created
hereby, in which event Sublandlord may forthwith repossess the Subleased
Premises and be entitled to recover forthwith, in addition to any other sums
owing to Sublandlord from or damages caused by Subtenant, as damages a sum
of money equal to the worth, discounted at the rate of the Prime Rate in
effect at the time of Sublandlord's termination, of the excess, if any, of
the amount of Base Rent and all other sums to be paid by Subtenant under
this Sublease throughout the balance of the Sublease term in effect at the
time of termination (as if not terminated by Sublandlord because of
Subtenant's default) over the then fair market rental value of the Subleased
Premises for the same period. Should the fair market rental value of the
Subleased Premises for the balance of the Sublease term exceed the value of
the Base Rent and Additional Rent provided to be paid by Subtenant for the
balance of the Sublease term, Sublandlord shall have no obligation to pay to
Subtenant the excess or any part thereof.
All monetary obligations and/or installments of Base Rent or Additional Rent
not paid when due and payable shall bear interest at the lesser of (a) the
rate of ten percent (10%) or (b) the maximum interest rate permitted by law,
from the date due until paid. In addition, following the first instance in
any twelve (12) consecutive month period of failure by Subtenant to pay any
installment of rent due hereunder within ten (10) days following the date
same is due, Subtenant shall pay to Sublandlord if Subtenant fails to pay
any installment of rent within ten (10) days of the date same is due, five
percent (5%) of the overdue amount as a late charge. Sublandlord's
acceptance of any late charge or interest shall not constitute a waiver of
Subtenant's default with respect to the overdue amount nor prevent
Sublandlord from exercising any of the other rights and remedies available
to Sublandlord under this Sublease or any law now or hereafter in effect.
28. Utilities and Services
----------------------
Subtenant shall be entitled to all of the services and rights to which
Sublandlord is entitled under the Prime Lease; provided, however, that
Sublandlord shall have no liability or responsibility should Master Landlord
not provide any of the services required under the Prime Lease, and
Subtenant's responsibility to pay Base Rent under this Sublease shall not be
affected in any way unless Sublandlord is excused from paying rent under the
Prime Lease; and further provided, however, that Sublandlord shall cause the
Subleased Premises to be submetered for electricity at Sublandlord's
expense, and Subtenant shall pay electricity costs directly to the utility
company.
29. Subtenant's Obligations and Sublandlord's Right to Perform Subtenant's
----------------------------------------------------------------------
Obligations
-----------
Subject to the terms of this Sublease and so long as the foregoing is
consistent with the terms of this Sublease, Subtenant, solely with respect
to the Subleased Premises, will duly and faithfully observe all the
applicable terms and restrictions and perform all the applicable obligations
imposed on Sublandlord as tenant under the Prime Lease; provided, however,
in no event shall Subtenant be obligated to perform any monetary obligation
imposed on Sublandlord, as tenant, under the Prime Lease. Sublandlord shall,
after reasonable prior written notice and opportunity to cure to Subtenant
(which shall in no event be less than thirty (30) days), have the right (but
not the obligation) to take any and all applicable actions required to be
taken by Subtenant pursuant to the provisions hereof or the Prime Lease, but
not timely taken by Subtenant, which may be necessary to prevent a default
under or to assure complete compliance with the terms of this Sublease or
the Prime Lease. All reasonable costs and expenses reasonably incurred by
Sublandlord, including, but not limited to, counsel fees, for any actions
taken pursuant to this Article 29 shall be payable by Subtenant, as
Additional Rent, within thirty (30) days after delivery of a statement of
any such costs to Subtenant.
10
<PAGE>
30. Subtenant Not to Cause Default
------------------------------
Subtenant shall neither do nor knowingly permit anything to be done by its
agents, contractors or employees which would cause the Prime Lease to be
terminated or forfeited by reason of any right of termination or forfeiture
reserved or vested in the Master Landlord under the Prime Lease.
31. Waiver
------
Failure of either party to insist upon the strict performance of any of the
terms or conditions herein shall not constitute a waiver of such party's
rights to thereafter enforce such terms and conditions.
32. Arbitration
-----------
Intentionally deleted.
33. Authority to Bind Parties
-------------------------
The individuals signing this Sublease on behalf of Sublandlord and Subtenant
hereby represent and warrant that they are empowered and duly authorized to
bind the respective parties to this Sublease.
34. Brokers
-------
Subtenant and Sublandlord each hereby to the other, covenant, warrant, and
represent that it has not dealt with any broker in connection with this
Sublease other than Colliers, Bennett & Kahnweiler and Julien J. Studley,
Inc. (the "Brokers"), and Sublandlord agrees to pay the commission of the
Broker in accordance with a separate agreement. The parties agree to
indemnify and hold each other harmless from any and all liability, damage,
costs, expenses and fees (including attorneys' fees) which either may incur
or be required to pay as a result of the other's dealings with any other
broker.
35. Rights Cumulative
-----------------
All rights and remedies of Sublandlord under this Sublease shall be
cumulative, and none shall exclude any other rights and remedies allowed by
law.
36. Governing Law
-------------
This Sublease shall be governed by and construed in accordance with the laws
of the State of Illinois.
37. Full Negotiation
----------------
This Sublease, although drafted by Sublandlord, is the result of extensive
negotiations between Sublandlord and Subtenant and their respective counsel
and, therefore, shall be interpreted and construed only by the contents
hereof, and there shall be no presumption or standard of construction in
favor of or against either Sublandlord or Subtenant.
38. Changes in Writing
------------------
This Sublease cannot be changed or terminated orally, but only by an
instrument in writing executed by Sublandlord and Subtenant.
11
<PAGE>
39. Partial Payment
---------------
No payment by Subtenant or receipt by Sublandlord of a lesser amount than
the correct Base Rent due hereunder shall be deemed to be other than a
payment on account, nor shall any endorsement or statement on any check or
letter accompanying any check or payment be deemed to effect or evidence an
accord and satisfaction, and Sublandlord may accept such check or payment
without prejudice to Sublandlord's right to recover the balance or pursue
any other remedy in this Sublease or at law provided.
40. Partial Invalidity
------------------
If any one of the provisions of this Sublease, or the application thereof to
any person or circumstance, shall, to any extent, be invalid or
unenforceable, the parties shall incorporate in this Sublease a lawful
clause with similar and equivalent economic consequences so that the
respective rights and obligations of the parties shall be maintained.
Further, the remainder of this Sublease, or the application of such
provision or provisions to persons or circumstances other than those to whom
or which it is held invalid or unenforceable, shall not be affected thereby,
and every provision of this Sublease shall be valid and enforceable to the
fullest extent permitted by law.
41. No Offer
--------
This Sublease is transmitted for examination only and does not constitute an
offer to lease. This Sublease shall not be binding on either Party in any
way unless and until it is duly executed and unconditionally delivered by
both Parties.
42. Prime Lease Conditions
----------------------
Notwithstanding anything to the contrary contained in this Sublease,
Sublandlord and Subtenant hereby agree as follows:
(a) Car Rental Space. Sublandlord and Subtenant hereby acknowledge and
-----------------
agree that in no event shall any of the obligations of Sublandlord
with respect to the Car Rental Space be the responsibility of
Subtenant hereunder.
(b) Prior Lease Obligations. Sublandlord and Subtenant hereby acknowledge
------------------------
and agree that in no event shall Subtenant be liable or obligated in
any way with respect to any of the Prior Lease Obligations of
Sublandlord as set forth in Article 9 of the Prime Lease.
(c) HVAC Requirements. Sublandlord and Subtenant acknowledge and agree
------------------
that in no event shall Subtenant be responsible for any costs arising
out of the last sentence of Section 11.1.1 of the Prime Lease unless
the failure of such HVAC to meet the HVAC Standard was caused solely
and directly by the acts of Subtenant or its agents, contractors or
employees.
(d) Day Care/Cafeteria Concerns. Sublandlord and Subtenant hereby
----------------------------
acknowledge and agree that in no event shall Subtenant be obligated or
liable in any way with respect to any obligations of Sublandlord
arising in connection with the cafeteria, as set forth in Section
11.1.11 of the Prime Lease or the day care center, as set forth in
Section 11.1.12 of the Prime Lease. Notwithstanding the foregoing, in
no event shall the foregoing limitations in this clause (d) limit or
restrict the inclusion within Operating Expenses (as defined under the
Prime Lease) of any costs related to such day care facility or
cafeteria facility for the purposes of calculating Additional Rent.
12
<PAGE>
(e) Generator Space. Sublandlord hereby covenants and agrees that the
----------------
backup generator servicing the Data Center space (as defined in the
Prime Lease) shall serve and benefit the Subtenant's fixtures and
equipment located in said Data Center space, at no additional cost or
expense to Subtenant other than its pro rata share (such pro rata
share is based on a fraction, the numerator of which is the square
footage of the Data Center space occupied by Subtenant from tie to
time and the denominator of which is the total square footage of the
Data Center space) of the reasonable actual out-of-pocket costs and
expenses incurred by Sublandlord to operate such generator for the
Data Center space. In connection with the foregoing, Sublandlord
hereby represents, warrants, covenants and agrees that all of the
fixtures and equipment located within said Data Center space, whether
owned by Sublandlord or Subtenant, shall receive the benefits of the
electricity generated by such backup generator in a nondiscriminatory
fashion.
(f) Fee of Prime Landlord. Sublandlord hereby acknowledges and agrees that
----------------------
in no event shall Subtenant be responsible for any costs or expenses
payable to Master Landlord in connection with Master Landlord's
approval of this Sublease.
(g) Financial Statements. Sublandlord and Subtenant acknowledge and agree
---------------------
that in no event shall the provisions of Section 34.14 of the Prime
Lease be applicable to Subtenant or its occupancy of the Subleased
Premises.
13
<PAGE>
(h)
IN WITNESS WHEREOF, the Parties hereto have caused this Sublease to be
signed and sealed as of the day and year first above written.
BUDGET RENT A CAR CORPORATION, a
Delaware corporation
Sublandlord
By: /s/ PETER WEMPLE
---------------------------------
Date: August 25, 1999
---------------------------------
DIVINE INTERVENTURES, Inc., a Delaware
corporation
Subtenant
By: /s/ R.W. POWELL
---------------------------------
Date: August 13, 1999
---------------------------------
14
<PAGE>
Exhibit A
PRIME LEASE
15
<PAGE>
EXHIBIT B
FLOOR PLAN
2
<PAGE>
EXHIBIT C
IRREVOCABLE LETTER OF CREDIT
BANK OF AMERICA, N.A. HAS PREPARED THIS DRAFT UPON REQUEST AND BASED ON
INFORMATION SUPPLIED TO IT. NO REPRESENTATION OR COMMITMENT IS MADE BY BANK OF
AMERICA, N.A., REGARDING THE ACCURACY OR SUITABILITY OF THIS DRAFT FOR ITS
INTENDED PURPOSE OR THE WILLINGNESS OF NATIONSBANK TO ISSUE A LETTER OF CREDIT
IN THIS OR ANY OTHER FORM.
IF THIS LANGUAGE FOR THE STANDBY LETTER OF CREDIT IS TO BE USED THEN THE
OBLIGOR/APPLICANT MUST SIGNIFY THEIR APPROVAL BY SIGNING-OFF ON THIS EXHIBIT,
MARKING "ISSUE AS PER ATTACHED EXHIBIT "A" AND ATTACH IT TO THE STANDBY LETTER
-----------
OF CREDIT APPLICATION.
EXHIBIT "A"
-----------
APPROVED AS ISSUED BY
COMPANY: X________________________________________ X____________
Authorized Signature of Obligor/Applicant Date
- --------------------------------------------------------------------------------
BANK OF AMERICA, N.A.
ISSUE DATE: ____________________
IRREVOCABLE LETTER OF CREDIT NO. _____________
BENEFICIARY:
BUDGET RENT A CAR CORPORATION
4225 NAPERVILLE ROAD
LISLE, ILLINOIS 60525
WE HEREBY ESTABLISH OUR IRREVOCABLE STANDBY LETTER OF CREDIT NO. ____________ IN
BENEFICIARY'S FAVOR FOR THE ACCOUNT OF DIVINE INTERVENTURES, INC.,
______________________________________________ (ADDRESS) UP TO THE AGGREGATE SUM
OF USD _____________________________________________ (AMOUNT IN WORDS) EXPIRING
ON ____________________ AT THE COUNTERS OF BANK OF AMERICA, N.A., DALLAS, TEXAS
AVAILABLE BY PAYMENT AGAINST BENEFICIARY'S SIGHT DRAFT DRAWN ON BANK OF AMERICA,
N.A., ACCOMPANIED BY THE FOLLOWING DOCUMENT(S):
1. A WRITTEN STATEMENT PURPORTEDLY SIGNED BY AN AUTHORIZED REPRESENTATIVE OF
BUDGET RENT A CAR CORPORATION WITH THE FOLLOWING WORDING:
"I, THE UNDERSIGNED, AN AUTHORIZED REPRESENTATIVE OF BUDGET RENT A CAR
CORPORATION HEREBY CERTIFY THAT DIVINE INTERVENTURES, INC. HAS DEFAULTED
UNDER THAT CERTAIN LEASE AGREEMENT DATED _________________ BETWEEN BUDGET
RENT A CAR CORPORATION AND DIVINE INTERVENTURES, INC., THEREFORE USD
__________________________ IS NOW DUE AND PAYABLE TO US."
2. THE ORIGINAL OF THIS STANDBY LETTER OF CREDIT NUMBER __________.
SPECIAL CONDITIONS:
PARTIAL DRAWINGS ARE PERMITTED.
THIS LETTER OF CREDIT IS SUBJECT TO THE 1993 REVISION OF THE UNIFORM CUSTOMS AND
PRACTICE FOR DOCUMENTARY CREDITS OF THE INTERNATIONAL CHAMBER OF COMMERCE
(PUBLICATION NO. 500).
WE HEREBY ENGAGE WITH YOU THAT DRAFTS DRAWN UNDER AND IN COMPLIANCE WITH THE
TERMS OF THIS CREDIT WILL BE DULY HONORED UPON REPRESENTATION TO BANK OF
AMERICA, N.A., LETTERS OF CREDIT DEPT., 901 MAIN STREET, 9/TH/ FLOOR, DALLAS,
TEXAS 75202 ON OR BEFORE THE EXPIRATION DATE SHOWN ABOVE.
BANK OF AMERICA, N.A.
____________________________________
AUTHORIZED SIGNATURE
3
<PAGE>
EXHIBIT D
BILL OF SALE
KNOW ALL MEN BY THESE PRESENTS, that BUDGET RENT A CAR CORPORATION, a Delaware
corporation ("Seller"), in consideration of the sum of Ten and No/100 Dollars
($10.00) lawful money of the United States, to Seller paid by DIVINE
INTERVENTURES, INC., a Delaware corporation ("Buyer"), the receipt of which is
hereby acknowledged, does hereby grant, bargain, sell, transfer, and deliver
unto Buyer the following goods and chattels set forth on the 4 South Inventory
List attached hereto.
TO HAVE AND TO HOLD all and singular the goods and chattels to Buyer and its
executors, administrators and assigns to their own use forever.
Said goods and chattels are hereby sold "as is", there are no representations or
warranties, express or implied, and Buyer is responsible for removing said goods
and chattels from Seller's premises.
Seller hereby covenants with Buyer that Seller is the lawful owner of said goods
and chattels; that they are free from all encumbrances; that Seller has good
right to sell the same as aforesaid; and that Seller will warrant and defend the
same against the lawful claims and demands of all persons whomsoever.
IN WITNESS WHEREOF, Seller has executed these presents this 25/th/ day of
August, 19___.
BUDGET RENT A CAR CORPORATION
Witness: By:_______________________________
Authorized Signatory
4
<PAGE>
EXHIBIT E
DIVINE INTERVENTURES, INC.
MASTER LANDLORD NON-DISTURBANCE, RECOGNITION, ESTOPPEL AND ATTORNEMENT
AGREEMENT
This Non-Disturbance, Recognition, Estoppel and Attornment Agreement (this
"Agreement") is made and entered into this _______ day of ___________________,
1999 by and among Dugan/Office, L.L.C., an Indiana limited liability company
("Master Landlord"), Budget Rent A Car Corporation, a Delaware corporation
("Sublandlord"), and Divine Interventures, Inc., a Delaware corporation
("Subtenant").
R E C I T A L S
A. Master Landlord is the owner in fee of that certain real property
located at 4225 Naperville Road in Lisle, Illinois, more particularly described
in Exhibit "A" attached hereto (the "Property").
-----------
B. By Office Lease dated ________________, 1991 (the "Master Lease") by
and between a predecessor in interest to Master Landlord and Sublandlord, Master
Landlord leased certain premises (the "Premises) in the Property to Sublandlord,
and Sublandlord leased the Premises from Master Landlord.
C. Sublandlord and Subtenant have entered into, or are contemplating
entering into, a sublease of all or a part of the Premises (the "Subleased
Premises"). The sublease by and between Sublandlord and Subtenant shall be
referred to herein as the "Lease."
D. The parties desire, pursuant to the provisions set forth in this
Agreement, (i) to assure to Subtenant possession of the Subleased Premises for
the entire term of the Lease, even if Sublandlord defaults under the Master
Lease or the Master Lease terminates before the expiration of the Lease, and
(ii) to confirm certain other agreements and covenants between Master Landlord,
Sublandlord and Subtenant.
NOW, THEREFORE, the parties agree as follows:
1. Master Landlord's Consent to Lease. Master Landlord hereby consents
----------------------------------
to Sublandlord and Subtenant entering into the Lease, without waiver of the
restriction, if any, in the Master Lease concerning further assignment or
subletting; provided, Master Landlord hereby covenants and agrees that as to the
Subtenant, in no event shall any of the Master Lease apply to Subtenant's use,
occupancy, rights, or obligations under the Lease.
2. Attornment. If, after the expiration of the applicable notice and
----------
cure period, Sublandlord fails to cure any default under the Master Lease and
the Master Lease is terminated, or if the Master Lease terminates for any other
reason, Master Landlord shall notify Subtenant in writing of such termination.
Upon receipt of such written notice from Master Landlord, Subtenant shall attorn
to Master Landlord and perform all of Subtenant's obligations under the Lease
for the benefit of Master Landlord as if Master Landlord were the landlord under
the Lease. So long as there remains no uncured default (beyond the expiration
of the applicable notice and cure period) under the Lease, then (a) the Lease
shall continue in full force and effect as a direct lease between Master
Landlord and Subtenant upon, and subject to, all of the terms, covenants and
conditions of the Lease for the balance of the term thereof remaining, including
any extensions therein
5
<PAGE>
provided; (b) Master Landlord shall continue to recognize the estate and rights
of Subtenant created under the Lease; and (c) the terms of the Lease, and
Subtenant's leasehold estate in the Subleased Premises, shall not then or
thereafter be terminated, disturbed or adversely affected, except in accordance
with the terms and provisions of the Lease.
3. Subtenant's Liability to Sublandlord. From the date Subtenant attorns
------------------------------------
to Master Landlord, as provided in this Agreement, Subtenant shall not be
further liable to Sublandlord for performance of its obligations under the
Lease, and Sublandlord shall deposit with Master Landlord, immediately upon
demand, any security deposit and other prepaid sums that Subtenant has paid to
Sublandlord pursuant to the Lease that have not been delivered to Master
Landlord.
4. Conditions of Master Landlord's Recognition and Subtenant's
-----------------------------------------------------------
Attornment. Master Landlord's obligation to recognize Subtenant's rights under
- ----------
the Lease, and Subtenant's obligation to attorn to Master Landlord, are subject
to the following:
(a) Master Landlord and Subtenant, from and after the date of
recognition and attornment, shall have the same rights and remedies against each
other as Sublandlord and Subtenant have against each other under the Lease.
Notwithstanding the foregoing, Master Landlord shall not be (i) liable for any
prior default of any landlord under the Lease (including Sublandlord); provided,
however, that in the event the Master Lease is terminated and the Lease becomes
a direct lease between Master Landlord and Subtenant, Master Landlord agrees to
cure any continuing default under the Lease within the applicable notice and
cure periods set forth therein, following written notice to Master Landlord of
such continuing default; or (ii) subject to any offsets or defenses which have
accrued prior to the date the Lease becomes a direct lease between Master
Landlord and Subtenant (except to the extent that Master Landlord has received
notice of the default of Sublandlord which gave rise to such offset or defense
and provided the same opportunity to cure such default as provided to
Sublandlord under the Lease). Master Landlord shall not be bound by any prepaid
rent, security deposit or other prepaid sum that Subtenant has paid in advance
to Sublandlord, except to the extent such sum is paid over by Sublandlord to
Master Landlord. Furthermore, Master Landlord shall not be liable for the
construction of any improvements required under the Lease to be performed by
Sublandlord.
5. Notice of Default. Master Landlord hereby covenants and agrees that
-----------------
it shall provide to Subtenant a copy of any notice served upon Sublandlord with
respect to the Premises. In connection therewith, Master Landlord hereby
acknowledges and agrees that pursuant to the provisions of the Lease Subtenant
has the right (but not the obligation) to cure any such default of Sublandlord
under the Lease and Master Landlord hereby agrees that if such cure of said
default is provided by Subtenant that Master Landlord shall accept said cure.
6. Estoppel. Master Landlord hereby represents and warrants as to the
--------
following: (a) the Master Lease is in full force and effect, and there are no
other promises, agreements, understandings or commitments between Master
Landlord and Sublandlord relating to the Premises; and (b) neither Master
Landlord nor Sublandlord are in default under the Master Lease and no events
have occurred which with the passage of time or the giving of notice, or both,
would constitute such a default under the Master Lease.
6
<PAGE>
7. Parking. Master Landlord hereby covenants and agrees that throughout
-------
the term of the Lease it shall provide to Subtenant ten (10) reserved executive
parking spaces in the heated parking garage of the Building, at no cost or
expense to Subtenant or its agents, contractors, employees or invitees.
8. Option to Extend. Master Landlord and Subtenant hereby acknowledge
----------------
and agree that Subtenant has been provided no option to extend or renew the term
of the Lease by Sublandlord. However, Master Landlord hereby covenants and
agrees that upon the expiration of the term of the Lease it shall extend the
term of the Lease for one (1) period of five (5) years thereafter upon the same
terms and conditions as contained in the Lease except as follows: (i) the Base
Rent (as defined in the Lease) to be paid by Subtenant to Master Landlord for
such extension term shall be equal to the Market Rent (as defined in the Prime
Lease) for such period of time and the determination of such Market Rent as
between Subtenant and Master Landlord shall take place as set forth in the Prime
Lease, with such modifications to said process to conform to the Lease, (ii)
Subtenant shall be required to provide notice of its exercise of its option to
extend the term of the Lease to Master Landlord not less than one hundred eighty
(180) days following the expiration of the initial term of the Sublease, time
being of the essence, and (iii) Subtenant shall have no right to exercise its
option to extend the term of the Lease as set forth herein if at the time
Subtenant exercises such option it is in default under the terms of the Lease
beyond applicable notice and cure periods. In connection with the foregoing
exercise of an option to extend the term of the Sublease, Master Landlord,
Sublandlord and Subtenant hereby acknowledge and agree that for all intents and
purposes Sublandlord's right to demise that portion of the Premises which is
considered Subleased Premises hereunder shall terminate and during such option
period the Lease shall be considered a direct Lease between Master Landlord, as
landlord, and Subtenant, as tenant, upon the same terms and conditions set forth
therein except as may be modified as set forth in this paragraph.
9. Master Lease Issues. In connection with certain of the provisions of
-------------------
the Master Lease, Master Landlord, Sublandlord and Subtenant hereby agree as
follows: (i) Master Landlord has no security interest in any of the furniture,
fixtures and/or equipment contained within the Subleased Premises which is
currently owned by Sublandlord and which is to be conveyed by Bill of Sale to
Subtenant; (ii) Master Landlord hereby acknowledges and agrees that in
connection with Subtenant's demise of the Subleased Premises Subtenant is also
being provided the right to use and occupy certain portions of the Data Center
Space (as defined in the Master Lease) and Landlord hereby consents to same;
(iii) as of the date hereof, no portion of the Premises, including the Subleased
Premises, have been used in a manner which exceeds the HVAC Standard (as defined
in the Master Lease); and (iv) as of the date hereof Master Landlord hereby
represents and warrants that no portion of the Subleased Premises contains any
leasehold improvements that would be considered to be "Type B Nonstructural New
Work" or any "Structural New Work" (each as defined in the Master Lease) which
would be required to be removed by Subtenant upon the expiration of the term of
the Lease.
10. Miscellaneous.
-------------
(a) No Effect on Master Lease. Nothing in this Agreement shall be
-------------------------
construed to affect or otherwise modify in any manner the provisions of the
Master Lease between Master Landlord and Sublandlord, or to waive any right that
Master Landlord may now or hereafter have against Sublandlord by reason of or in
connection with the Master Lease.
(b) Attorneys' Fees. Should any action or proceeding be commenced to
---------------
enforce any of the provisions of this Agreement or in connection with its
meaning, the prevailing party in such action shall be awarded, in addition to
any other relief it may obtain, its reasonable costs and expenses, not limited
to taxable costs and reasonable attorneys' fees.
(c) Notice. All notices which may or are required to be sent under
------
this Agreement shall be in writing and shall be sent by first-class certified
U.S. mail, postage prepaid, return receipt requested, and
7
<PAGE>
sent to the party at the address appearing below or such other address as any
party shall hereafter inform the other party by written notice given as set
forth above:
Subtenant: Divine Interventures, Inc.
4225 Naperville Road
Lisle, Illinois 60532
Attention: Rick Powell
Sublandlord: Budget Rent A Car Corporation
4225 Naperville Road
Lisle, Illinois 60532
Attention: Peter Wemple
Master Landlord: Dugan/Office, L.L.C.
4225 Naperville Road
Lisle, Illinois 60532
Attention: Steven Holmberg
All notices delivered as set forth above shall be deemed effective three (3)
days from the date deposited in the U.S. mail.
(d) Successors. This Agreement shall inure to the benefit of and be
----------
binding upon the parties hereto, their successors in interest, heirs and assigns
and any subsequent owner of the Property.
(e) Governing Law. This Agreement shall be governed by, and construed
-------------
in accordance with, the laws of the state in which the Property is located.
(f) No Modification Unless in Writing. This Agreement contains all of
---------------------------------
the agreements and understandings between the parties regarding the subject
matter hereof, and supersedes any and all prior agreements and understandings
between Sublandlord, Subtenant and Master Landlord. This Agreement shall not be
amended, changed or modified in any way unless in writing executed by the party
against whom the amendment is sought to be enforced. Sublandlord, Subtenant and
Master Landlord shall not be deemed to have waived or released any of their
rights hereunder unless the waiver or release is in writing executed by the
party against whom the waiver or release is sought to be enforced.
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
MASTER LANDLORD:
DUGAN/OFFICE, L.L.C., an Indiana limited
liability company
By: Duke-Weeks Realty Limited Partnership, an
Indiana limited partnership, its member
By: Duke-Weeks Realty Corporation, an
Indiana corporation, its general partner
By:_____________________________
Steven B. Holmberg
Senior Vice President
Chicago Office
SUBLANDLORD:
BUDGET RENT A CAR CORPORATION, a
Delaware corporation
By: _________________________
Name: _________________________
Title: _______________________
SUBTENANT:
DIVINE INTERVENTURES, INC., a Delaware corporation
By:____________________________
Name: _________________________
Title: _______________________
9
<PAGE>
ACKNOWLEDGMENT OF MASTER LANDLORD:
- ----------------------------------
STATE OF _____________ )
) (S)
COUNTY OF ___________ )
On ________________________, 1999, before me, ________________________, a
Notary Public, personally appeared ______________________, personally known to
me (or proved to me on the basis of satisfactory evidence) to be the person
whose name is subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized capacity, and that by his signature on the
instrument the person, or the entity on behalf of which the person acted,
executed this instrument.
WITNESS my hand and official seal.
Notary Public in and for the state and county aforesaid
Printed or typed name of Notary Public
My Commission Expires:
ACKNOWLEDGMENT OF SUBLANDLORD:
- ------------------------------
STATE OF _____________ )
) (S)
COUNTY OF _________ )
On ________________________, 1999, before me, ________________________, a
Notary Public, personally appeared ______________________, personally known to
me (or proved to me on the basis of satisfactory evidence) to be the person
whose name is subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized capacity, and that by his signature on the
instrument the person, or the entity on behalf of which the person acted,
executed this instrument.
WITNESS my hand and official seal.
Notary Public in and for the state and county aforesaid
Printed or typed name of Notary Public
My Commission Expires:
10
<PAGE>
ACKNOWLEDGMENT OF SUBTENANT:
- ----------------------------
STATE OF )
) (S)
COUNTY OF )
On ________________________, 1999, before me, ________________________, a
Notary Public, personally appeared __________________, personally known to me
and acknowledged to me that he executed the same as _______________________ of
_________________________., a ______________________, and that by his signature
on the instrument the person, or the entity on behalf of which the person acted,
executed this instrument.
WITNESS my hand and official seal.
Notary Public in and for the state and county aforesaid
Printed or typed name of Notary Public
My Commission Expires:
11
<PAGE>
EXHIBIT "A"
-----------
LEGAL DESCRIPTION
-----------------
12
<PAGE>
EXHIBIT 10.5
July 1, 1999
Mr. Andrew Filipowski
divine interVentures, inc.
676 North Michigan Avenue, Ste 3410
Chicago, Illinois 60611
Re: Blackhawk LLC (hereinafter referred to as the "Company")
Dear Mr. Filipowski:
The Company owns the property located at and commonly known as 1132
Blackhawk Street, Chicago, Illinois (hereinafter referred to as the "Property"),
which comprises an area of approximately Three Hundred Thirty Seven Thousand
Seven Hundred Eighty Eight (337,788) square feet of land and is currently
improved with a building containing approximately Two Hundred Twenty Thousand
(220,000) square feet of rentable space (hereinafter referred to as the
"Building").
The Company is an Illinois Limited Liability Company whose Managers are W.
Harris Smith (hereinafter referred to as "Bill") and David R. Kahnweiler
(hereinafter referred to as "Kahny").
The Company plans to rehabilitate and expand the Building. This letter
will set forth the terms under which you agree to purchase a one-third (1/3)
interest in the Company and obtain, on behalf of an entity owned or controlled
by you, an option to lease the Property.
1. Purchase of Interest. You hereby agree to purchase three percent (3%)
--------------------
of the membership interests in the Company (hereinafter referred to as the
"Interest") on the terms and conditions set forth in this letter. You may assign
your Interest to the Tenant, as hereinafter defined, provided however,
notwithstanding said Assignment, you will personally execute the documents and
enter into the agreements described and contemplated in paragraph 4(b) hereof,
provided however, we shall use good faith efforts to obtain the consent of any
applicable lender to permit Tenant to enter into agreements described and
contemplated in paragraph 4(b) hereof instead of you, provided further, that the
Tenant shall have a verifiable net worth in excess of Fifty Million Dollars and
No Cents ($50,000,000.00) and be acceptable to said lender. The parties shall,
within ten (10) days of the execution of this letter, enter into a Purchase and
Sale Agreement with respect to the Interests.
2. Time of Purchase. You shall consummate the purchase of the Interest
----------------
upon three (3) days prior written notice by you to the undersigned at any time
after the date hereof, and, absent such notice on November 15, 1999 (hereinafter
referred to as the "Closing Date").
<PAGE>
3. Purchase Price. The purchase price for the Interest shall be Thirty
--------------
Eight Thousand Six Hundred Eighty Dollars and No Cents ($38,680.00) (hereinafter
referred to as the "Purchase Price") and shall be payable in full on the Closing
Date.
All payments to be made hereunder, and under Paragraph 9, below shall be
made by wire transfer of good and immediately available funds to an account or
accounts specified by the Company. The Purchase Price (or, at the option of the
Company, the right to receive the Purchase Price) shall be distributed to the
current members of the Company according to their membership interests in the
Company as of the date hereof.
4. Operating Agreement. Upon your Purchase of the Interest, the Company's
-------------------
operating agreement (hereinafter referred to as the "Operating Agreement") shall
be amended and restated, and you shall execute the same on the Closing Date, to
provide the same terms and conditions as currently provided but shall contain
the following additional provisions:
(a) The managers of the Company shall be Kahny, Bill and you, with all
major decisions related to the operation and management of the Company
requiring the consent of all of the Company's managers.
(b) The Company has entered into a Construction Loan Agreement with
LaSalle National Bank, as lender (hereinafter referred to as "Bank")
dated April 22, 1999 to provide the Company Eleven Million Three
Hundred Thousand Dollars and No Cents ($11,300,000.00) of financing,
(hereinafter referred to as the "Loan") along with various documents
to evidence and secure the aforedescribed loan, copies of which have
been provided to you (hereinafter referred to as the "Loan Docs"). The
Loan Docs include: (i) a Limited Guaranty, (ii) a Guaranty of
Completion, and (iii) an Environmental Indemnity Agreement
(hereinafter collectively referred to as the "Guaranties") whereby
Kahny and Bill have, jointly and severally made various guarantees,
indemnities and representations to the Bank in connection with the
Loan. Concurrently with your purchase of the Interest you shall
execute such instruments as are reasonably required by the Company or
the Bank, or both, to join Bill and Kahny under the Guarantys or, at
the option of Kahny and Bill, to indemnify Kahny and Bill with respect
to any liability they incur pursuant to the Guaranties, to provide the
same liability as if you were jointly and severally liable with Bill
and Kahny under the Guaranties. Furthermore, in the event that the
Company determines that additional or replacement debt is required for
the business of the Company, and same requires that personal
guarantees, indemnities or representations of the managers of the
Company, you shall join Kahny and Bill in same, subject to the
contribution provisions of the Blackhawk LLC Operating Agreement.
(c) Net cash flow from operation of the Property shall be distributed,
after paying for such reserves as are determined by the managers of
the Company to be necessary
2
<PAGE>
or appropriate, to the members of the Company in accordance with their
respective membership interests in the Company.
(d) The tax matters partner of the Company shall be one of the Managers of
the Company as determined by the Managers.
(e) Net Cash Proceeds, as defined in the current operating agreement shall
be distributed as follows:
(i) First to the repayment of any Member Loans, as defined in the
existing operating agreement, including interest accrued thereon;
(ii) Second, any remaining amount shall be distributed to the then
members of the Company in accordance with their respective
membership interests in the Company.
(f) The managers may require that all members contribute additional
capital to the Company.
(g) The remedies for failure of a member to make a required additional
capital contribution to the Company contained in the present operating
agreement of the Company shall be contained in the Operating
Agreement.
(h) Except with the prior consent of the managers of the Company or
pursuant to Paragraph 1 hereof, no member may sell, transfer, encumber
or otherwise convey all or any part of his interest in the Company
provided that you and Kahny agree not to unreasonably withhold consent
to any transfer of an interest in the Company of any Member identified
in Section "B" of the signature section to the existing operating
agreement, Bill and you agree not to unreasonably withhold consent to
any transfer of an interest in the Company of any Member identified in
Section "A" of the signature section to the existing agreement, and
Bill and Kahny agree not to unreasonably withhold consent to any
transfer of an interest in the Company by you.
5. Construction, Management and Leasing. You hereby acknowledge and
------------------------------------
agree that: (a) construction and rehabilitation of the Building and other
initial improvements on the Property will be performed by Wooton Construction
Inc., a company owned and controlled by Bill pursuant to a "Cost Plus"
construction contract which shall provide for payment to the contractor of all
costs and expenses incurred in connection with such construction plus a fee of
four percent (4%) of the amounts of such costs and expenses; and (b) leasing and
management of the Property will be handled by Colliers, Bennett & Kahnweiler
(hereinafter referred to as "CBK"), a company owned or controlled by Kahny
provided, however, that the Management Fee payable to CBK or its affiliates
shall not exceed one percent (1%) of Base Rents. In the event the Lease, as
3
<PAGE>
hereinafter defined, is entered into, the Company shall pay a commission to CBK
in an amount equal to three and one-half percent (3.5%) of all Base Rent payable
during the first ten (10) years of the term of the Lease.
6. Option to Lease. In consideration of the sum of FIFTY THOUSAND AND
---------------
NO/ 100 DOLLARS ($50,000.00) (hereinafter referred to as the "First Fee") to be
paid to the Company upon execution hereof, the Company hereby grants to divine
interVentures, inc. (hereinafter referred to as the "Tenant") an option
(hereinafter referred to as the "Option") to enter into the Lease, as described
in Paragraph 7 hereof, on or prior to July 31, 1999 (said date is hereinafter
referred to as the "End of the Option". Tenant may extend the End of the Option
for seven (7) additional calendar months upon payment of an additional amount of
FIFTY THOUSAND AND NO/100 DOLLARS ($50,000.00) to the Company for each such
extension, on or before: (i) August 1, 1999, with respect to an extension of the
End of the Option to August 31, 1999; (ii) September 1, 1999, with respect to an
extension of the End of the Option to September 30, 1999; (iii) October 1, 1999
with respect to an extension of the End of the Option to October 31, 1999; (iv)
November 1, 1999 with respect to an extension of the End of the Option to
November 30, 1999; (v) December 1, 1999 with respect to an extension of the End
of the Option to December 31, 1999; (vi) January 1, 2000 with respect to an
extension of the End of the Option to January 31, 2000; and (vii) February 1,
2000 with respect to an extension of the End of the Option to February 28, 2000
(the aggregate additional amounts so paid is hereinafter referred to as the
"Additional Fee," and the sum of the Additional Fee and the First Fee is
hereinafter referred to as the "Fee"). In the event that Tenant fails to pay any
monthly installment of the Additional Fee in a timely manner: the Tenant shall
be deemed to have elected to not exercise the Option and all previously paid
installments of the Fee shall be deemed to be forfeited to the Company. In the
event that the Tenant exercises the Option, the Fee shall be returned to Tenant.
Furthermore, you agree that, in further consideration of the grant of the Option
and provided that the Tenant does not enter into the Lease or purchase the
Property on or before February 28, 2000, Tenant shall, within five (5) days
after demand therefor by the Company, pay Two Hundred Thousand Dollars and No
Cents ($200,000.00) (the "Building Material Loss Fee") to the Company.
Additionally, in further consideration of the grant of the Option; (i) Tenant
shall pay all design and engineering fees and costs incurred with respect to the
proposed renovation of the Property for the Tenant presentation of invoices
therefor; and (ii) should the Tenant not enter into the Lease Tenant shall pay a
design supervision fee of One Hundred Thousand Dollars and No Cents
($100,000.00) payable on February 28, 2000 to Wooton Construction Inc., provided
however, that should the Tenant enter into the Lease as aforesaid, the Company
shall reimburse the sums set forth in clause (i) of this sentence to Tenant and
same shall be deemed an expense to renovate the Property.
7. Lease. The Company and the Tenant which shall be an entity controlled
-----
by you shall, upon your exercise of the Option enter into an absolute "net"
lease of the Property (hereinafter referred to as the "Lease") which shall be
for a twenty (20) year term and shall provide for the following rent:
4
<PAGE>
(a) Base Rent (exclusive of Tenant's obligation to pay all operating
expenses, including all costs of maintenance and repair,
insurance and real estate taxes with respect to the Property)
shall be an initial annual amount equal to ONE MILLION SIX
HUNDRED EIGHTY-SIX THOUSAND THREE HUNDRED AND 00/100 DOLLARS
($1,686,300.00) (determined by multiplying FIFTEEN MILLION THREE
HUNDRED THIRTY THOUSAND AND NO/100 DOLLARS ($15,330,000.00) by
eleven (11%). The Base Rent shall be increased Two Percent (2%)
annually.
(b) In addition to Base Rent, Tenant shall pay additional rent in an
amount equal to the monthly amount necessary to fully amortize
the amount by which the Building Cost, as hereinafter defined is
in excess of FIFTEEN MILLION THREE HUNDRED THIRTY THOUSAND AND
00/100 DOLLARS ($15,330,000.00) over the initial twenty (20) year
term of the Lease together with interest thereon at an annual
rate equal to the Company's cost of funds plus One Hundred (100)
basis points. The term "Building Cost" when used herein shall
mean the sum of (i) all costs and expenses incurred by the
Company to renovate the Property and construct any improvements
thereon, including, but not limited to all soft costs incurred in
connection therewith, such as costs of financing, professional
fees, security and building expenses incurred during the
construction period; and (ii) Eight Million Two Hundred Fifty
Thousand Dollars and No Cents ($8,250,000.00).
(c) The Tenant shall provide credit enhancement to secure its
obligations under the Lease.
(d) The Tenant shall be granted an Option to Purchase the Property at
the end of the tenth (10th) year of the Lease Term, provided that
the Tenant and the Company agree upon the price to be paid for
such purchase prior to the execution of the Lease and provided
that the Tenant: (i) is current and not in default at the time of
exercise of such option and the time of purchase; (ii) exercises
such option at least one (1) year in advance of the purchase; and
(iii) Tenant shall pay to the Company earnest money in the amount
of Five Percent (5%) of the purchase price at time of such
exercise.
8. Brokers. You and the Company acknowledge that Colliers, Bennett &
-------
Kahnweiler Inc. acted as the sole broker in connection with the Lease and that
each party will pay (and indemnify the other party against claims for) any and
all fees and commissions of any other brokers based on dealings with such
brokers by the indemnifying party.
5
<PAGE>
9. Options to Purchase Additional Membership Interests.
---------------------------------------------------
(a) The Company shall have the option (hereinafter referred to as the
"Company Option"), exercised by delivery to you of a written
notice (hereinafter referred to as the "Exercise Notice") of such
exercise on or before April 30, 2000, to require you to purchase
an additional thirty and thirty three one hundredths percent
(30.33%) of the membership interests in the Company (hereinafter
referred to as the "Additional Interest"). The purchase price for
the Additional Interest shall be One Million Two Hundred Fifty
Thousand Six Hundred Fifty Three Dollars and No Cents
($1,250,653.00) (hereinafter referred to as the "Additional
Interest Purchase Price") and shall be due and payable by you to
the Company on a date specified in the Exercise Notice which
shall be at least five (5) days after the date the Exercise
Notice is delivered to you. The Additional Interest Purchase
Price (or, at the option of the Company, the right to receive the
Additional Interest Purchase Price) shall be distributed to the
now current members of the Company according to their membership
interests in the Company as of the date hereof.
(b) In the event the Company does not exercise the Company Option as
set forth in Paragraph 9(a) above, you shall have the option
(hereinafter referred to as the "Purchase Option"), exercised by
delivery to the Company of a written notice (hereinafter referred
to as the "Purchase Option Notice") after April 30, 2000 but
before June 1, 2000, to purchase the Additional Interest for the
Additional Interest Purchase Price. Payment of the Additional
Interest Purchase Price pursuant to your exercise of the Purchase
Price shall be made at the time you deliver the Purchase Option
Notice to the Company. The Additional Interest Purchase Price
(or, at the option of the Company, the right to receive the
Additional Interest Purchase Price) shall be distributed to the
now current members of the Company according to their membership
interests in the Company as of the date hereof.
10. Immediate Option to Purchase. Notwithstanding anything else contained
----------------------------
in this Agreement if the Tenant has exercised the Option, and on or before the
End of the Option: (i) Bill or Kahny are unsatisfied with the conditions of the
financing (both construction and permanent) available to provide funds for the
rehabilitation and expansion of the Building for the Tenant's use and provide
you with notice of same; or (ii) Tenant is unsatisfied with the credit
enhancement condition set forth in Paragraph 7 c., hereof, Tenant may, in either
event, elect to purchase the Property from the Company by written notice to the
Company within two (2) business days after the End of the Option in its present
condition at a price equal to Nine Million Seven Hundred Fifty Thousand Dollars
and No Cents ($9,750,000.00) plus all costs and expenses expended by the Company
relating to the Property after July 1, 1999. Within five (5) days of said
exercise
6
<PAGE>
Tenant shall deposit with the Company earnest money in the amount of Six Hundred
Thousand Dollars and No Cents ($600,000.00), and shall provide for consummation
of the aforesaid purchase and sale within thirty (30) days of the exercise of
said option to purchase the Property. In the event of such purchase, Tenant
shall purchase the property in an absolute "as is" condition. Real estate taxes
and other expenses of the Property shall be prorated as of the consummation of
such purchase, and the Company shall provide Tenant with a policy of title
insurance in the same form, as the Company now holds with respect to the
Property at the time of the purchase. All normal costs of sale shall be
allocated pursuant to local custom.
7
<PAGE>
11. Acceptance. Kindly execute the enclosed copy of this letter to
----------
evidence your agreement hereto and concurrently pay all currently due
installments of the Fee.
Very truly yours,
Blackhawk LLC
By: /s/ David Kahnweiler
----------------------------------
David Kahnweiler, Manager
By: /s/ W. Harris Smith
----------------------------------
W. Harris Smith, Manager
The undersigned hereby agree to the foregoing as of the 1st day of July, 1999.
/s/ Andrew Filipowski
- --------------------------------
Andrew Filipowski
divine interVentures, inc.,
a Delaware corporation
By: /s/ R.W. POWELL
----------------------------
Name: R.W. Powell
--------------------------
Title: Executive Vice President
-------------------------
8
<PAGE>
EXHIBIT 10.6
================================================================================
PURCHASE AGREEMENT
DATED DECEMBER 7, 1999
BETWEEN
DIVINE INTERVENTURES, INC.
AND
THE PURCHASERS A PARTY HERETO
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C>
1. Authorization and Closing.............................................. 1
1A. Authorization of the Series D Preferred Stock................. 1
1B. Purchase and Sale of the Series D Preferred Stock............. 1
1C. The Closing................................................... 1
1D. Conditions.................................................... 1
1E. HSR Filings................................................... 2
1F. Termination................................................... 2
2. Conditions of each Purchaser's Obligation at the Signing............... 3
2A. Certificate of Designation and Certificate of Incorporation... 3
2B. Amended Certificate and Bylaws................................ 3
2C. Representations and Warranties; Covenants..................... 3
2D. Registration Agreement........................................ 3
2E. Management Agreement.......................................... 3
2F. Series D Stockholders Agreement............................... 3
2G. Opinions of the Company's Counsel............................. 4
2H. Officer's Certificate......................................... 4
2I. Resolutions and other Signing Documents....................... 4
2J. Consents...................................................... 4
2K. Other Agreements.............................................. 4
2L. Execution..................................................... 5
3. Covenants.............................................................. 5
3A. Financial Statements and Other Information.................... 5
3B. Inspection of Property........................................ 7
3C. Restrictions.................................................. 7
3D. Affirmative Covenants......................................... 7
3E. Current Public Information.................................... 8
3F. Public Disclosures............................................ 8
3G. Equity Issuances.............................................. 9
3H. FIRPTA........................................................ 10
3I. VCOC Covenants................................................ 11
3J. Unrelated Business Taxable Income............................. 11
3K. Regulatory Compliance Cooperation............................. 11
3L. Amendment of Certificate of Designation....................... 11
3M. NonSolicitation............................................... 12
3N. Termination................................................... 12
4. Representations and Warranties of the Company.......................... 12
4A. Organization, Corporate Power and Licenses.................... 12
4B. Capital Stock and Related Matters............................. 13
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
4C. Subsidiaries; Investments..................................... 14
4D. Authorization; No Breach...................................... 14
4E. Financial Statements.......................................... 15
4F. Absence of Undisclosed Liabilities............................ 15
4G. No Material Adverse Change.................................... 15
4H. Contracts and Commitments..................................... 16
4I. Litigation, etc............................................... 16
4J. Brokerage..................................................... 17
4K. Governmental Consent, etc..................................... 17
4L. Insurance..................................................... 17
4M. Employees..................................................... 17
4N. Compliance with Laws.......................................... 18
4O. Affiliated Transactions....................................... 18
4P. Real Property Holding Corporation Status...................... 18
4Q. Foundation Disqualified Person................................ 18
4R. Investment Company............................................ 18
4S. Disclosure.................................................... 19
4T. Patents, Copyrights, Trademarks............................... 19
5. Definitions............................................................ 19
6. Miscellaneous.......................................................... 23
6A. Expenses...................................................... 23
6B. Remedies...................................................... 23
6C. Purchaser's Investment Representations........................ 23
6D. Consent to Amendments......................................... 24
6E. Survival of Representations and Warranties.................... 24
6F. Successors and Assigns........................................ 25
6G. Severability.................................................. 25
6H. Counterparts.................................................. 25
6I. Descriptive Headings; Interpretation.......................... 25
6J. Generally Accepted Accounting Principles...................... 25
6K. Governing Law................................................. 25
6L. Notices....................................................... 26
6M. No Strict Construction........................................ 26
6N. Indemnification............................................... 26
6O. Understanding Among the Purchasers............................ 27
6P. Acknowledgment re Kirkland & Ellis............................ 27
</TABLE>
-ii-
<PAGE>
DIVINE INTERVENTURES, INC.
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (this "Agreement") is made as of December 7,
---------
1999 between divine interVentures, inc., a Delaware corporation (the "Company"),
-------
those purchasers identified on the attached "Schedule of Purchasers"
----------------------
(collectively, the "Purchasers" and each individually, a "Purchaser" ). Certain
---------- ---------
Purchasers shall be defined as the term set forth for such Purchasers on the
Schedule of Purchasers. Except as otherwise indicated herein, capitalized terms
- ----------------------
used herein are defined in Section 5 hereof.
---------
The parties hereto agree as follows:
Section 1. Authorization and Closing.
-------------------------
1A. Authorization of the Series D Preferred Stock. The Company shall
---------------------------------------------
authorize the issuance and sale to the Purchasers of an aggregate of 197,000,000
shares of its Series D Senior Participating Convertible Redeemable Preferred
Stock, par value $0.001 per share (the "Series D Preferred Stock"), having the
------------------------
rights and preferences set forth in the Certificate of Designation of Series D
Senior Participating Convertible Redeemable Preferred Stock attached as Exhibit
-------
A hereto (the "Certificate of Designation"). The Series D Preferred Stock is
- - --------------------------
convertible into shares of the Company's Class A Common Stock, par value $0.001
per share ("Class A Common Stock").
--------------------
1B. Purchase and Sale of the Series D Preferred Stock. At each
-------------------------------------------------
Closing (as defined in Section 1C below), the Company shall sell to the
----------
Purchasers, and subject to the terms and conditions set forth herein, the
Purchasers shall purchase from the Company, the number of shares of the Series D
Preferred Stock or Series D-1 Preferred Stock set forth opposite such
Purchaser's name on the Schedule of Purchasers attached hereto at a purchase
----------------------
price of $1.00 per share, for an aggregate purchase price of $197,000,000.00
payable in accordance with Section 1C.
----------
1C. The Closing. Subject to Section 1D below, the closing of the
-----------
separate purchases and sales of the Series D Preferred Stock or Series D-1
Preferred Stock to the Purchasers (each such purchase, a "Closing") shall take
-------
place at the offices of Katten Muchin & Zavis, 525 West Monroe Street, Chicago,
IL 60661 at 10:00 a.m., with respect to any Purchaser, three (3) business days
after such date as the conditions in Section 1D shall have been satisfied or
----------
waived for such Purchaser. At each Closing, the Company shall simultaneously
sell to each Purchaser, and deliver stock certificates evidencing all of the
shares of the Series D Preferred Stock or Series D-1 Preferred Stock to be
purchased by such Purchaser hereunder, registered in such Purchaser's name, upon
payment of the amount reflected opposite such Purchaser's name on the Schedule
--------
of Purchasers as such Purchaser's aggregate purchase price therefore, by wire
- -------------
transfer in immediately available funds to an account designated by the Company
to the Purchasers at least two (2) business days prior to such Closing.
1D. Conditions. Notwithstanding the foregoing, (a) none of Dell,
----------
Microsoft, or CBW/SK shall be required to purchase shares of Series D Preferred
Stock hereunder unless any
<PAGE>
filings under the HSR Act required to be made with respect such Purchaser shall
have been made and the waiting period with respect thereto shall have expired or
been terminated, (b) no Financial Investor shall be required to purchase shares
of Series D Preferred Stock hereunder unless Dell and one of Microsoft or CBW/SK
shall, simultaneous with the purchases by the Financial Investors, purchases
those shares of Series D Preferred Stock set forth opposite such Person's name
on the Schedule of Purchasers hereto, (c) none of Dell, Microsoft or CBW/SK
----------------------
shall be required to purchase shares of Series D Preferred Stock hereunder
unless the Financial Investors and at least one other Corporate Investor,
simultaneous with or prior to the purchases by such Person, purchases those
shares of Series D Preferred Stock set forth opposite such Person's name on the
Schedule of Purchasers, (d) BOEC shall not be required to purchase shares of
- ----------------------
Series D Preferred Stock hereunder unless the Company has amended the
Certificate of Designation in accordance with, and otherwise complied with, the
provisions of Section 3L hereof and BOEC shall have the right to purchase such
----------
portion of its investment in shares of Series D-1 Preferred Stock as BOEC shall
elect, and (e) the Company shall not be required to sell any shares of Series D
Preferred Stock, or Series D-1 Preferred Stock to any Purchaser hereunder unless
any filings under the HSR Act required to be made with respect such Purchaser
shall have been made and the waiting period with respect thereto shall have
expired or been terminated; provided that with respect to any of the foregoing,
such party shall be obligated hereunder as of the date such party's conditions
set forth in this Section 1D have been met and the Closing shall take place
----------
within three (3) business days thereafter. To the extent conditions are met or
waived for certain Purchasers and are not met or waived for others, there shall
be multiple closings, each of which shall be the "Closing" with respect to the
applicable Purchasers and the date of such Closing shall be the "Closing Date"
with respect to such Purchaser.
1E. HSR Filings. As promptly as practicable after the date of this
-----------
Agreement, each of the parties hereto will make any filings required by the HSR
Act to be made by it in order to consummate the transactions contemplated
hereby, and between the date of this Agreement and the Closing Date, each party
hereto will cooperate with the other parties hereto in connection with any such
filings required by the HSR Act. Notwithstanding anything to the contrary
contained herein, nothing in this Agreement will require any Person, whether
pursuant to an order of the Federal Trade Commission or the United States
Department of Justice or otherwise, to dispose of any assets, lines of business
or equity interests, or otherwise take any action that would materially affect
its business, in order to obtain the consent of the Federal Trade Commission or
the United States Department of Justice to the transactions contemplated by this
Agreement. Each of Dell, Microsoft and CBW/SK shall promptly provide the
Company (or the Company's counsel) copies of all filings made and any materials
submitted in connection with the HSR Act and the Company shall provide copies of
all filings made and materials submitted by the Company in connection with the
HSR Act to each of Dell, Microsoft and CBW/SK, to the extent submitted in
connection with such Person's filing under the HSR Act with respect to their
investment hereunder.
1F. Termination. This Agreement may be terminated with respect to a
-----------
Purchaser at any time prior to the consummation of the Closing for such
Purchaser under the following described circumstances:
-2-
<PAGE>
(a) upon the mutual written consent of the Company and such Purchaser;
or
(b) by either of the Company or such Purchaser if the Closing for such
Purchaser shall not have been consummated on or before January 31, 2000,
provided that the right to terminate this Agreement under this subsection
----------
1F(b) shall not be available to any party whose willful failure to fulfill
-----
any material obligation under this Agreement has been the cause of, or
resulted in, the failure of the Closing to occur on or before such date.
Section 2. Conditions of each Purchaser's Obligation at the Signing.
--------------------------------------------------------
The obligation of each Purchaser to purchase and pay for the Series D Preferred
Stock or Series D-1 Preferred Stock at a Closing is subject to the execution and
delivery of the parties of those agreements, and the taking of such other
actions, before or simultaneous with the execution of this Agreement (the
"Signing") as follows:
2A. Certificate of Designation and Certificate of Incorporation. The
-----------------------------------------------------------
Company shall deliver evidence that its Certificate of Incorporation, as amended
to include the provisions set forth in the Certificate of Designation (as the
Certificate of Incorporation is in effect at the Signing, the "Amended
-------
Certificate"), have been filed with the Secretary of State of Delaware and are
- -----------
in full force and effect under the laws of the State of Delaware as of the
Signing.
2B. Amended Certificate and Bylaws. The Company shall deliver a copy
------------------------------
of its amended and restated bylaws (as in effect as of the Signing, the
"Bylaws").
------
2C. Representations and Warranties; Covenants. The representations
-----------------------------------------
and warranties contained in Section 4 hereof shall be true and correct at and as
of the Signing as though then made, except to the extent of changes caused by
the transactions expressly contemplated herein, and the Company shall have
performed in all material respects all of the covenants required to be performed
by it hereunder prior to the Signing.
2D. Registration Agreement. The Company and each Purchaser shall
----------------------
execute and deliver a registration rights agreement in form and substance as set
forth in Exhibit B attached hereto (as may be amended, restated and supplemented
---------
from time to time in accordance with its terms, the "Registration Agreement"),
----------------------
and the Registration Agreement shall be in full force and effect as of the
Signing.
2E. Management Agreement. The Company and each of Andrew Filipowski
--------------------
and Mike Cullinane shall execute and deliver an agreement in the form of Exhibit
-------
C attached hereto (the "Management Agreements"), and the Management Agreements
- - ---------------------
shall be in full force and effect as of the Signing.
2F. Series D Stockholders Agreement. The Company, certain executives
-------------------------------
of the Company that are also stockholders of the Company and each Purchaser
shall execute and deliver a Series D stockholders agreement in form and
substance as set forth in Exhibit D attached hereto (as may be amended, restated
---------
and supplemented from time to time in accordance with its terms,
-3-
<PAGE>
the "Series D Stockholders Agreement"), and the Series D Stockholders Agreement
-------------------------------
shall be in full force and effect as of the Signing.
2G. Opinions of the Company's Counsel. Katten, Muchin & Zavis,
---------------------------------
counsel for the Company, shall deliver to each Purchaser two (2) opinions, each
in form and substance as set forth in Exhibits E-1 and E-2, respectively,
--------------------
attached hereto.
2H. Officer's Certificate. The Company shall deliver to each
---------------------
Purchaser an Officer's Certificate, stating that (i) the conditions described in
Sections 2A through 2G (inclusive), 2I, 2J and 2K have been satisfied; (ii) the
- ----------- -- -- -- --
Company has made all filings under all applicable federal and state securities
laws necessary to consummate the issuance of the Series D Preferred Stock
pursuant to this Agreement in compliance with such laws; and (iii) all
corporate and other proceedings required to be taken by the Company in
connection with the transactions contemplated hereby to be consummated at or
prior to the Signing have been taken.
2I. Resolutions and other Signing Documents. The Company shall
---------------------------------------
deliver to each Purchaser (a) the resolutions certified by the secretary of the
Company as having been duly adopted by the Board, authorizing the execution,
delivery and performance of this Agreement, the Registration Agreement, the
Management Agreements, the Series D Stockholders Agreement and each of the other
agreements contemplated hereby or thereby to which the Company is party
(collectively, the "Transaction Documents"), the filing of the Certificate of
---------------------
Designation referred to in Section 2A, the issuance and sale of the Series D
----------
Preferred Stock hereunder, the reservation of a sufficient number of shares of
Class A Common Stock for issuance upon conversion of the Series D Preferred
Stock purchased hereunder at the Signing; and (b) a secretary's certificate
setting forth a true and complete list of the members of the Board and the Board
committees, and the resolutions setting forth the designations of each of the
Board committees, in each case as of the Signing.
2J. Consents. The Company shall have obtained and delivered to the
--------
Purchasers copies of all third party and governmental consents, approvals and
filings required in connection with the consummation of the transactions
hereunder (including, without limitation, all blue sky law filings; waivers of
all preemptive rights and rights of first refusal and all waivers required under
any agreements to which the Company is party); but excluding filings (if any)
required under the HSR Act and the expiration or early termination of the
waiting period with respect thereto.
2K. Other Agreements. Each of Microsoft and the Company shall
----------------
execute and deliver a Memorandum of Understanding with respect to services and
equipment to be provided by Microsoft to the Company (the "Microsoft MOU") in
-------------
form and substance acceptable to such parties, and the Microsoft MOU will be in
full force and effect as of the signing. Each of the Company, Microsoft, Dell,
CBW/SK, Frontenac and BOEC shall execute and deliver a Business Opportunities
Agreement (the "Opportunities Agreement") in form and substance acceptable to
-----------------------
such parties, and the Opportunities Agreement will be in full force and effect
as of the Signing.
-4-
<PAGE>
2L. Execution. A party's execution of this Agreement shall be
---------
conclusive evidence of such party's acknowledgment that the forgoing actions and
deliveries have been taken or made to the satisfaction of such party, and that
the only condition to a Closing hereunder with respect to such party shall be
those applicable conditions set forth in Section 1D above.
----------
Section 3. Covenants.
---------
3A. Financial Statements and Other Information. After the applicable
------------------------------------------
Closing Date, the Company shall deliver to each Purchaser so long as such Person
holds at least 33 1/3% of the Underlying Class A Common Stock acquired by such
Person at a Closing (as adjusted for stock splits, stock dividends, reverse
stock splits, recapitalizations, etc.):
(i) as soon as available but in any event within forty-five
(45) days after the end of each quarterly accounting period in each fiscal
year, unaudited consolidating and consolidated statements of income and
cash flows of the Company and its Subsidiaries for such quarterly period
and for the period from the beginning of the fiscal year to the end of such
quarter (such statements of income and cash flows shall also include
disclosure of the operating results of the Company disaggregated from the
operating results of the Company's Subsidiaries and Partner Companies), and
unaudited consolidating and consolidated balance sheets of the Company and
its Subsidiaries as of the end of such quarterly period, setting forth in
each case comparisons to the Company's annual budget and to the
corresponding period in the preceding fiscal year, and all such statements
shall be prepared in accordance with GAAP and shall be certified by the
chief financial officer of the Company or an officer holding an equivalent
position;
(ii) accompanying the financial statements referred to in
subsection 3A(i), an Officer's Certificate stating that neither the Company
----------------
nor any of its Subsidiaries is in default under any of its other material
agreements or, if any such default exists, specifying the nature and period
of existence thereof and what actions the Company and its Subsidiaries have
taken and propose to take with respect thereto;
(iii) within ninety (90) days after the end of each fiscal year,
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such fiscal year, and consolidating and
consolidated balance sheets of the Company and its Subsidiaries as of the
end of such fiscal year, setting forth in each case comparisons to the
Company's annual budget and to the preceding fiscal year, all prepared in
accordance with GAAP and accompanied by (a) with respect to the
consolidated portions of such statements, an opinion containing no
exceptions or qualifications (except for qualifications regarding specified
contingent liabilities) of an independent accounting firm of recognized
national standing reasonably acceptable to the Purchasers and (b) a copy of
such firm's annual management letter to the Board;
(iv) within forty-five (45) days after the end of each fiscal
quarter, unaudited statements of income and cash flows for each of the
-5-
<PAGE>
Company's Subsidiaries and Partner Companies for such fiscal quarter, and
unaudited balance sheets for each of the Company's Subsidiaries and Partner
Companies as of the end of such fiscal quarter, in each case to the extent
available;
(v) promptly upon receipt thereof, any additional reports,
management letters or other detailed information concerning significant
aspects of the Company's operations or financial affairs given to the
Company by its independent accountants (and not otherwise contained in
other materials provided hereunder);
(vi) at least ninety (90) days after the beginning of each
fiscal year, an annual budget prepared on a monthly basis for the Company
and its Subsidiaries for such fiscal year (displaying anticipated
statements of income and cash flows and balance sheets) as approved by a
majority of the Board, and promptly upon preparation thereof any other
significant budgets prepared by the Company and any revisions of such
annual or other budgets;
(vii) promptly (but in any event within ten (10) business days)
after the discovery or receipt of notice of any material default under any
material agreement to which the Company or any of its Subsidiaries is a
party or any other material adverse change, event or circumstance affecting
the Company or any Subsidiary (including, without limitation, the filing of
any material litigation against the Company or any Subsidiary or the
existence of any dispute with any Person which involves a reasonable
likelihood of such litigation being commenced), an Officer's Certificate
specifying the nature and period of existence thereof and what actions the
Company and its Subsidiaries have taken and propose to take with respect
thereto;
(viii) within ten (10) days after transmission or occurrence
thereof, copies of all financial statements, proxy statements, reports and
any other general written communications which the Company sends to its
shareholders or the financial community, copies of all registration
statements and all regular, special or periodic reports which it files, or
any of its officers or directors file with respect to the Company, with the
Securities and Exchange Commission or with any securities exchange on which
any of its securities are then listed, and notice of any event which might
have a significant effect on the Company's business prospects or financial
condition or the Purchaser's investment in the Series D Preferred Stock;
(ix) on a quarterly basis, deliver to the Executive Committee
members appropriate reports, as the form of such reports may be agreed upon
from time to time between the Company and the Executive Committee,
regarding the assets (and the valuation thereof) and income of the Company;
and
(x) with reasonable promptness, such other information and
financial data concerning the Company and its Subsidiaries as any Person
entitled to receive information under this Section 3A may reasonably
----------
request.
-6-
<PAGE>
Each of the financial statements referred to in subsection 3A(i) and 3A(iii)
---------------- -------
shall be true and correct in all material respects as of the dates and for the
periods stated therein, subject in the case of the unaudited financial
statements to changes resulting from normal year-end adjustments, shall be
consistent with the books and records of the Company and shall present fairly
the consolidated financial condition of the Company and its Subsidiaries as of
and for the periods set forth therein.
Except as otherwise required by law or judicial order or decree or by any
governmental agency or authority, the Purchasers shall use their reasonable best
efforts to maintain the confidentiality of all nonpublic information obtained by
them hereunder which is proprietary or confidential in nature; provided that the
Purchasers may disclose such information in connection with the sale or transfer
or proposed sale or transfer of any Purchaser Shares, if the transferee or
proposed transferee agrees in writing to be bound by this provision.
For purposes of this Agreement and the Registration Agreement, all holdings of
the Series D Preferred Stock, Series D-1 Preferred Stock and Underlying Class A
Common Stock by Persons who are Affiliates of each other shall be aggregated for
purposes of meeting any threshold tests under this Agreement and the
Registration Agreement.
3B. Inspection of Property. After the Closing Date, the Company
----------------------
shall permit representatives designated by any Purchaser (so long as such
Purchaser holds at least 33 1/3% of the shares of Underlying Class A Common
Stock acquired by such Person at the Closing (as adjusted for stock splits,
stock dividends, reverse stock splits, recapitalizations, etc.)), upon
reasonable notice and during normal business hours and at such other times as
such Person may reasonably request, to (i) visit and inspect any of the
properties of the Company and its Subsidiaries, (ii) examine the corporate and
financial records of the Company and its Subsidiaries and make copies thereof or
extracts therefrom, and (iii) discuss the affairs, finances and accounts of any
such corporations with the directors, officers, key employees and independent
accountants of the Company and its Subsidiaries. The presentation of an executed
copy of this Agreement by any Purchaser or any such holder of Series D Preferred
Stock, Series D-1 Preferred Stock or Underlying Class A Common Stock to the
Company's independent accountants shall constitute the Company's permission to
its independent accountants to participate in discussions with such Persons.
3C. Restrictions. After the Closing Date, the Company shall not
------------
without the prior written consent of a majority of the non-management members of
the Executive Committee commence or consummate any Public Offering or negotiate
or allow any Sale of the Company to occur.
3D. Affirmative Covenants. The Company shall and shall cause each
---------------------
Subsidiary to:
(i) at all times cause to be done all things necessary to
maintain, preserve and renew its corporate existence and all material
licenses, authorizations and permits necessary to the conduct of its
businesses;
-7-
<PAGE>
(ii) pay and discharge when payable all Taxes and all other
material assessments and governmental charges imposed upon its properties
or upon the income or profits therefrom (in each case before the same
becomes delinquent and before penalties accrue thereon) and all material
claims for labor, materials or supplies which if unpaid would by law become
a Lien upon any of its property, unless and to the extent that the same are
being contested in good faith and by appropriate proceedings and adequate
reserves (as determined in accordance with GAAP) have been established on
its books with respect thereto;
(iii) comply in all material respects with all applicable laws,
rules and regulations of all governmental authorities;
(iv) take all actions necessary so that the Company will not be
required to register as an investment company under the Investment Company
Act of 1940, as amended (the "1940 Act");
--------
(v) apply for and continue in force with good and responsible
insurance companies adequate insurance covering risks of such types and in
such amounts as are customary for corporations of similar size engaged in
similar lines of business;
(vi) maintain proper books of record and account which present
fairly in all material respects its financial condition and results of
operations and make provisions on its financial statements for all such
proper reserves as in each case are required in accordance with GAAP; and
(viii) enter into and maintain nondisclosure and nonsolicitation
agreements with all of its key employees.
3E. Current Public Information. At all times after the Company has
--------------------------
filed a registration statement with the Securities and Exchange Commission
pursuant to the requirements of either the Securities Act or the Securities
Exchange Act, the Company shall use its reasonable best efforts to file all
reports required to be filed by it under the Securities Act and the Securities
Exchange Act and the rules and regulations adopted by the Securities and
Exchange Commission thereunder and shall take such further action as any holder
or holders of Underlying Class A Common Stock may reasonably request, all to the
extent required to enable such holders to sell Underlying Class A Common Stock
pursuant to Rule 144 adopted by the Securities and Exchange Commission under
the Securities Act (as such rule may be amended from time to time) or any
similar rule or regulation hereafter adopted by the Securities and Exchange
Commission. Upon request, the Company shall deliver to any holder of Underlying
Class A Common Stock a written statement as to whether it has complied with such
requirements.
3F. Public Disclosures. The Company shall not, nor shall it permit
------------------
any Subsidiary to, disclose any Purchaser's (or any of its Affiliate's) name or
identity as an investor in the Company in any press release or other public
announcement or in any document or material filed with any governmental entity,
without the prior written consent of such Purchaser, unless
-8-
<PAGE>
such disclosure is required by applicable law or governmental regulations or by
order of a court of competent jurisdiction, in which case prior to making such
disclosure the Company shall give written notice to such Purchaser, describing
in reasonable detail the proposed content of such disclosure and shall permit
such Purchaser to review and comment upon the form and substance of such
disclosure.
3G. Equity Issuances.
----------------
(i) If after the Signing the Company authorizes the issuance
or sale of any Equity Securities, the Company shall offer to sell to each
holder of Underlying Class A Common Stock a portion of such stock or
securities equal to the quotient determined by dividing (1) the number of
shares of Underlying Class A Common Stock held by such holder by (2) the
total number of shares of Common Stock outstanding on a fully diluted
basis. Each holder of Underlying Class A Common Stock shall be entitled to
purchase such stock or securities at the most favorable price and on the
most favorable terms as such stock or securities are to be offered to any
other Persons. The purchase price for all stock and securities offered to
the holders of the Underlying Common Stock shall be payable in cash;
provided that, if other Persons are to pay for such Equity Securities in
whole or in part with consideration other than cash, then the Board, in its
sole discretion, shall make a determination of the fair market value of
such consideration, and each holder of Underlying Class A Common Stock will
be entitled to purchase the Equity Securities for cash equal to the fair
market value of the aggregate cash and non-cash consideration each of them
would otherwise pay hereunder. Notwithstanding the foregoing, none of the
holders of Underlying Class A Common Stock will be permitted to exercise
its rights under this Section 3G unless it agrees to purchase its
----------
proportionate amount of each class or series of securities offered as a
package or unit in the issuance of the Equity Securities.
(ii) In order to exercise its purchase rights hereunder, a
holder of Underlying Class A Common Stock must, within 30 days after
receipt of written notice from the Company describing in reasonable detail
the stock or securities being offered, the purchase price thereof, the
payment terms and such holder's percentage allotment, deliver a written
notice to the Company describing its election hereunder (including the
amount of Equity Securities it so elects to purchase); provided that
funding the purchase of Equity Securities may be subject to the expiration
or termination of any applicable waiting period under the HSR Act. If all
of the stock and securities offered to the holders of Underlying Class A
Common Stock is not fully subscribed by such holders, the remaining stock
and securities shall be reoffered by the Company to the holders purchasing
their full allotment upon the terms set forth in this Section 3G, except
----------
that such holders must exercise their purchase rights within five days
after receipt of such reoffer.
(iii) Upon the expiration of the offering periods described
above, the Company shall be entitled to sell such stock or securities which
the holders of Underlying Class A Common Stock have not elected to purchase
during the 60 days following such expiration on terms and conditions no
more favorable to the purchasers thereof than those offered to such
holders. Any stock or securities offered or sold by the Company after such
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<PAGE>
60-day period must be reoffered to the holders of Underlying Class A Common
Stock pursuant to the terms of this Section 3G.
----------
(iv) The Company shall promptly deliver to holders of
Underlying Class A Common Stock certificates evidencing the Equity
Securities purchased by each such party hereunder, upon receipt of payment
therefor, and upon execution of such documents and instruments as shall
govern the issuance of such Equity Securities (which documents and
instruments shall be substantially the same as those governing the issuance
of the Equity Securities to other Persons).
(v) Notwithstanding anything to the contrary herein, the
rights of the holders of Underlying Class A Common Stock under this Section
-------
3G may be waived on behalf of all holders of Underlying Class A Common
--
Stock by the vote of at least (a) a majority of the outstanding Purchaser
Shares held by Corporate Investors, and, (b) a majority of the outstanding
Purchaser Shares held by Financial Investors; provided that only Persons
not participating in the relevant financing may be counted towards, and
participate in, such vote.
3H. FIRPTA.
------
(i) The Company acknowledges that certain Purchasers may be
foreign entities or have foreign Persons as partners and that the Company
may be required to file or cause to be filed in the future with the IRS
certain statements with its United States income tax returns required under
Section 1.897-2(h) of the Treasury Regulations. The Company shall use
reasonable efforts consistent with sound business practice to avoid
becoming a "United States real property holding corporation" within the
meaning of Section 897(c)(2) of the IRC. Upon any Purchaser's request, the
Company shall provide such Purchaser with a statement that the Company is
or is not a "United States real property holding corporation" as of the
date specified by such Purchaser (or as of the date of the request if such
Purchaser does not specify a date) and shall send a copy of such statement
to the IRS in a form and manner which identifies such Purchaser and which
otherwise satisfies the requirements of Section 1.89-2(h)(2) of the
Treasury Regulations.
(ii) In the event the Company in the future becomes a "United
States real property holding corporation," the Company shall promptly
notify each Purchaser in writing of such fact. Thereafter, upon written
request from any Purchaser, the Company shall provide information,
documentation and assistance to such Purchaser reasonably related to the
Company's status as a "United States real property holding corporation,"
including but not limited to (i) an affidavit stating (if true) that the
stock held by such Purchaser is of a class that is regularly traded (as
defined by Sections 1.897-1(n) and 1.897-9T of the Treasury Regulations) on
an established securities market (as defined by Section 1.897-1(m) of the
Treasury Regulations), and (ii) information or assistance which would
enable such Purchaser to obtain a withholding certificate permitting a
transferee of such Purchaser's stock to avoid or reduce any withholding
obligation such transferee would otherwise have under federal tax law.
-10-
<PAGE>
3I. VCOC Covenants. Each holder of Series D Preferred Stock, Series
--------------
D-1 Preferred Stock or Underlying Class A Common Stock which is intended to
qualify as a "venture capital operating company" for purposes of Department of
Labor Regulation (S)2510.3-101 shall, in addition to all other rights granted
under this Agreement and the other agreements contemplated hereby, have the
right to consult with and advise the officers of the Company with respect to the
management of the Company and its Subsidiaries.
3J. Unrelated Business Taxable Income. The Company shall not engage
---------------------------------
in any transaction which is reasonably likely to cause any Purchaser or any of
its limited partners which are exempt from income taxation under Section 501(a)
of the IRC and, if applicable, any pension plan that any such trust may be a
part of, to recognize unrelated business taxable income as defined in Section
512 and Section 514 of the IRC.
3K. Regulatory Compliance Cooperation.
---------------------------------
Before the Company redeems, purchases or otherwise acquires, directly or
indirectly, or converts or takes any action with respect to the voting rights
of, any shares of any class of its capital stock or any securities convertible
into or exchangeable for any shares of any class of its capital stock, the
Company shall give written notice of such pending action to any Purchaser that
is a bank holding company (a "BHC Purchaser"). Upon the written request of any
-------------
BHC Purchaser made within 10 days after its receipt of any such notice stating
that after giving effect to such action such BHC Purchaser would have a
Regulatory Problem (as defined below), the Company shall defer taking such
action for such period (not to extend beyond 45 days (or 10 days in the case of
the following proviso) after such BHC Purchaser's receipt of the Company's
original notice) as such BHC Purchaser requests to permit it and its Affiliates
to reduce the quantity of the Company's securities they own in order to avoid
the Regulatory Problem; provided, however, that if such BHC Purchaser would have
a Regulatory Problem as a result of the conversion of Series D Preferred Stock
into Class A Common Stock by another Purchaser, such BHC Purchaser shall be
required to convert a sufficient number of shares of Series D Preferred Stock
into shares of Series D-1 Preferred Stock so that the BHC Purchaser can avoid
the Regulatory Problem within 10 days of receipt of the Company's original
notice. In addition, the Company shall not be a party to any merger,
consolidation, recapitalization or other transaction pursuant to which any BHC
Purchaser would be required to take any voting securities, or any securities
convertible into voting securities, which might reasonably be expected to cause
such BHC Purchaser to have a Regulatory Problem. The Company shall grant to any
subsequent holder of the Underlying Class A Common Stock owned by a BHC
Purchaser, upon such holder's request, the same rights granted to the BHC
Purchasers pursuant to this Section 3K. For purposes of this Section 3K, a
---------- ----------
Person shall be deemed to have a "Regulatory Problem" when such Person and such
------------------
Person's Affiliates would own, control or have power over a greater quantity of
securities of any kind issued by the Company or any other entity than are
permitted under the BHCA (as defined below) and the regulations promulgated
thereunder.
3L. Amendment of Certificate of Designation. Prior to Closing, the
---------------------------------------
Company will use its reasonable best efforts to (A) amend the Certificate of
Designation (and BOEC shall
-11-
<PAGE>
have the right to review and approve such amended Certificate of Designation) to
create a new class of preferred stock, the "Series D-1 Preferred Stock", and
--------------------------
authorize the issuance of up to 15,000,000 shares of such Series D-1 Preferred
Stock which Series D-1 Preferred Stock shall (i) be identical in all respects to
the Series D Preferred Stock, except that the Series D-1 Preferred Stock shall
have no voting rights, except as shall be required by law and (ii) be
automatically convertible into Series D Preferred Stock (on a one-to-one basis)
on the later to occur of (A) March 11, 2000 or (b) such time as BOEC is
permitted, under the Bank Holding Company Act of 1956, as amended (the "BHCA"),
----
to hold such number of shares of Series D Preferred Stock and (B) provide any
BHC Purchaser with an opinion of counsel with respect to the Series D-1
Preferred Stock substantially similar to paragraphs 9 and 10 of Exhibit E-1
attached hereto. In any event, the Company shall cause the representations and
warranties in Section 4B and Section 4D below that specifically refer to the
---------- ----------
Series D-1 Preferred Stock to be correct as of the Closing for BOEC. In
addition, the amendment to the Certificate of Designation will provide that any
BHC Purchaser may convert shares of Series D Preferred Stock into shares of
Series D-1 Preferred Stock (on a one-to-one basis) in order to avoid a
Regulatory Problem. BOEC will inform the Company, in writing, at such time that
BOEC is permitted, under the BHCA, to hold such number of shares of Series D
Preferred Stock, which writing shall be determinative for all purposes of this
Section 3L and the conversion of such shares pursuant to the amended Certificate
- ----------
of Designation. Each Purchaser hereby agrees to provide a consent to the
amendment of the Certificate of Designation described in this Section 3L
----------
promptly upon the Company's request. For purposes of this Agreement and the
other Transaction Documents, outstanding shares of Series D-1 Preferred Stock
shall not be counted in any calculation of votes or voting percentages with
respect to the Series D Preferred Stock, the Purchaser Shares and the Underlying
Class A Common Stock.
3M. Non-Solicitation. The Company hereby agrees that it shall not,
----------------
for the one year period following the date of Signing, directly or indirectly,
without the prior written consent of such Purchaser, hire, recruit or solicit
for employment, any employee of a Purchaser or any individual who is or was
employed by a Purchaser during the thirty (30) day period immediately preceeding
the Signing date.
3N. Termination. Notwithstanding anything to the contrary herein,
-----------
the provision of Section 3A through 3D, Section 3G, Section 3K and Section 3L
---------- -- ---------- ---------- ----------
shall terminate on a Qualified IPO.
Section 4. Representations and Warranties of the Company.
---------------------------------------------
As a material inducement to each Purchaser to enter into this
Agreement and purchase the Series D Preferred Stock and Series D-1 Preferred
Stock hereunder, the Company hereby represents and warrants as of the Signing
that:
4A. Organization, Corporate Power and Licenses. The Company is a
------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and is qualified to do business in every jurisdiction
in which its ownership of property or conduct of business requires it to
qualify. The Company possesses all requisite corporate power and authority and
all material licenses, permits and authorizations necessary to own and
-12-
<PAGE>
operate its properties, to carry on its businesses as now conducted and
presently proposed to be conducted and to carry out the transactions
contemplated by this Agreement and the other Transaction Documents (other than
the Opportunities Agreement and the Microsoft MOU, with respect to which the
Company makes no such representation). The copies of the Company's and each
Subsidiary's charter documents and bylaws which have been furnished to the
Purchasers' special counsel reflect all amendments made thereto at any time
prior to the date of this Agreement and are correct and complete.
4B. Capital Stock and Related Matters.
---------------------------------
(i) The attached Capitalization Schedule accurately sets forth
-----------------------
the following information with respect to the Company's capitalization as
of the Signing and immediately thereafter: (1) the authorized capital stock
of the Company, (2) the number of shares of each class of capital stock
issued and outstanding, (3) the number of shares of each class of capital
stock reserved for issuance upon exercise of options, warrants, convertible
securities or other equity securities, (4) the name of each holder of
capital stock and the amount of stock owned by each such holder and (5)
with respect to all outstanding options, warrants and rights to acquire the
Company's capital stock: the holder, the number of shares covered, the
exercise price or conversion price, the vesting schedule and the expiration
date, and all of the agreements or understandings entered into by the
Company in connection with the issuance thereof or, if applicable, the
conversion, exchange or exercise thereof.
(ii) As of the Signing, neither the Company nor any of its
Subsidiaries shall have outstanding any stock or securities convertible or
exchangeable for any shares of its capital stock or containing any profit
participation features, nor shall it have outstanding any rights or options
to subscribe for or to purchase its capital stock or any stock or
securities convertible into or exchangeable for its capital stock or any
stock appreciation rights or phantom stock plans, except as set forth on
the Capitalization Schedule. As of the Signing, neither the Company nor any
-----------------------
Subsidiary shall be subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of its capital stock
or any warrants, options or other rights to acquire its capital stock,
except as set forth on the Capitalization Schedule. As of the Signing, all
-----------------------
of the outstanding shares of the Company's capital stock shall be validly
issued, fully paid and nonassessable, and the Class A Common Stock issuable
upon conversion of the Series D Preferred Stock (and the Series D Preferred
Stock issuable upon conversion of the Series D-1 Preferred Stock) will,
when issued, be duly authorized and validly issued, fully paid and
nonassessable.
(iii) There are no statutory preemptive rights or rights of
refusal with respect to the issuance of the Series D Preferred Stock or
Series D-1 Preferred Stock hereunder or the issuance of Class A Common
Stock upon conversion of the Series D Preferred Stock (and the issuance of
shares of Series D Preferred Stock upon conversion of the Series D-1
Preferred Stock) or exercise of any of the outstanding options to acquire
the Company Stock and the Company is not bound by any contractual pre-
emptive rights
-13-
<PAGE>
or rights of first refusal except as expressly contemplated herein nor, to
the knowledge of the Company, is any other Person. Except as set forth on
the Capitalization Schedule, the Company has not violated any applicable
-----------------------
federal or state securities laws in connection with the offer, sale or
issuance of any of its capital stock, and the offer, sale and issuance of
the Series D Preferred Stock or Series D-1 Preferred Stock hereunder do not
require registration under the Securities Act or any applicable state
securities laws. To the best of the Company's knowledge after due inquiry,
as of the Signing, except as expressly contemplated herein or as set forth
on the Capitalization Schedule, the Contracts Schedule or the Affiliated
----------------------- ------------------ ----------
Transactions Schedule, there are no agreements between the Company's
---------------------
shareholders with respect to the voting or transfer of the Company's
capital stock or with respect to any other aspect of the Company's affairs.
(iv) Upon issuance in accordance with the terms hereof, the
Series D Preferred Stock and the Series D-1 Preferred Stock will be duly
and validly issued, fully paid, non-assessable and free and clear of all
liens, claims and encumbrances of any kind, other than (a) transfer
restrictions under the Transaction Documents, (b) transfer restrictions
under federal and state securities laws and (c) liens, claims or
encumbrances imposed due to the actions of the Purchasers.
4C. Subsidiaries; Investments. Except as set forth on the attached
-------------------------
"Investments Schedule", the Company does not own or hold any rights to acquire
- ---------------------
any shares of stock or any other security or interest in any other Person, and
the Company has never had any Subsidiary. The Investments Schedule sets forth a
--------------------
complete and accurate description of all investments or acquisition of
securities in (or right to acquire any investment in) any Person ever owned by
the Company including the following information with respect to each item: the
name of the issuer, the amount and type of investment, the expiration date (if
any), the exercise or conversion price (if applicable), the number of shares
covered by such conversion or exchange (if applicable), and the percentage of
the outstanding equity (voting and non-voting) of such Person held by the
Company.
4D. Authorization; No Breach.
------------------------
(i) The execution, delivery and performance of this Agreement
and each of the other Transaction Documents, and the filing of the
Certificate of Designation, have been duly authorized by the Company. This
Agreement, each of the other Transaction Documents (other than the
Opportunities Agreement and the Microsoft MOU, with respect to which the
Company makes no such representation) and the Amended Certificate each
constitutes a valid and binding obligation of the Company, enforceable in
accordance with its terms.
(ii) The execution and delivery by the Company of this
Agreement and each of the other Transaction Documents (other than the
Opportunities Agreement and the Microsoft MOU, with respect to which the
Company makes no such representation), the offering, sale and issuance of
the Series D Preferred Stock and Series D-1 Preferred Stock
-14-
<PAGE>
hereunder, the issuance of Class A Common Stock upon conversion of the
Series D Preferred Stock, the adoption of the Certificate of Designation
and the fulfillment of and compliance with the respective terms hereof and
thereof by the Company, do not and shall not (i) conflict with or result in
a breach of the terms, conditions or provisions of, (ii) constitute a
default under, (iii) result in the creation of any lien, security interest,
charge or encumbrance upon the Company's or any Subsidiary's capital stock
or assets pursuant to, (iv) give any third party the right to modify,
terminate or accelerate any obligation under, (v) result in a violation of,
or (vi) require any authorization, consent, approval, exemption or other
action by or notice or declaration to, or filing with, any court or
administrative or governmental body or agency pursuant to, the Amended
Certificate or the Bylaws or the charter or bylaws of any Subsidiary of the
Company, or any law, statute, rule or regulation to which the Company or
any Subsidiary is subject, or any agreement, instrument, order, judgment or
decree to which the Company or any Subsidiary is subject.
4E. Financial Statements. Attached hereto as the "Financial
-------------------- ---------
Statements Schedule" is the unaudited balance sheet of the Company as of
- -------------------
September 30, 1999 (the "Latest Balance Sheet"), which Latest Balance Sheet is
--------------------
accurate and complete in all material respects, is consistent with the books and
records of the Company (which, in turn, are accurate and complete in all
material respects) and has been prepared in accordance with GAAP (except for the
absence of footnotes and year-end accruals) and presents fairly the financial
condition of the Company as of the date set forth therein.
4F. Absence of Undisclosed Liabilities. Except as set forth on the
----------------------------------
attached "Liabilities Schedule," the Company and its Subsidiaries do not have
--------------------
any material obligation or liability (whether accrued, absolute, contingent,
unliquidated or otherwise, whether or not known to the Company or any
Subsidiary, whether due or to become due and regardless of when asserted)
arising out of transactions entered into at or prior to the Signing, or any
action or inaction at or prior to the Signing, or any state of facts existing at
or prior to the Signing other than: (i) liabilities set forth on the Latest
Balance Sheet (including any notes thereto), (ii) liabilities under executory
contracts, which contracts are all listed on the attached Contracts Schedule and
------------------
(iii) liabilities and obligations which have arisen after the date of the Latest
Balance Sheet in the ordinary course of business (none of which is a liability
resulting from breach of contract, breach of warranty, tort, infringement, claim
or lawsuit).
4G. No Material Adverse Change. Since September 30, 1999, there has
--------------------------
been no material adverse change in the financial condition, operating results,
assets, operations, business prospects, employee relations or customer or
supplier relations of the Company and its Subsidiaries taken as a whole.
-15-
<PAGE>
4H. Contracts and Commitments.
-------------------------
(i) Except as expressly contemplated by this Agreement or as
set forth on the attached "Contracts Schedule," neither the Company nor any
------------------
Subsidiary is a party to or bound by any material written or oral contract
or agreement, except for those contracts or agreements which can be
terminated by the Company on no more than 30 days notice without penalty or
further expense.
(ii) All of the contracts, agreements and instruments set forth
on the Contracts Schedule are valid, binding and enforceable in accordance
------------------
with their respective terms. The Company and each Subsidiary have performed
all material obligations required to be performed by them and are not in
default under or in breach of nor in receipt of any claim of default or
breach under any contract, agreement or instrument identified on the
Contracts Schedule. No event has occurred which with the passage of time or
------------------
the giving of notice or both would result in a default, breach or event of
noncompliance by the Company or any Subsidiary under any material contract;
neither the Company nor any Subsidiary has any present expectation or
intention of not fully performing all such obligations; neither the Company
nor any Subsidiary has knowledge of any breach or anticipated breach by the
other parties to any contract; and neither the Company nor any Subsidiary
is a party to any materially adverse contract or commitment.
(iii) The Purchasers' special counsel have been supplied with a
true and correct copy of each of the written instruments, plans, contracts
and agreements and an accurate description of each of the oral
arrangements, contracts and agreements which are referred to on the
Contracts Schedule, together with all amendments, waivers or other changes
------------------
thereto.
(iv) All agreements between the Company and any of the
Purchasers or any of their respective Affiliates in respect of the
transactions contemplated hereby or any other aspect of the Company's
affairs are set forth in this Agreement or in the Contracts Schedule.
------------------
4I. Litigation, etc. There are no actions, suits, proceedings or
---------------
orders pending or, to the best of the Company's knowledge, threatened against or
affecting the Company or any Subsidiary (or to the best of the Company's
knowledge, pending or threatened against or affecting any of the officers,
directors or employees of the Company and its Subsidiaries with respect to the
Company's or its Subsidiaries' businesses or proposed business activities), or
pending or threatened by the Company or any Subsidiary against any third party,
at law or in equity, or before or by any governmental department, commission,
board, bureau, agency or instrumentality (including, without limitation, any
actions, suit, proceedings or investigations with respect to the transactions
contemplated by this Agreement); and there is no basis for any of the foregoing.
Neither the Company nor any Subsidiary is subject to any judgment, order or
decree of any court or other governmental agency.
-16-
<PAGE>
4J. Brokerage. There are no claims for brokerage commissions,
---------
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement binding
upon the Company or any Subsidiary.
4K. Governmental Consent, etc. Except for any filings required under
-------------------------
the HSR Act, no permit, consent, approval or authorization of, or declaration to
or filing with, any governmental authority is required in connection with the
execution, delivery and performance by the Company of this Agreement or the
other agreements contemplated hereby, or the consummation by the Company of any
other transactions contemplated hereby or thereby. The Company has not paid any
filing fees for any Person (other than the Company) required in connection with
any filing under the HSR Act.
4L. Insurance. The attached "Insurance Schedule" contains a
--------- ------------------
description of each insurance policy maintained by the Company and its
Subsidiaries with respect to its properties, assets and businesses (including
the scope of such policy (including whether coverage is on a claims made,
occurrence or other basis) and amount (including deductibles and ceilings) of
coverage under such policy) and a description of all claims, if any, made under
each such policy or any prior insurance policies. Each policy identified on the
Insurance Schedule is in full force and effect as of the Signing. Neither the
- ------------------
Company nor any Subsidiary is in default with respect to its obligations under
any insurance policy maintained by it, and neither the Company nor any
Subsidiary has been denied insurance coverage. The insurance coverage
maintained by the Company and its Subsidiaries is customary for corporations of
similar size engaged in similar lines of business. Except as set forth on the
Insurance Schedule, the Company and its Subsidiaries do not have any self-
- ------------------
insurance or co-insurance programs, and the reserves set forth on the Latest
Balance Sheet are adequate to cover all anticipated liabilities with respect to
any such self-insurance or co-insurance programs.
4M. Employees. The Company and each Subsidiary have complied in all
---------
material respects with all laws relating to the employment of labor (including,
without limitation, provisions thereof relating to wages, hours, equal
opportunity, collective bargaining and the payment of social security and other
taxes), and the Company is not aware that it or any Subsidiary has any material
labor relations problems (including, without limitation, any union organization
activities, threatened or actual strikes or work stoppages or material
grievances). Neither the Company, its Subsidiaries nor, to the best of the
Company's knowledge, any of their employees is subject to any noncompete,
nondisclosure, confidentiality, employment, consulting or similar agreements
relating to, affecting or in conflict with the present or proposed business
activities of the Company and its Subsidiaries, except for (i) agreements
between the Company and its present and former employees all of which are
described on the Contracts Schedule or (ii) agreements between present employees
------------------
of the Company and Computer Associates International, Inc. or PLATINUM
technology International, Inc., copies of which have been provided to
Purchasers' special counsel.
-17-
<PAGE>
4N. Compliance with Laws.
--------------------
(i) Neither the Company nor any Subsidiary has violated in the
past, or is currently in material violation of, any material law or any
material governmental rule, regulation or requirement, including, without
limitation, the 1940 Act, the Securities Act and the HSR Act, and neither
the Company nor any Subsidiary has received notice of any such violation.
(ii) The written statements, private placement memorandum,
documents, certificates or other items supplied by the Company to all other
purchasers of its capital stock or securities prior to the date hereof did
not contain any untrue statement of a material fact or omit to disclose a
material fact necessary to make each statement contained therein not
misleading
4O. Affiliated Transactions. Except as set forth on the attached
-----------------------
"Affiliated Transactions Schedule," no executive officer, or, to the Company's
--------------------------------
knowledge, no director, employee, shareholder or Affiliate of the Company or any
Subsidiary or any individual related by blood, marriage or adoption to any such
individual or any entity in which any such Person or individual owns any
beneficial interest, is a party to any agreement, contract, commitment or
transaction with the Company or any Subsidiary or has any material interest in
any material property used by the Company or any Subsidiary.
4P. Real Property Holding Corporation Status. Since its date of
----------------------------------------
incorporation, the Company has not been, and as of the date of this Agreement is
not, a "United States real property holding corporation," as defined in Section
897(c)(2) of the IRC, and in Section 1.897-2(b) of the Treasury Regulations
issued thereunder. The Company has no current plans or intentions which would
cause the Company to become a "United States real property holding company," and
the Company has filed with the IRS all statements, if any, with its United
States income tax returns which are required under Section 1.897-2(h) of the
Treasury Regulations.
4Q. Foundation Disqualified Person. The Company has been informed
------------------------------
that the Ford Foundation is a limited partner of Frontenac and that the Persons
identified on Exhibit H attached hereto are "disqualified persons," as such term
---------
is defined by Section 4946(a) of the IRC ("Disqualified Persons"). The Company
--------------------
represents that, to the best of its knowledge, (a) after giving effect to the
investment in the Company by the Purchasers, Disqualified Persons do not own 18%
or more of the voting stock of the Company, and (b) the aggregate direct and
indirect holdings of the stock of the Company of the Persons who are identified
as Disqualified Persons result solely from their indirect investment in the
Company through their investment in Frontenac. The Company is not aware of any
Disqualified Person being a shareholder, partner, member or other direct or
indirect owner of any other investor in the Company or any of its Affiliates.
4R. Investment Company. The Company is not an investment company
------------------
required to be registered as such under the 1940 Act.
-18-
<PAGE>
4S. Disclosure. Neither this Agreement nor any of the exhibits,
----------
schedules, attachments, written statements, documents, certificates or other
items supplied to the Purchasers by or on behalf of the Company (including,
without limitation, the private placement memorandum) with respect to the
transactions contemplated hereby contain any untrue statement of a material fact
or omit a material fact necessary to make each statement contained herein or
therein not misleading.
4T. Patents, Copyrights, Trademarks. The Company, to the best of its
-------------------------------
knowledge, has exclusive right, title and interest in and to all of its
intangible property, including all patents, trademarks, service marks, trade
names, copyrights, trade secrets and other propriety rights (collectively,
"Proprietary Rights") necessary for its business as now conducted and has
currently proposed to be conducted. Except as set forth on the Contracts
---------
Schedule, there are no outstanding options, licenses or agreements of any kind
- --------
relating to the foregoing, nor is the Company bound by or a party to any
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information and other proprietary rights and processes of any other person or
entity, other than such licenses or agreements arising from the purchase of "off
the shelf" or standard products. The Company has not received any notice or
claim of, nor does it have any knowledge of, any infringement or
misappropriation by the Company of the patents, trademarks, service marks, trade
names, copyrights or trade secrets or other proprietary rights of any other
person or entity. The Company does not believe it is or will be necessary to
utilize any inventions, trade secrets or proprietary information of any of its
employees made prior to their employment by the Company, except for inventions,
trade secrets or proprietary information that have been assigned to the Company.
Section 5. Definitions. For the purposes of this Agreement, the
-----------
following terms have the meanings set forth below:
"Affiliate" of any particular Person means any other Person
---------
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
direct the management and policies of a Person whether through the ownership of
voting securities, contract or otherwise. In addition, "Affiliates" of a Person
----------
include any Affiliate of a Person or its Affiliates' partners, members or
shareholders who received shares of the Series D Preferred Stock or Underlying
Class A Common Stock pursuant to a distribution from or a liquidation of such
Person or such Affiliate. Specifically, any entity that is controlled by
Persons that are members of Cross Creek shall be deemed an Affiliate of BOEC.
"Corporate Investors" shall have the meaning set forth in the
-------------------
Stockholders Agreement.
"Equity Securities" means (i) any shares of common capital stock in
-----------------
the Company, whether now authorized or not, (ii) any rights, options or warrants
to purchase any such common capital stock, or to purchase securities that may
become convertible into, exercisable for or exchangeable for such common capital
stock, and (iii) any securities convertible into, exercisable
-19-
<PAGE>
for or exchangeable for common capital stock in the Company, and (iv) notes or
debt securities containing equity or profit participation features; provided,
however, Equity Securities shall not include (a) securities issued or issuable
to employees, consultants or members of the Board for the purpose of soliciting
or retaining their services to the extent approved by the Board or compensation
committee thereof, (b) securities offered by the Company pursuant to a Public
Offering, (c) securities issued as a dividend on, subdivision of or other
distribution in respect of all Common Stock, (d) securities issued upon
conversion, exercise or exchange of any previously issued Equity Securities so
long as such securities are issued pursuant to the term of such previously
issued Equity Securities as in effect at the time of such prior issuance in
accordance with Section 3G, (e) securities issued to financial institutions in
----------
connection with senior or subordinated indebtedness of the Company, (f)
securities issued to strategic partners (i.e. Persons not principally in the
business of acting as a financial investor providing capital through equity
investments or Persons not otherwise principally acting in such a capacity with
respect to their investment in the Company) determined to be such by the Board,
(g) securities issued pursuant to the acquisition of another Person by the
Company by merger, purchase of substantially all of the assets of such other
entity, or by other transaction or reorganization whereby the Company ends up
owning, directly or indirectly, greater than fifty percent (50%) of the equity
and voting power of such entity or otherwise controls such entity, or (h) up to
105,000,000 shares of the Company's Series C Preferred Stock sold prior to
February 29, 2000 at $1.00 per share and on the other terms and conditions
applicable to the issuance of shares of Series C Preferred prior to the date
hereof, and the Class A Common Stock issuable upon the conversion thereof, for
which the Company has or currently anticipates receiving subscriptions.
"Event of Noncompliance" has the meaning set forth in the Certificate
----------------------
of Designation.
"Executive Committee" has the meaning set forth in the Certificate of
-------------------
Designation.
"Financial Investors" shall have the meaning set forth in the Stockholders
-------------------
Agreement.
"GAAP" means generally accepted United States accounting principles,
----
consistently applied.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
-------
as amended, and the Premerger Notification Rules promulgated thereunder.
"IRC" means the Internal Revenue Code of 1986, as amended, and any
---
reference to any particular IRC section shall be interpreted to include any
revision of or successor to that section regardless of how numbered or
classified.
"IRS" means the United States Internal Revenue Service.
---
-20-
<PAGE>
"Officer's Certificate" means a certificate signed by the Company's
---------------------
president or its chief financial officer, stating that (i) the officer signing
such certificate has made or has caused to be made such investigations as are
necessary in order to permit him to verify the accuracy of the information set
forth in such certificate and (ii) to the best of such officer's knowledge, such
certificate does not misstate any material fact and does not omit to state any
fact necessary to make the certificate not misleading.
"Partner Company" means any Person which is not a Subsidiary and of which
---------------
the Company owns any equity security (i) equal to or greater than 20% of the
common stock (on a fully-diluted basis) of such Person, or (ii) with a cost to
the Company in excess of $20,000,000.
"Person" means an individual, a partnership, a corporation, a limited
------
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Public Offering" means an underwritten public offering pursuant to an
---------------
effective registration statement filed by the Company (or any successor entity
to the Company) with the Securities and Exchange Commission under the Securities
Act with respect to common equity of the Company (or any successor entity to the
Company).
"Purchaser Shares" shall have the meaning set forth in the Stockholders
----------------
Agreement.
"Qualified IPO" shall have the meaning given such term in the Certificate
-------------
of Designation.
"Sale of the Company" means any transaction or series of related
-------------------
transactions (whether by merger, consolidation, recapitalization, sale of
securities or otherwise), pursuant to which any Person (or group of related or
affiliated Persons) acquires (i) Common Stock or other capital stock of the
Company having more than fifty percent (50%) of the voting power of the
stockholders of the Company to elect the Board, or (ii) all or greater than
fifty percent (50%) of the Company's capital stock (determined on a fully
diluted basis) or assets, determined on a consolidated basis (computed on the
basis of book value, determined in accordance with GAAP, or fair market value,
as determined by the Board in its reasonable good faith judgment).
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
similar federal law then in force.
"Securities and Exchange Commission" includes any governmental body or
----------------------------------
agency succeeding to the functions thereof.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
-----------------------
as amended, or any similar federal law then in force.
"Subsidiary" means, with respect to any Person, any corporation, limited
----------
liability company, partnership, association or other business entity of which
(i) if a corporation, a majority
-21-
<PAGE>
of the total voting power of shares of stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or indirectly, by
that Person or one or more of the other Subsidiaries of that Person or a
combination thereof, or (ii) if a limited liability company, partnership,
association or other business entity, a majority of the partnership or other
similar ownership interest thereof is at the time owned or controlled, directly
or indirectly, by any Person or one or more Subsidiaries of that Person or a
combination thereof. For purposes hereof, a Person or Persons shall be deemed to
have a majority ownership interest in a limited liability company, partnership,
association or other business entity if such Person or Persons shall be
allocated a majority of limited liability company, partnership, association or
other business entity gains or losses or shall be or control any managing
director or general partner of such limited liability company, partnership,
association or other business entity.
"Tax" or "Taxes" means federal, state, county, local, foreign or other
--- -----
income, gross receipts, ad valorem, franchise, profits, sales or use, transfer,
registration, excise, utility, environmental, communications, real or personal
property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
"Treasury Regulations" means the United States Treasury Regulations
--------------------
promulgated under the IRC, and any reference to any particular Treasury
Regulation section shall be interpreted to include any final or temporary
revision of or successor to that section regardless of how numbered or
classified.
"Underlying Class A Common Stock" means (i) the Class A Common Stock
-------------------------------
issued or issuable upon conversion of the Series D Preferred Stock issued at
Closing or upon conversion of shares of Series D-1 Preferred Stock and (ii) any
Class A Common Stock issued or issuable with respect to the securities referred
to in clause (i) above by way of stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger, consolidation or other
reorganization. For purposes of this Agreement, any Person who holds any shares
of Series D Preferred Stock or Series D-1 Preferred Stock shall be deemed to be
the holder of the Underlying Class A Common Stock obtainable upon conversion of
the Series D Preferred Stock in connection with the transfer thereof or
otherwise regardless of any restriction or limitation on the conversion of the
Series D Preferred Stock, such Underlying Class A Common Stock shall be deemed
to be in existence, and such Person shall be entitled to exercise the rights of
a holder of Underlying Class A Common Stock hereunder. As to any particular
shares of Underlying Class A Common Stock, such shares shall cease to be
Underlying Class A Common Stock when they have been (a) effectively registered
under the Securities Act and disposed of in accordance with the registration
statement covering them, (b) distributed to the public through a broker, dealer
or market maker pursuant to Rule 144 under the Securities Act (or any similar
provision then in force) or (c) repurchased by the Company or any Subsidiary.
-22-
<PAGE>
Section 6. Miscellaneous.
-------------
6A. Expenses. The Company shall pay, and hold each Purchaser and all
--------
holders of Series D Preferred Stock and Underlying Class A Common Stock harmless
against liability for the payment of, (i) the fees and expenses incurred with
respect to the enforcement of the rights (in connection with a breach or
threatened breach by the Company) granted under this Agreement, the other
Transaction Documents, the Amended Certificate or the Certificate of Designation
and (ii) the fees and expenses incurred by the holders of a majority of
Underlying Class A Common Stock with respect to defaults or breaches by the
Company under this Agreement, the other Transaction Documents, the Amended
Certificate and the Certificate of Designation.
6B. Remedies. Each holder of the Series D Preferred Stock, Series
--------
D-1 Preferred Stock and Underlying Class A Common Stock shall have all rights
and remedies set forth in this Agreement and the Certificate of Designation (or
as may be amended) and all rights and remedies which such holders have been
granted at any time under any other agreement or contract and all of the rights
which such holders have under any law. Any Person having any rights under any
provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law.
6C. Purchaser's Investment Representations. Each Purchaser hereby
--------------------------------------
represents and warrants (as to itself only) to the Company that:
(a) Investment Purpose. Such Purchaser (i) is acquiring the
------------------
Series D Preferred Stock or Series D-1 Preferred Stock and (ii) upon
conversion of the Series D Preferred Stock, will acquire the Underlying
Class A Common Stock then issuable (the Series D Preferred Stock, the
Series D-1 Preferred Stock and the Underlying Class A Common Stock
collectively are referred to herein as the "Securities"), for its own
----------
account for investment only and not with a view towards, or for resale in
connection with, the public sale or distribution thereof, except pursuant
to sales registered or exempted under the Securities Act.
(b) Accredited Investor Status. Such Purchaser is an "accredited
--------------------------
investor" as that term is defined in Rule 501(a)(3) of Regulation D.
(c) Reliance on Exemptions. Such Purchaser understands that the
----------------------
Securities are being offered and sold to it in reliance on specific
exemptions from the registration requirements of United States federal and
state securities laws and that the Company is relying in part upon the
truth and accuracy of, and such Purchaser's compliance with, the
representations, warranties and agreements of such Purchaser set forth
herein in order to determine the availability of such exemptions and the
eligibility of such Purchaser to acquire such securities.
(d) Information. Such Purchaser has been furnished with all
-----------
materials relating to the business, finances and operations of the Company
and materials relating to
-23-
<PAGE>
the offer and sale of the Securities which have been requested by such
Purchaser. Such Purchaser has been afforded the opportunity to ask
questions of the Company. Such Purchaser understands that its investment in
the Securities involves a high degree of risk. Such Purchaser has sought
such accounting, legal and tax advice as it has considered necessary to
make an informed investment decision with respect to its acquisition of the
Securities.
(e) No Governmental Review. Such Purchaser understands that no
----------------------
United States federal or state agency or any other government or
governmental agency has passed on or made any recommendation or endorsement
of the Securities or the fairness or suitability of the investment in the
Securities nor have such authorities passed upon or endorsed the merits of
the offering of the Securities.
(f) Transfer or Resale. Such Purchaser understands that except
------------------
as provided in the Registration Agreement: (i) the Securities have not been
and are not being registered under the Securities Act or any state
securities laws, and may not be offered for sale, sold, assigned or
transferred unless (A) subsequently registered thereunder or (B) sold in
reliance on an exemption therefrom; and (ii) neither the Company nor any
other person is under any obligation to register such securities under the
Securities Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder. Such Purchaser is able to bear the
economic risk of its investment in the Securities for an indefinite period
of time.
(g) Enforceability. This Agreement constitutes the legal, valid
--------------
and binding obligation of such Purchaser, enforceable in accordance with
its terms, and the execution, delivery and performance of this Agreement by
such Purchaser does not and shall not conflict with, violate or cause a
breach of any material agreement, contract or instrument to which Purchaser
is a party or any judgment, order or decree to which such Purchaser is
subject.
6D. Consent to Amendments. Except as otherwise expressly provided
---------------------
herein, the provisions of this Agreement may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
holders of (i) a majority of the outstanding Purchaser Shares held by the
Corporate Investors and (ii) a majority of the outstanding Purchaser Shares held
by the Financial Investors. No other course of dealing between the Company and
the holder of any Underlying Class A Common Stock or any delay in exercising any
rights hereunder or under the Amended Certificate (as may be amended) shall
operate as a waiver of any rights of any such holders. For purposes of this
Agreement, shares of the Series D Preferred Stock held by the Company or any
Subsidiaries (and shares issued or issuable upon conversion of such Series D
Preferred Stock) shall not be deemed to be outstanding.
6E. Survival of Representations and Warranties. All representations
------------------------------------------
and warranties contained herein or made in writing by any party in connection
herewith shall survive the execution and delivery of this Agreement and the
consummation of the transactions
-24-
<PAGE>
contemplated hereby, regardless of any investigation made by any Purchaser or on
its behalf; provided that all of the representations and warranties contained
herein, other than those contained in Sections 4B, 4D, 4J, 4P, 4Q and 4R (each
of which shall survive the Signing indefinitely), shall survive the Signing for
one (1) year after the date of this Agreement.
6F. Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto whether so expressed or
not. In addition, and whether or not any express assignment has been made, the
provisions of this Agreement which are for any Purchaser's benefit as a
purchaser or holder of shares of the Series D Preferred Stock, Series D-1
Preferred Stock or Underlying Class A Common Stock are also for the benefit of,
and enforceable by, any subsequent holder of such Series D Preferred Stock,
Series D-1 Preferred Stock or such Underlying Class A Common Stock, except that
the indemnity obligations of the Company set forth in Section 6N may be enforced
----------
only by each Purchaser. The rights and obligations of each Purchaser under this
Agreement and the agreements contemplated hereby may be assigned by such
Purchaser at any time, in whole or in part, to any investment fund managed by
such Purchaser, or any successor thereto.
6G. Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
6H. Counterparts. This Agreement may be executed simultaneously in
------------
two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such counterparts taken together shall constitute
one and the same Agreement.
6I. Descriptive Headings; Interpretation. The descriptive headings
------------------------------------
of this Agreement are inserted for convenience only and do not constitute a
substantive part of this Agreement. The use of the word "including" in this
Agreement shall be by way of example rather than by limitation.
6J. Generally Accepted Accounting Principles. Where any accounting
----------------------------------------
determination or calculation is required to be made under this Agreement or the
exhibits hereto, such determination or calculation (unless otherwise provided)
shall be made in accordance with generally accepted accounting principles,
consistently applied, except that if because of a change in generally accepted
accounting principles the Company would have to alter a previously utilized
accounting method or policy in order to remain in compliance with generally
accepted accounting principles, such determination or calculation shall continue
to be made in accordance with the Company's previous accounting methods and
policies.
6K. Governing Law. The corporate law of the State of Delaware shall
-------------
govern all issues and questions concerning the relative rights and obligations
of the Company and its stockholders. All other issues and questions
concerning the construction, validity,
-25-
<PAGE>
enforcement and interpretation of this Agreement and the exhibits and schedules
hereto shall be governed by, and construed in accordance with, the laws of the
State of Illinois, without giving effect to any choice of law or conflict of law
rules or provisions (whether of the State of Illinois or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than the
State of Illinois. In furtherance of the foregoing, the internal law of the
State of Illinois shall control the interpretation and construction of this
Agreement (and all schedules and exhibits hereto), even though under that
jurisdiction's choice of law or conflict of law analysis, the substantive law of
some other jurisdiction would ordinarily apply.
6L. Notices. All notices, demands or other communications to be
-------
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given when delivered personally
to the recipient, sent to the recipient by reputable overnight courier service
(charges prepaid) or mailed to the recipient by certified or registered mail,
return receipt requested and postage prepaid. Such notices, demands and other
communications shall be sent to each Purchaser at the address indicated for such
Purchaser on the Schedule of Purchasers and to the Company at the address
----------------------
indicated below:
divine interVentures, inc.
4225 Naperville Road, Suite 400
Lisle, Illinois 60532
Attention: General Counsel
With a copy to: Katten Muchin Zavis
525 W. Monroe Street
Suite 1600
Chicago, Illinois 60661-3693
Attention: Matthew S. Brown, Esq.
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
6M. No Strict Construction. The parties hereto have participated
----------------------
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties hereto, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement.
6N. Indemnification. In consideration of each Purchaser's execution
---------------
and delivery of this Agreement and acquiring the Series D Preferred Stock and
Series D-1 Preferred Stock hereunder and in addition to all of the Company's
other obligations under this Agreement, the Company shall defend, protect,
indemnify and hold harmless such Purchaser all of their officers, directors,
employees and agents (including, without limitation, those retained in
connection with the transactions contemplated by this Agreement) (collectively,
the "Indemnitees") from and against any and all actions, causes of action,
-----------
suits, claims, losses, costs, penalties, fees, liabilities and damages, and
expenses in connection therewith (irrespective of whether any such
-26-
<PAGE>
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys' fees and disbursements (the
"Indemnified Liabilities"), incurred by the Indemnitees or any of them as a
-----------------------
result of, or arising out of, or relating to any misrepresentation in or breach
of any of the representations and warranties or any nonfulfillment or breach of
any covenant or agreement on the part of the Company under this Agreement or the
Registration Agreement, provided that the Company shall not be liable to an
Indemnitee under this Section 6N for any liability if such liability is caused
----------
solely by such Indemnitee's fraud, willful misconduct or gross negligence or
default or breach under this Agreement or the Registration Agreement. To the
extent that the foregoing undertaking by the Company may be unenforceable for
any reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law.
6O. Understanding Among the Purchasers. The determination of each
----------------------------------
Purchaser to purchase shares of the Series D Preferred Stock and Series D-1
Preferred Stock pursuant to this Agreement has been made by such Purchaser
independent of any other Purchaser and independent of any statements or opinions
as to the advisability of such purchase or as to the properties, business,
prospects or condition (financial or otherwise) of the Company and its
Subsidiaries which may have been made or given to such Purchaser by any other
Purchaser or by any agent or employee of any other Purchaser. Each Purchaser
acknowledges and agrees that no other Purchaser shall be responsible in any way
or held liable or accountable to any extent for any information, documents,
materials, analysis, projections, plans or other data (or compilations thereof)
relating to the Company or the transactions contemplated hereby (collectively,
"Investment Data") provided to such Purchaser by any other Purchaser, and each
---------------
Purchaser agrees to hold harmless and not make any claims against any other
Purchaser with respect to any Investment Data provided to such Purchaser by such
other Purchaser. In addition, it is acknowledged by each of the other Purchasers
that neither of Frontenac or BOEC has acted as an agent of such Purchaser in
connection with making its investment hereunder and that neither of Frontenac or
BOEC shall be acting as an agent of such Purchaser in connection with monitoring
its investment hereunder.
6P. Acknowledgment re Kirkland & Ellis. Frontenac and BOEC have
----------------------------------
retained Kirkland & Ellis in connection with the purchase of Series D Preferred
Stock and Series D-1 Preferred Stock pursuant to this Agreement and may in the
future retain Kirkland & Ellis in connection with the matters contemplated by
this Agreement. Each of the other Purchasers understands that Kirkland & Ellis
is not representing and shall not be deemed to be representing any of such other
Purchasers in connection with the purchase of Series D Preferred Stock pursuant
to this Agreement or other matters contemplated by this Agreement unless and
until (i) specifically requested by such other Purchasers and agreed to by
Kirkland & Ellis, and (ii) such other Purchasers sign a written retention and
conflict waiver letter provided by Kirkland & Ellis.
* * * * *
-27-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
DIVINE INTERVENTURES, INC.
By: /s/Michael P. Cullinane
---------------------------
Michael P. Cullinane
Executive Vice President
(SIGNATURE PAGE TO PURCHASE AGREEMENT)
<PAGE>
FRONTENAC VII LIMITED PARTNERSHIP
By: Frontenac Company VII, L.L.C.
Its: General Partner
By: /s/ Jeremy Silverman
------------------------------
Its: Member
------------------------------
FRONTENAC MASTERS VII LIMITED PARTNERSHIP
By: Frontenac Company VII, L.L.C.
Its: General Partner
By: /s/ Jeremy Silverman
------------------------------
Its: Member
------------------------------
(SIGNATURE PAGE TO PURCHASE AGREEMENT)
<PAGE>
FIRST CHICAGO INVESTMENT CORPORATION
By: /s/ Eric C. Larson
------------------------------
Its: Attorney in Fact
------------------------------
CROSS CREEK PARTNERS X, LLC
By: /s/ Eric C. Larson
------------------------------
Its: General Partner
------------------------------
(SIGNATURE PAGE TO PURCHASE AGREEMENT)
<PAGE>
MICROSOFT CORPORATION
By: /s/Greg Maffei
------------------------------
Its: Chief Financial Officer
------------------------------
(SIGNATURE PAGE TO PURCHASE AGREEMENT)
<PAGE>
MESIROW CAPITAL PARTNERS VII
By: Mesirow Financial Services, Inc.
Its: General Partner
By:/s/Daniel P. Howell
------------------------------
Daniel P. Howell
Vice President
(SIGNATURE PAGE TO PURCHASE AGREEMENT)
<PAGE>
SUMITOMO CORPORATION
By: /s/Isao Momota
------------------------------
Isoa Mota
Its: Financial Investor, Media Division
-----------------------------------
(SIGNATURE PAGE TO PURCHASE AGREEMENT)
<PAGE>
SUMITOMO CORPORATION OF AMERICA
By:/s/ Kotaro Nakata
-------------------------------
Kotaro Nakata
Its: Vice President, Investment Management
--------------------------------------
(SIGNATURE PAGE TO PURCHASE AGREEMENT)
<PAGE>
DELL USA L.P.
By: Dell Gen. P. Corp.
Its: General Partner
By: /s/Alex C. Smith
------------------------------
Name: Alex C. Smith
-----------------------------
Title: VP, Business Developement
----------------------------
(SIGNATURE PAGE TO PURCHASE AGREEMENT)
<PAGE>
CBW/SK DIVINE INVESTMENTS,
a New York general partnership
By:/s/ Sanjay Kumar
-------------------------------
Sanjay Kumar, a General Partner
(SIGNATURE PAGE TO PURCHASE AGREEMENT)
<PAGE>
SCHEDULE OF PURCHASERS
----------------------
<TABLE>
<CAPTION>
Total Purchase
Price for
No. of Shares of Series D
Names and Addresses Series D Preferred Stock Preferred Stock
- --------------------------------- ------------------------ ---------------
<S> <C> <C>
Frontenac VII Limited Partnership
135 South LaSalle St. 14,285,714 $14,285,714.00
Chicago, IL 60603
Attention: Jamie Cowie
Frontenac Masters VII Limited 714,286 $ 714,286.00
Partnership (together with Frontenac VII
Limited Partnership, "Frontenac")
135 South LaSalle St.
Chicago, IL 60603
Attention: Jamie Cowie
First Chicago Investment Corporation 12,750,000* $12,750,000.00
Three First National Plaza,
Suite 1210
Chicago, IL 60670
Attention: Eric Larson
Cross Creek Partners X, LLC ("Cross 2,250,000* $ 2,250,000.00
Creek" and, together with First Chicago
Investment Corporation, "BOEC")
Three First National Plaza,
Suite 1210
Chicago, IL 60670
Attention: Eric Larson
Mesirow Capital Partners VII 15,000,000 $15,000,000.00
("Mesirow")
c/o Mesirow Private Equity
Investments, Inc.
350 N. Clark Street
Chicago, IL 60610
Attention: Daniel P. Howell
Sumitomo Corporation 1,000,000 $ 1,000,000.00
1-2-2, Hitotsubashi
Chiyoda-ku, Tokyo 100
JAPAN
Attention: Isao Moota, Media Division
</TABLE>
* May instead purchase all or a portion in shares of Series D-1 Preferred Stock.
<PAGE>
<TABLE>
<CAPTION>
Total Purchase
No. of Shares of Price for
Series D Preferred Series D
Names and Addresses Stock Preferred Stock
- ----------------------------------- ------------------ ---------------
<S> <C> <C>
Sumitomo Corporation of America 1,000,000 $ 1,000,000.00
(together with Sumitomo Corporation,
"Sumitomo")
600 Third Avenue
New York, New York 10016
Attention: John Degen
Dell USA L.P. ("Dell") 100,000,000 $100,000,000.00
Round Rock 1, Mail Code #8033
One Dell Way
Round Rock, TX 78682
Attention: Thomas H. Welch, Jr.
Vice President, Deputy General Counsel
CBW/SK divine Investments 25,000,000 $ 25,000,000.00
("CBW/SK")
c/o Computer Associates
One Computer Associates Plaza
Islandia, NY 11749
Attention: Sanjay Kumar and
Jay H. Diamond, Esq.
Microsoft Corporation ("Microsoft") 25,000,000 $ 25,000,000.00
One Microsoft Way
Redmond, WA 98052
Attention: Chief Financial Officer and
General Counsel, Finance & Operations
TOTAL 197,000,000 $197,000,000.00
</TABLE>
<PAGE>
LIST OF EXHIBITS
----------------
Exhibit A - Series D Preferred Stock Terms
Exhibit B - Registration Agreement
Exhibit C - Management Agreement
Exhibit D - Series D Stockholders Agreement
Exhibit E-1 - Opinion of Company Counsel (Corporate)
Exhibit E-2 - Opinion of Company Counsel (Securities)
Exhibit F - Schedule of "Disqualified Persons"
LIST OF DISCLOSURE SCHEDULES
----------------------------
Capitalization Schedule
Investments Schedule
Financial Statements Schedule
Liabilities Schedule
Contracts Schedule
Insurance Schedule
Affiliated Transactions Schedule
<PAGE>
EXHIBIT 10.7
SERIES D STOCKHOLDERS AGREEMENT
-------------------------------
This Series D Stockholders Agreement (this "Agreement") is made as of
---------
December 7, 1999, by and among divine interVentures, inc., a Delaware
corporation (the "Corporation"), each Person who holds Class B Common Stock (as
-----------
defined below), or securities directly or indirectly convertible into or
exercisable for Class B Common Stock as of the date hereof (each such person to
be listed on the Management Stockholders Schedule attached hereto and to execute
--------------------------------
a counterpart of this Agreement) (the "Management Stockholders"), and the
-----------------------
purchasers identified on the Schedule of Purchasers hereto (collectively as the
----------------------
"Purchasers" and each individually as a "Purchaser"). Certain Purchasers shall
---------- ---------
be defined by the defined term set forth for such Purchasers on the Schedule of
-----------
Purchasers.
- ----------
Pursuant to that Purchase Agreement, dated as of the date hereof, by and
between the Purchasers and the Corporation (as amended and modified from time to
time, the "Purchase Agreement"), the other documents and instruments referred to
------------------
therein and consummation of the transactions contemplated thereby, as of the
Closing Date, the Purchasers are acquiring shares of the Corporation's Series D
Senior Participating Convertible Redeemable Preferred Stock, $0.001 par value
per share or Series D-1 Senior Participating Convertible Redeemable Preferred
Stock, $0.001 par value per share (collectively, the "Series D Preferred
------------------
Shares"). In order to induce the Purchasers to enter into the Purchase
Agreement and the other agreements contemplated thereby and to purchase the
Series D Preferred Shares in the manner contemplated thereby, the Corporation
and the Management Stockholders have agreed to the terms and conditions herein.
Except as otherwise indicated herein, capitalized terms used herein shall have
the meanings set forth in Section 1 hereof, or if not defined herein, the
---------
meanings for such capitalized terms set forth in the Purchase Agreement.
Notwithstanding anything to the contrary herein, this Agreement shall apply
to a party hereto only with respect to periods beginning (i) in the case of the
Company and the Management Stockholders, the date any Purchaser first acquires
Purchaser Shares under the Purchase Agreement, and (ii) in the case of a
Purchaser, the Closing Date for such Purchaser. To the extent the Purchase
Agreement is terminated in accordance with its terms with respect to any party
hereto, this Agreement shall have no further force and effect with respect to
such party, and, in the case of a termination of the Purchase Agreement with
respect to the Company, this Agreement will have no further force and effect
with respect to the Management Stockholders.
AGREEMENTS
In consideration of the recitals and the mutual promises, covenants and
agreements 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. Definitions. In addition to the capitalized terms defined elsewhere
-----------
in this Agreement, the following capitalized terms shall have the following
meaning when used in this Agreement:
<PAGE>
"Affiliate" of a Person means any other Person, directly or indirectly
---------
controlling, controlled by or under common control with such particular Person,
and any partner of a Person that is a partnership. Specifically, any entity
that is controlled by Persons that are members of Cross Creek shall be deemed an
Affiliate of BOEC.
"Approved Sale" means the sale of the Corporation, whether by merger,
-------------
consolidation, recapitalization, sale of all or substantially all of the assets
of the Corporation or a sale of all or substantially all of the capital stock of
the Corporation, in one transaction or a series of transactions, which has been
approved by (a) a majority of the entire Board, (b) the holders of a majority of
then-outstanding Class B Common Stock, (c) so long as such Persons or their
Affiliates hold at least 25% of the Purchaser Shares originally purchased by
them hereunder in the aggregate, the holders of a majority of the then
outstanding Purchaser Shares held by the Corporate Investors, and (d) so long
as such Persons or their Affiliates hold at least 25% of the Purchaser Shares
originally purchased by them hereunder in the aggregate, the holders of a
majority of the then outstanding Purchaser Shares held by the Financial
Investors.
"Board" means the Board of Directors of the Corporation.
-----
"Class A Common Stock" means the class A common stock, par value $0.001 per
--------------------
share, of the Corporation.
"Class B Common Stock" means the class B common stock, par value $0.001 per
--------------------
share, of the Corporation.
"Commission" means the United States Securities and Exchange Commission or
----------
any successor thereto.
"Common Shares" means shares of Common Stock which have not been sold to
-------------
the public (i) pursuant to a registration statement declared effective by the
Commission or (ii) after a Public Offering, pursuant to Rule 144. For the
purposes of this Agreement, any Person will be deemed to own, in addition to any
Common Shares such Person actually owns, any Common Shares which would then be
directly or indirectly issuable upon the conversion or exercise (whether or not
then convertible or exercisable) of any other Securities owned by such Person,
and such other Securities shall be deemed to represent such Common Shares.
"Common Stock" means, collectively, the Class A Common Stock and the Class
------------
B Common Stock.
"Corporate Investors" means such parties identified on the Schedule of
------------------- -----------
Purchasers as Corporate Investors, and the transferees of Purchaser Shares held
- ----------
by such parties permitted hereunder.
"Excluded Percentage" means up to 10% of the Securities owned by any
-------------------
Management Stockholder (or is deemed to own) on the date hereof, subject to
adjustment for any stock splits, stock combinations or stock dividends with
respect to such Securities.
-2-
<PAGE>
"Financial Investor" means such parties identified on the Schedule of
------------------ -----------
Purchasers as Financial Investors, and the transferees of Purchaser Shares held
- ----------
by such parties permitted hereunder.
"IPO" means the Corporation's first underwritten Public Offering of shares
---
of Common Stock.
"Management Stockholder Shares" means the Securities originally issued to
-----------------------------
Management Stockholders or any Securities acquired by any Management Stockholder
after the date hereof (after which time such shares shall be deemed to be
"Management Stockholder Shares" hereunder). For all purposes of this Agreement,
Management Stockholder Shares will continue to be Management Stockholder Shares
in the hands of any holder (except for the Company or any Purchaser hereunder,
and purchasers pursuant to an offering registered under the Securities Act or
purchasers pursuant to a Rule 144 transaction), and each such other holder of
Management Stockholder Shares will succeed to all rights and obligations
attributable to any Management Stockholder, as a holder of Management
Stockholder Shares hereunder. Management Stockholder Shares will also include
shares of the Company's capital stock issued with respect to any Management
Stockholder Shares by way of a stock split, stock dividend or other
recapitalization.
"Person" means an individual, corporation, partnership, limited liability
------
company, limited partnership, syndicate, person (including, without limitation,
a "Person" as defined in Section 13(d)(3) of the Securities Exchange Act of
1934, as amended), trust, association or entity or government, political
subdivision, agency or instrumentality of a government.
"Public Offering" means any offering by the Corporation of its equity
---------------
securities to the public pursuant to an effective registration statement under
the Securities Act.
"Purchaser Shares" means, at any time, (i) any Series D Preferred Shares
----------------
then outstanding, (ii) any Common Shares then outstanding which were issued
directly or indirectly upon the conversion or exercise of Series D Preferred
Shares, (iii) any Securities then outstanding which were issued as, or were
issued directly or indirectly upon the conversion or exercise of other
Securities issued as, a dividend or other distribution with respect to or in
replacement of any Securities referred to in (i) or (ii). For purposes of this
Agreement, the calculation of the number of Purchaser Shares (to the extent such
Purchaser Shares are not Common Shares) shall be determined on an as-converted
basis into Common Shares.
"Restricted Period" means the period commencing on the date hereof and
-----------------
ending on the last day of the eighteenth month following the date hereof.
"Rule 144" means Rule 144 (including Rule 144(k)) of the Commission under
--------
the Securities Act or any similar provision then in force under the Securities
Act.
"Securities" means Common Shares or shares of capital stock or other
----------
securities directly or indirectly exercisable for, or convertible into, Common
Shares; provided, however, that Securities shall not include any securities
which have been sold to the public pursuant to a registration statement declared
effective by the Commission or, after a Public Offering, pursuant to Rule 144.
-3-
<PAGE>
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
similar federal statute, as the same shall be in effect from time to time.
"Series C Preferred Stock" means the series C preferred stock, par value
------------------------
$0.001 per share, of the Corporation.
2. Disposition of Securities.
-------------- ----------
(a) No Management Stockholder will transfer, sell, convey, pledge,
exchange or otherwise dispose of (herein referred to as a "transfer") any
Securities or any interest in Securities, except (i) in compliance with Section
-------
3 of this Agreement or (ii) as permitted by Section 4 of this Agreement. In
- - ---------
addition, as a condition precedent to any transfer of Management Stockholder
Shares (except in a Public Offering or pursuant to Rule 144) (w) any Management
Stockholder Shares so transferred shall remain subject to the restrictions of
Section 7 and Section 8 hereof, (x) the Management Stockholder must provide the
- --------- ---------
Corporation with prior written notice of such transfer indicating the terms and
the name and reasonably detailed business background information of the proposed
transferee, and the Corporation may object to such transfer within 21 days of
receipt of such notice (in which case such transfer shall not be permitted under
this Agreement) if a majority of the non-transferring members of the Executive
Committee of the Board determines that the transfer to the proposed transferee
would have a direct and substantial detrimental effect on the Corporation, (y)
the Corporation must determine that the Corporation is not at risk, as a result
of such transfer, to be required to be a reporting company under Section 12(g)
of the Securities Exchange Act of 1934, as amended, and (z) the transferee
agrees to be bound by this Agreement to such extent as if the transferee were
the transferring Management Stockholder.
(b) (i) During the Restricted Period, Purchaser Shares can be
transferred only with the prior written consent of a majority of the non-
transferring members of the Executive Committee of the Board, and cannot
otherwise be sold, assigned, transferred, pledged or disposed of, directly or
indirectly (except in a Public Offering or pursuant to Rule 144); provided,
however, that any Purchaser may transfer Purchaser Shares at any time, without
complying with Section 2(b)(i) or Section 2(b)(ii)(x), to (A) any Affiliate or
--------------- -------------------
(B) Purchaser's or such Affiliate's advisors, consultants, and other business
partners.
(ii) After the Restricted Period, all Purchaser Shares will be
freely transferable, provided that, as a condition precedent to any transfer of
Purchaser Shares (except in a Public Offering or pursuant to Rule 144) (w) any
Purchaser Shares so transferred shall remain subject to the restrictions of
Section 7 and Section 8 hereof, (x) the Purchaser must provide the Corporation
- --------- ---------
with prior written notice of such transfer indicating the terms and the name and
reasonably detailed business background information of the proposed transferee,
and the Corporation may object to such transfer within 21 days of receipt of
such notice (in which case such transfer shall not be permitted under this
Agreement) if a majority of the non-transferring members of the Executive
Committee of the Board determines that the transfer to the proposed transferee
would have a direct and substantial detrimental effect on the Corporation, (y)
the Corporation must determine that the Corporation is not at risk, as a result
of such transfer, to be required to be a reporting company under Section 12(g)
of the Securities Exchange Act of 1934, as amended, and
-4-
<PAGE>
(z) the transferee agrees to be bound by this Agreement to such extent as if the
transferee were the transferring Purchaser.
3. Take-along.
----------
(a) No Management Stockholder (the "Disposing Management Stockholder")
--------------------------------
will transfer, at any time or from time to time, any Take-along Securities (as
defined below), except (i) as permitted by Section 4 of this Agreement, (ii) in
---------
a Public Offering or pursuant to Rule 144, (iii) to a transferee who purchases
such Take-along Securities as part of a transaction in which a pro rata portion
----------------
(as hereinafter defined) of the aggregate number of Take-along Securities being
purchased by such transferee is being purchased from each holder of Purchaser
Shares who chooses to participate in such transaction. For purposes of the
preceding sentence, "pro rata portion" means, with respect to any holder of the
----------------
Purchaser Shares, the proportion equal to (A) the number of Purchaser Shares
held by such holder, divided by (B) the sum of (1) the number of Purchaser
Shares held by all holders of Purchaser Shares who choose to participate in such
transaction; and (2) the number of Securities held by the Disposing Management
Stockholder.
(b) "Take-along Securities" means, with respect to any Management
---------------------
Stockholder, those Securities which represent Securities in excess of the
Excluded Percentage for such Management Stockholder of all Common Shares
represented by all of the Securities owned by such Management Stockholder on the
date hereof. (For example, if a Management Stockholder who owns 100 Common
Shares on the date hereof at some date in the future wishes to sell 10 of such
Common Shares, such Management Stockholder may sell such Common Shares without
complying with the provisions of this Section 3, for such Common Shares are not
---------
Take-along Securities. However, if at a yet later date such Management
Stockholder wishes to dispose of an additional five Common Shares, those Common
Shares will be Take-along Securities and are subject to the provisions of this
Section 3. If such Management Stockholder acquires 20 additional Common Shares
- ---------
subsequent to the date hereof before disposing of any of his initial 100 Common
Shares, only the first 10 Common Shares such Management Stockholder disposes of
would not be Take-along Securities, and the next 110 Common Shares would be.)
(c) Before the Disposing Management Stockholder accepts any offer for
the sale of any Take-along Securities to which Section 3(a)(iii) applies, such
-----------------
Disposing Management Stockholder will give written notice (the "Take-along
----------
Notice") to the Corporation (which will, within five (5) days of the date of
- ------
receipt of such notice (the "Take-along Notice Date"), send or deliver a copy of
----------------------
the Take-along Notice to each Purchaser, stating the material terms of the
offer, including the number of shares to be sold, the identity of the
prospective transferee, the purchase price therefor and the timing of such sale.
If a holder of Purchaser Shares wishes to participate in such sale, such holder
of Purchaser Shares will give the Corporation and the Disposing Management
Stockholder notice to such effect within fifteen (15) days of the Take-along
Notice Date.
(d) This Section 3 shall terminate (i) one (1) year following the
---------
consummation of a Qualified IPO with respect to Andrew J. Filipowski, and (ii)
upon the consummation of a Qualified IPO with respect to all Management
Stockholders other than Andrew J. Filipowski.
-5-
<PAGE>
4. Permitted Transfers. Any Management Stockholder may transfer
-------------------
Securities, without complying with Section 3, to any Permitted Transferee (as
---------
defined below) that consents in a writing delivered to the Corporation to be
bound by the terms of this Agreement as a Management Stockholder. With respect
to any Management Stockholder, "Permitted Transferees" means (a) the spouse or
---------------------
lineal descendants of such Management Stockholder, (b) any trust solely for the
benefit of such Management Stockholder and/or the spouse or lineal descendants
of such Management Stockholder, (c) any corporation or partnership in which such
Management Stockholder, and/or the spouse and the lineal descendants of such
Management Stockholder are the direct and beneficial owners of substantially all
of the equity interests (provided such Management Stockholder, spouse and lineal
descendants agree in writing to remain the direct and beneficial owners of all
such equity interests), and (d) the Management Stockholder's personal
representative upon such Management Stockholder's death for purposes of
administration of such Management Stockholder's estate or upon such Management
Stockholder's incompetency for purposes of the protection and management of the
assets of such Management Stockholder.
5. Board of Directors.
------------------
(a) Voting Agreement. From and after the date hereof, each holder of
----------------
Management Stockholder Shares shall vote all of the Management Stockholder
Shares, and each Purchaser shall vote all Purchaser Shares, in each case which
are voting securities of the Corporation, and any other voting securities of the
Corporation over which such holder has voting control and shall take all other
necessary or desirable actions within such holder's control (whether in capacity
as a stockholder, director, member of a Board committee or officer of the
Corporation or otherwise, and including, without limitation, attendance at
meetings in person or by proxy for purposes of obtaining a quorum and execution
of written consents in lieu of meetings), and the Corporation shall take all
necessary or desirable actions within its control (including, without
limitation, calling special Board and stockholder meetings), so that:
(i) Board Composition. Frontenac shall be entitled to designate one
-----------------
(1) director (the "Frontenac Director") and shall be entitled to designate the
------------------
Frontenac Director as a member of the Executive Committee of the Board (the
"Frontenac Committee Member"), so long as Frontenac and/or its Affiliates owns
- ---------------------------
at least 25% of the Purchaser Shares originally purchased by Frontenac under the
Purchase Agreement (the "Frontenac Purchaser Shares"). BOEC shall be entitled
--------------------------
to designate one (1) director (the "BOEC Director"), so long as BOEC and/or its
-------------
Affiliates owns at least 25% of the Purchaser Shares originally purchased by
BOEC under the Purchaser Agreement (the "BOEC Purchaser Shares"). Dell shall be
---------------------
entitled to designate two (2) directors (each, a "Dell Director") and shall be
-------------
entitled to designate a Dell Director as a member of the Executive Committee of
the Board (the "Dell Committee Member"), so long as Dell and/or its Affiliates
---------------------
owns at least 25% of the Purchaser Shares originally purchased by Dell under the
Purchase Agreement (the "Dell Purchaser Shares"). CBW/SK shall be entitled to
---------------------
designate one (1) director (the "CBW/SK Director"), so long as CBW/SK and/or its
---------------
Affiliates owns at least 25% of the Purchaser Shares originally purchased by
CBW/SK under the Purchase Agreement (the "CBW/SK Purchaser Shares"). Microsoft
-----------------------
shall be entitled to designate one (1) director (the "Microsoft Director"), so
------------------
long as Microsoft and/or its Affiliates owns at least 25% of the Purchaser
Shares originally purchased by Microsoft under the Purchase Agreement (the
"Microsoft Purchaser Shares").
- ---------------------------
-6-
<PAGE>
(ii) Removal. The removal from the Board or the Executive Committee,
-------
as applicable, (with or without cause) of: (A) the Frontenac Director or the
Frontenac Committee Member, so long as Frontenac and/or its Affiliates owns at
least 25% of the Frontenac Purchaser Shares, shall be only at the written
request of Frontenac; (B) the BOEC Director, so long as BOEC and/or its
Affiliates owns at least 25% of the BOEC Purchaser Shares, shall be only at the
written request of BOEC; (C) any Dell Director or Dell Committee Member, so long
as Dell and/or its Affiliates owns at least 25% of the Dell Purchaser Shares,
shall be only at the written request of Dell; (D) the CBW/SK Director, so long
as CBW/SK and/or its Affiliates owns at least 25% of the CBW/SK Purchaser
Shares, shall be only at the written request of CBW/SK; and (E) the Microsoft
Director, so long as Microsoft and/or its Affiliates owns at least 25% of the
Microsoft Purchaser Shares, shall be only at the written request of Microsoft.
(iii) Vacancies. In the event that the Frontenac Director ceases to
---------
serve as a member of the Board, so long as Frontenac and/or its Affiliates owns
at least 25% of the Frontenac Purchaser Shares, the resulting vacancy on the
Board and on the Executive Committee shall be filled by Frontenac. In the event
that the BOEC Director ceases to serve as a member of the Board, so long as BOEC
and/or its Affiliates owns at least 25% of the BOEC Purchaser Shares, the
resulting vacancy on the Board shall be filled by BOEC. In the event that a Dell
Director ceases to serve as a member of the Board, so long as Dell and/or its
Affiliates owns at least 25% of the Dell Purchaser Shares, the resulting vacancy
on the Board and, if such Dell Director was the Dell Committee Member, the
resulting vacancy on the Executive Committee, shall be filled by Dell. In the
event that the CBW/SK Director ceases to serve as a member of the Board, so long
as CBW/SK and/or its Affiliates owns at least 25% of the CBW/SK Purchaser
Shares, the resulting vacancy on the Board shall be filled by CBW/SK. In the
event that the Microsoft Director ceases to serve as a member of the Board, so
long as Microsoft and/or its Affiliates owns at least 25% of the Microsoft
Purchaser Shares, the resulting vacancy on the Board shall be filled by
Microsoft.
(b) Director Fees and Expenses; Indemnification. The Corporation shall
-------------------------------------------
pay the reasonable out-of-pocket expenses incurred by each director designated
under this Section 5 in connection with attending the meetings of the Board and
---------
any committee thereof to the extent such expenses are paid on behalf of or
reimbursed to any other director. If, at any time, any Board representative
receives any compensation (whether in cash, securities or otherwise) for serving
on the Board or any committee thereof, then all directors having similar
responsibilities and providing comparable services in their capacity as such (as
determined by the Compensation Committee) shall be entitled to receive the same
compensation. So long as the Frontenac Director, the BOEC Director, either Dell
Director, the CBW/SK Director, or the Microsoft Director serves on the Board and
for five (5) years thereafter, the Corporation shall maintain directors and
officers indemnity insurance coverage reasonably satisfactory to Frontenac,
BOEC, Dell, CBW/SK or Microsoft, as the case may be, and the Corporation's
certificate of incorporation and bylaws shall (to the extent necessary) be
amended to provide for indemnification and exculpation of directors and officers
to the fullest extent permitted under applicable law.
(c) Failure to Designate. If any Person fails to designate a
--------------------
representative to fill a directorship or committee seat pursuant to the terms of
this Section 5, such directorship or
---------
-7-
<PAGE>
committee seat shall remain vacant until such Person which failed to designate
such directorship or committee seat so directs.
(d) Board Observers. If, and for so long as, any Corporate Investor or
---------------
Financial Investor otherwise entitled to designate a director under Section 5(a)
------------
does not have a representative on the Board, the Company shall invite such
Corporate Investor or Financial Investor to send one representative to attend,
in a nonvoting, nonparticipatory, observer capacity, all meetings of the Board
and, in the case of Dell and Frontenac, the executive committee thereof. The
Company shall give each such representative copies of all notices, minutes,
consents and other materials that it provides to its directors at the same time
such materials are provided to the directors; provided, however, that the
Company reserves the right to exclude such representative from access to any
material or meeting or portion thereof if (i) the Company believes, upon advice
of counsel, that such exclusion is reasonably necessary to preserve the
attorney-client privilege, (ii) the Board is addressing any rights of the
Company vis a vis such Corporate Investor or Financial Investor or the Company's
financial relationship with such Corporate Investor or Financial Investor or
(iii) the Executive Committee determines in its good faith reasonable judgment
that such Corporate Investor or Financial Investor otherwise has a conflict of
interest, contrary to the best interest of the Company, with respect to the
matters being addressed by the Board. Each Person having observation rights
under this Section 5(d) shall provide the Company notice of the identity and
------------
address of such Person's representative hereunder, and any change with respect
thereto.
(e) Termination. Sections 5(a), 5(c) and 5(d) shall terminate on the
----------- ------------- ---- ----
earlier to occur of (i) two (2) years following the consummation of a Qualified
IPO, (ii) with respect to Frontenac, such time as Frontenac (and/or its
Affiliates) no longer holds at least 25% of the Frontenac Purchaser Shares,
(iii) with respect to BOEC, such time as BOEC (and/or its Affiliates) no longer
holds at least 25% of the BOEC Purchaser Shares, (iv) with respect to Dell, such
time as Dell (and/or its Affiliates) no longer holds at least 25% of the Dell
Purchaser Shares, (v) with respect to CBW/SK, such time as CBW/SK (and/or its
Affiliates) no longer holds at least 25% of the CBW/SK Purchaser Shares or (vi)
with respect to Microsoft, such time as Microsoft (and/or its Affiliates) no
longer holds at least 25% of the Microsoft Purchaser Shares.
6. Representations and Warranties; Acknowledgments. Each Management
-----------------------------------------------
Stockholder severally and not jointly represents and warrants to the Corporation
and the Purchasers that (i) such Management Stockholder is the record owner of
the number of Management Stockholder Shares set forth opposite his name on the
Management Stockholders Schedule, and (ii) this Agreement has been duly
- --------------------------------
authorized, executed and delivered by such Management Stockholder and
constitutes the valid and binding obligation of such Management Stockholder,
enforceable in accordance with its terms. Each Management Stockholder
acknowledges and agrees that such Management Stockholder has not granted and is
not a party to any proxy, voting trust or other agreement or understanding
(whether written or oral, or firm or contingent) which is inconsistent with,
conflicts with or violates any provision of this Agreement (except for the
Series C Stockholders Agreement, the true and correct text of which is attached
hereto as Exhibit A) or which is the subject matter of this Agreement. No
---------
holder of Management Stockholder Shares shall grant any proxy or become party to
any voting trust, voting agreement or other agreement or understanding with
respect to the voting
-8-
<PAGE>
or transferability, or purchase or redemption of any shares of the Corporation's
capital stock or which is inconsistent with, conflicts with or violates any
provision of this Agreement.
7. Sale of the Corporation. During the period commencing on the date
-----------------------
hereof and ending on the seventh (7/th/) anniversary of the date hereof, (a)
each holder of Purchaser Shares will consent to and raise no objections to an
Approved Sale, (b)(i) if the Approved Sale is structured as a sale of stock,
each holder of Purchaser Shares will agree to sell, and will sell, all of such
holder's Series D Preferred Shares on the terms and conditions (including any
escrow or indemnification provisions) of the Approved Sale; (ii) if the Approved
Sale is structured as a merger or consolidation, each holder of Series D
Preferred Shares will vote in favor thereof and will not exercise any
dissenters' rights of appraisal such holder may have under law, including
Delaware corporation law; and (iii) if the Approved Sale is structured as a sale
of all or substantially all of the assets of the Corporation and a subsequent
dissolution and liquidation of the Corporation, each holder of Purchaser Shares
will vote in favor thereof and will vote in favor of the subsequent dissolution
and liquidation of the Corporation, and (c) each holder of Purchaser Shares will
take all necessary actions in connection with consummation of the Approved Sale
as are reasonably requested by the Board; provided, however, that for all
purposes of this Section 7, the obligations of the stockholders of the
---------
Corporation with respect to an Approved Sale are subject to the satisfaction of
the following conditions: (i) upon the consummation of the Approved Sale, each
stockholder of the Corporation will receive the same form of consideration and
the same portion of the aggregate consideration that such stockholders of the
Corporation would have received if such aggregate consideration (whether in the
form of cash, securities or otherwise) had been distributed by the Corporation
in complete liquidation pursuant to the rights and preferences set forth in the
Corporation's Certificate of Incorporation as in effect immediately prior to
such Approved Sale; (ii) if any stockholders of the Corporation are given an
option as to the form and amount of consideration to be received, each
stockholder of such class of the Corporation will be given the same option; and
(iii) each stockholder of then currently exercisable rights to acquire shares of
a class of the Corporation will be given an opportunity to exercise such rights
prior to the consummation of the Approved Sale and participate in such sale as
stockholders of such class of the Corporation.
8. Restrictions on Transfer.
------------------------
(a) Legends. The certificates representing the Purchaser Shares and
-------
the Management Stockholder Shares will bear the following legend:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
STATE SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF
UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF SUCH ACT
AND STATE SECURITIES LAWS OR AN EXEMPTION THEREFROM IS
AVAILABLE AS ESTABLISHED BY A WRITTEN OPINION OF COUNSEL
ACCEPTABLE TO THE CORPORATION.
-9-
<PAGE>
THESE SECURITIES ARE SUBJECT TO ADDITIONAL RESTRICTIONS ON
TRANSFER AND OTHER AGREEMENTS SET FORTH IN A STOCKHOLDERS
AGREEMENT, A COPY OF WHICH MAY BE OBTAINED AT THE
PRINCIPAL EXECUTIVE OFFICE OF THE CORPORATION. ANY SALE,
ASSIGNMENT, TRANSFER, PLEDGE OR DISPOSITION IN CONFLICT
WITH, OR IN DEROGATION OF, THE STOCKHOLDERS AGREEMENT IS
VOID AND OF NO LEGAL FORCE, EFFECT OR VALIDITY WHATSOEVER.
(b) Securities Act. No holder of Purchaser Shares or Management
--------------
Stockholder Shares may sell, transfer, or dispose of any of such Purchaser
Shares or Management Stockholder Shares (except pursuant to an effective
registration statement under the Securities Act) without first delivering to the
Corporation an opinion of counsel or such other evidence reasonably acceptable
in form and substance to the Corporation that registration under the Securities
Act is not required in connection with such transfer.
(c) Holdback Agreements. Each holder of Management Stockholder Shares
-------------------
agrees not to effect any public sale or distribution of equity securities of the
Corporation, or any securities convertible into or exchangeable or exercisable
for such securities, (A) during the seven (7) days prior to, and during the one
hundred and eighty (180) days following, the effective date of an IPO, (except
as part of such underwritten registration), or (B) during the seven (7) days
prior to, and during the ninety (90) days following, the effective date of any
underwritten Public Offering, other than an IPO, (except as part of such
underwritten registration), in the case of each of Section 8(c)(A) and Section
--------------- -------
8(c)(B) unless the underwriters managing the Public Offering otherwise agree to
- -------
a shorter period. Each holder of Management Stockholder Shares agrees to enter
into customary lock-up agreements consistent with the foregoing if requested by
any underwriter of any such Public Offering. For purposes of this Section 8(c)
------------
only, following an IPO, the term Management Stockholder Shares shall not include
any shares which have been (x) disposed of pursuant to an effective registration
statement under the Securities Act or (y) sold pursuant to Rule 144.
9. Transfers in Violation of Agreement. Any transfer or attempted
-----------------------------------
transfer of any Purchaser Shares or Management Stockholder Shares in violation
of any provision of this Agreement shall be void, and the Corporation shall not
record such transfer on its books or treat any purported transferee of such
Purchaser Shares or Management Stockholder Shares as the owner of such shares
for any purpose.
10. Amendments to Series C Stockholders Agreement. In the event that the
---------------------------------------------
Series C Stockholders Agreement is amended or modified after the date hereof,
the Corporation will provide prompt (and in any event, within five business
days) notice of such amendment or modification to the Purchasers, and will
provide a copy to the Purchasers of such amended or modified Series C
Stockholders Agreement (marked to show changes). Neither the Company nor any
Management Stockholder shall amend or modify the Series C Stockholders
Agreement, or enter into, amend or modify any other agreement with any holder of
Series C Preferred Stock with respect to such Series
-10-
<PAGE>
C Preferred Stock, without first offering to the Purchasers similar or more
favorable (to the Purchasers) terms as are proposed to be offered to any such
stockholder in such agreement.
11. Execution: Counterparts. This Agreement may be executed in any
-----------------------
number of counterparts, each of which when so executed and delivered will be
deemed an original, and such counterparts together will constitute one
instrument.
12. Remedies. Each of the parties to this Agreement will be entitled to
--------
enforce its rights under this Agreement specifically (without the necessity of a
bond), to recover damages by reason of any breach of any provision of this
Agreement and to exercise all other rights existing in its favor. The parties
hereto agree and acknowledge that money damages may not be an adequate remedy
for any breach of the provisions of this Agreement and that any party may in its
sole discretion apply to any court of law or equity of competent jurisdiction
for specific performance or injunctive relief (without the necessity of a bond)
in order to enforce or prevent any violations of the provisions of this
Agreement.
13. Notices. Any notices desired, required or permitted to be given
-------
hereunder shall be delivered personally or mailed, certified or registered mail,
return receipt requested, or delivered by overnight courier service, to the
following addresses, or such other addresses as shall be given by notice
delivered hereunder, and shall be deemed to have been given upon delivery, if
delivered personally, three (3) days after mailing, if mailed, or one (1)
business day after delivery to the overnight courier service, if delivered by
overnight courier service:
If to the Corporation, to:
divine interVentures, inc.
4225 Naperville Road
Suite 400
Lisle, Illinois 60532
Attention: General Counsel
With a copy to:
Katten Muchin Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661-3693
Attention: Matthew S. Brown, Esq.
If to the Management Stockholders, to the addresses set forth on the stock
record books of the Corporation.
If to the Purchasers, to the addresses set forth on the stock record books
of the Corporation.
-11-
<PAGE>
14. Amendments and Waivers. The provisions of this Agreement may be
----------------------
amended upon the written agreement of the Corporation and the holder or holders
of (a) at least a majority of the outstanding Purchaser Shares held by the
Corporate Investors, and (b) a majority of the outstanding Purchaser Shares held
by the Financial Investors, and (c) the holder or holders of a majority of the
outstanding Management Stockholder Shares. Any waiver, permit, consent or
approval of any kind or character on the part of any holders of any provision or
condition of this Agreement must be made in writing and shall be effective only
to the extent specifically set forth in writing. The failure of any party to
enforce any of the provisions of this Agreement shall in no way be construed as
a waiver of such provisions and shall not affect the right of such party
thereafter to enforce each and every provision of this Agreement in accordance
with its terms.
15. Severability. Whenever possible, each provision of this Agreement
------------
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed, and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
16. Complete Agreement. This Agreement supersedes and preempts any prior
------------------
understandings, agreements or representations by or among the parties, written
or oral, which may have related to the subject matter hereof in any way.
17. Successors and Assigns. All covenants and agreements in this Agreement
-------------- -------
by or on behalf of any of the parties hereto will bind and inure to the benefit
of the respective successors and assigns of the parties hereto, and each
transferee of all or any portion of the Securities held by the parties hereto,
whether so expressed or not.
18. Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Agreement shall be governed by, the laws
of the State of Delaware, without giving effect to provisions thereof regarding
conflict of laws.
19. Headings. The captions set forth in this Agreement are for
--------
convenience only and shall not be considered as part of this Agreement or as in
any way limiting the terms and provisions hereof.
20. Termination. Subject to the more specific termination provisions set
-----------
forth in Sections 3(d) and 5(e), Sections 2, 3, 4, 5 and 7 of this Agreement
------------- ---- -------- - - - - -
shall terminate upon the closing of a Qualified IPO (as defined in the
Certificate of Designation).
[Remainder of page intentionally left blank.
Signature pages follow.]
-12-
<PAGE>
IN WITNESS WHEREOF, this Series D Stockholders Agreement was executed as of
the date first set forth above.
DIVINE INTERVENTURES, INC.
By: /s/ Larry S. Freedman
----------------------------
Larry S. Freedman
Secretary
<PAGE>
/s/ Andrew J. Filipowski
-----------------------------------------
Andrew J. Filipowski
/s/ Michael P. Cullinane
-----------------------------------------
Michael P. Cullinane
/s/ Paul L. Humenansky
-----------------------------------------
Paul L. Humenansky
/s/ Larry S. Freedman
-----------------------------------------
Larry S. Freedman
/s/ Bryan Kennedy
-----------------------------------------
Bryan Kennedy
/s/ Michael Santer
-----------------------------------------
Michael Santer
/s/ Thomas A. Slowey
-----------------------------------------
Thomas A. Slowey
/s/ Paul A. Tatro
--------------------------------------------------
Paul A. Tatro as Joint Tenant with Pamela S. Tatro
/s/ Pamela S. Tatro
--------------------------------------------------
Pamela S. Tatro as Joint Tenant with Paul A. Tatro
(SIGNATURE PAGE FOR SERIES D STOCKHOLDERS AGREEMENT)
<PAGE>
The undersigned is executing this Series D Stockholders Agreement as a
Management Stockholder; provided that for purposes of Section 4 of this Series D
---------
Stockholders Agreement, all Securities held by the undersigned shall be deemed
to be held by Larry S. Freedman.
MARSH FLOWER INVESTMENTS I
/s/ Larry S. Freedman
--------------------------
By: Larry S. Freedman
Its: Partner
<PAGE>
The undersigned is executing this Series D Stockholders Agreement as a
Management Stockholder; provided that for purposes of Section 4 of this Series D
---------
Stockholders Agreement, all Securities held by the undersigned shall be deemed
to be held by Paul L Humenansky.
PAUL L. HUMENANSKY LIVING TRUST dated
10/3/91
/s/ Paul L. Humenansky
------------------------------------------------
Paul L. Humenansky, not individually, but solely
as trustee of the PAUL L. HUMENANSKY LIVING TRUST
dated 10/3/91
<PAGE>
The undersigned is executing this Series D Stockholders Agreement as a
Management Stockholder; provided that for purposes of Section 4 of this Series D
---------
Stockholders Agreement, all Securities held by the undersigned shall be deemed
to be held by Andrew J. Filipowski.
FLIP DIVINE TRUST U/A/D 9/9/99
/s/ Arthur W. Hahn
-----------------------------------------------
Arthur W. Hahn, not individually, but solely as
trustee of the FLIP DIVINE TRUST U/A/D 9/9/99
<PAGE>
FRONTENAC VII LIMITED PARTNERSHIP
By: Frontenac Company VII, L.L.C.
Its: General Partner
By: /s/ Jeremy Silverman
--------------------------
Its: Member
-------------------------
FRONTENAC MASTERS VII LIMITED
PARTNERSHIP
By: Frontenac Company VII, L.L.C.
Its: General Partner
By: /s/ Jeremy Silverman
--------------------------
Its: Member
-------------------------
(SIGNATURE PAGE FOR SERIES D STOCKHOLDERS AGREEMENT)
<PAGE>
FIRST CHICAGO INVESTMENT CORPORATION
By: /s/ Eric C. Larson
------------------------
Its: Attorney In Fact
-----------------------
CROSS CREEK PARTNERS X, LLC
By: /s/ Eric C. Larson
------------------------
Its: General Partner
-----------------------
(SIGNATURE PAGE FOR SERIES D STOCKHOLDERS AGREEMENT)
<PAGE>
MICROSOFT CORPORATION
By: /s/ Greg Moffei
------------------------------
Its: Chief Financial Officer
-----------------------------
(SIGNATURE PAGE FOR SERIES D STOCKHOLDERS AGREEMENT)
<PAGE>
MESIROW CAPITAL PARTNERS VII,
an Illinois Limited Partnership
By: Mesirow Financial Services, Inc.
Its: General Partner
By: /s/ Daniel P. Howell
---------------------------
Daniel P. Howell
Vice President
(SIGNATURE PAGE FOR SERIES D STOCKHOLDERS AGREEMENT)
<PAGE>
SUMITOMO CORPORATION
By: /s/ Isao Momota
---------------------------
Its: Financial Investor
--------------------------
Isao Momota
Media Division
(SIGNATURE PAGE FOR SERIES D STOCKHOLDERS AGREEMENT)
<PAGE>
SUMITOMO CORPORATION OF AMERICA
By: /s/ Kotaro Nakata
-------------------------------------
Its: Kotaro Nakata
--------------------------------------
Vice President, Investment Management
(SIGNATURE PAGE FOR SERIES D STOCKHOLDERS AGREEMENT)
<PAGE>
DELL USA L.P.
By: Dell Gen. P. Corp.
Its: General Partner
By: /s/ Alex C. Smith
-----------------------------
Name: Alex C. Smith
---------------------------
Title: VP, Business Development
--------------------------
(SIGNATURE PAGE FOR SERIES D STOCKHOLDERS AGREEMENT)
<PAGE>
CBW/SK DIVINE INVESTMENTS,
a New York general partnership
By: /s/ Sanjay Kumar
---------------------------------
Sanjay Kumar, a general partner
(SIGNATURE PAGE FOR SERIES D STOCKHOLDERS AGREEMENT)
<PAGE>
Management Stockholders Schedule
--------------------------------
Andrew J. Filipowski
Michael P. Cullinane
Paul L. Humenansky
Larry S. Freedman
Bryan Kennedy
Michael Santer
Thomas A. Slowey
Paul A. Tatro, as Joint Tenant with Pamela S. Tatro
Marsh Flower Investments I
Paul L. Humenansky Living Trust dated 10/3/91
Flip Divine Trust U/A/D 9/9/99
<PAGE>
Schedule of Purchasers
----------------------
A. Financial Investors.
-------------------
Frontenac VII Limited Partnership
Frontenac Masters VII Limited Partnership (together with Frontenac VII
Limited Partnership, "Frontenac")
First Chicago Investment Corporation
Cross Creek Partners X, LLC ("Cross Creek" and, together with First
Chicago Investment Corporation, "BOEC")
Mesirow Capital Partners VII ("Mesirow")
Sumitomo Corporation of America
Sumitomo Corporation (together with Sumitomo Corporation of America,
"Sumitomo")
B. Corporate Investors.
-------------------
Dell USA L.P. ("Dell")
Microsoft Corporation ("Microsoft")
CBW/SK divine Investments ("CBW/SK")
<PAGE>
EXHIBIT A
---------
Series C Stockholders Agreement
-------------------------------
See attached text of the Series C Stockholders Agreement consisting of 8 pages.
<PAGE>
EXHIBIT 10.8
FOUNDERS SHARES REGISTRATION RIGHTS AGREEMENT
---------------------------------------------
THIS FOUNDERS SHARES REGISTRATION RIGHTS AGREEMENT (this "Agreement") is
made as of August 18, 1999, by and among divine interVentures, inc., a Delaware
corporation (the "Corporation"), and each Person who becomes a party hereto as
provided in Section 9.9 hereof (the "Purchasers").
R E C I T A L S
---------------
A. In connection with the Corporation's 1999 Stock Purchase Plan, the
Purchasers have executed Subscription Agreements (the "Subscription Agreements")
in which they have agreed to purchase shares (the "Founders Shares") of Common
Stock (as defined below) at a purchase price of $0.001 per share.
B. The Corporation is requiring that the Purchasers enter into this
Agreement as a condition to the Corporation's acceptance of their subscriptions
for the Founders Shares.
C. The Corporation deems it desirable to enter into this Agreement in
order to induce the Purchasers to purchase the Founders Shares pursuant to the
Subscription Agreements.
AGREEMENTS
----------
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 hereto hereby agree as follows:
1. Definitions. As used in this Agreement.
-----------
"Class A Common Stock" means the Class A Common Stock, $0.001 par value per
share, of the Corporation.
"Class B Common Stock" means the Class B Common Stock, $0.001 par value per
share of the Corporation.
"Commission" means the United States Securities and Exchange Commission or
any successor thereto.
"Common Stock" means the Class A Common Stock and the Class B Common Stock.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any similar federal statute, as the same shall be in effect from time to time.
"IPO" means the Corporation's first underwritten public offering of shares
of Common Stock pursuant to a registration statement filed with the Commission.
<PAGE>
"Person" means an individual, corporation, partnership, limited liability
company, limited partnership, syndicate, person (including, without limitation,
a "Person" as defined in Section 13(d)(3) of the Exchange Act), trust,
association or entity or government, political subdivision, agency or
instrumentality of a government.
"Public Offering" means any offering by the Corporation of its equity
securities to the public pursuant to an effective registration statement under
the Securities Act.
"Registrable Shares" means at any time (i) any shares of Class A Common
Stock then outstanding which are Founders Shares or were issued upon conversion
of Founders Shares, (ii) any shares of Class A Common Stock then issuable upon
conversion of outstanding Founders Shares, (iii) any shares of Class A Common
Stock then outstanding which were issued as, or were issued directly or
indirectly upon the conversion or exercise of other securities issued as, a
dividend or other distribution with respect or in replacement of any shares
referred to in (i) or (ii); and (iv) any shares of Class A Common Stock then
issuable directly or indirectly upon the conversion or exercise of other
securities which were issued as a dividend or other distribution with respect to
or in replacement of any shares referred to in (i) or (ii); provided, however,
that Registrable Shares shall not include any shares which have been (a)
disposed of pursuant to an effective registration statement under the Securities
Act, (b) sold or otherwise transferred in a transaction in which the rights
under the provisions of this Agreement have not been assigned, or (c) sold
pursuant to Rule 144. For purposes of this Agreement, a Person will be deemed
to be a holder of Registrable Shares whenever such Person has the then-existing
right to acquire such Registrable Shares (by conversion or otherwise), whether
or not such acquisition actually has been effected.
"Rule 144" means Rule 144 (including Rule 144(k)) of the Commission under
the Securities Act or any similar provision then in force under the Securities
Act.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal statute, as the same shall be in effect from time to time.
2. Piggyback Registration.
----------------------
2.1 Right to Piggyback. After the consummation of an IPO, whenever
------------------
the Corporation proposes to register Common Stock under the Securities Act
(other than pursuant to a registration statement filed on Form S-8 or Form S-4,
or any successor forms, or otherwise filed in connection with a merger,
acquisition, exchange offer or other business combination transaction or an
offering of securities solely to the Corporation's existing security holders or
employees), whether for sale on its own account or pursuant to a demand for
registration by other holders of shares of Common Stock, and the registration
form to be used may be used for the registration of any Registrable Shares (a
"Piggyback Registration"), the Corporation will give prompt written notice to
all holders of the Registrable Shares of its intention to effect such a
registration and will include in such registration all Registrable Shares
(subject to, and in accordance with, the priorities set forth in Sections 2.2
and 2.3 below) with respect to which the Corporation has
-2-
<PAGE>
received written requests for inclusion within twenty (20) days after the
Corporation's notice. Notwithstanding the foregoing, if a Piggyback Registration
is not an underwritten registration, the Corporation shall not be required to
include any Registrable Shares held by any Person in such Piggyback Registration
if such Person, at the time of the filing of the registration statement for such
Piggyback Registration, would be permitted to sell all of the Registrable Shares
held by such Person, without registration, pursuant to Rule 144 or Rule 701
under the Securities Act.
2.2 Priority on Non-Demand Registrations. If a Piggyback
------------------------------------
Registration is an underwritten registration on behalf of the Corporation that
does not constitute a "demand" registration required pursuant to an agreement
with the Corporation, and the managing underwriters advise the Corporation in
writing that in their opinion the number of shares of Common Stock requested to
be included in such registration exceeds the number which can be marketed (a) at
a price per share reasonably related to the then-current market value per share
of the Common Stock, and (b) without materially and adversely affecting the
entire offering, the Corporation will include in such registration:
(i) first, the shares of Common Stock that the Corporation proposes to
sell;
(ii) second, any shares of Common Stock held by stockholders of the
Corporation requested to be included in such registration which, pursuant to the
terms of the agreements granting the registration rights applicable to such
shares (whether entered into prior to or after the date of this Agreement), are
entitled to priority in such registration over the Registrable Shares, and in
such relative priorities as they may be entitled; and
(iii) third, the Registrable Shares, and any other shares of Common
Stock held by stockholders of the Corporation which are not entitled to priority
over the Registrable Shares, requested to be included in such registration, pro
---
rata among the holders of such Registrable Shares and other shares on the basis
- ----
of the number of shares which are owned by such holders and requested to be
included in such registration.
2.3 Priority on Demand Registrations. If a Piggyback Registration is
--------------------------------
an underwritten registration pursuant to a demand for registration by other
holders of shares of Common Stock and the managing underwriters advise the
Corporation in writing that in their opinion the number of shares of Common
Stock requested to be included in such registration exceeds the number which can
be marketed (a) at a price per share reasonably related to the then-current
market value per share of the Common Stock, and (b) without materially and
adversely affecting the entire offering, the Corporation will include in such
registration:
(i) first, the shares of Common Stock requested to be included therein by
the holders on behalf of whom such registration has been initially requested and
any securities that the Corporation proposes to sell, to the extent, and in such
relative priorities as, permitted in such "demand" registration;
-3-
<PAGE>
(ii) second, any other shares of Common Stock held by stockholders of the
Corporation requested to be included in such registration which, pursuant to the
terms of the agreements granting the registration rights applicable to such
shares (whether entered into prior to or after the date of this Agreement), are
entitled to priority in such registration over the Registrable Shares, and in
such relative priorities as they may be entitled; and
(iii) third, the Registrable Shares, and any other shares of Common Stock
held by stockholders of the Corporation which are not entitled to priority over
the Registrable Shares, requested to be included in such registration, pro rata
--- ----
among the holders of such Registrable Shares and other shares on the basis of
the number of shares which are owned by such holders and requested to be
included in such registration.
2.4 Right to Terminate Registration. The Corporation shall have the
-------------------------------
right to withdraw any registration initiated by it under this Section 2 prior to
the effectiveness of such registration whether or not any holder of its
securities has elected to include securities in such registration.
3. Registration Procedures. Whenever the holders of Registrable Shares
-----------------------
have requested that any Registrable Shares be registered pursuant to this
Agreement, the Corporation will use its reasonable best efforts to effect the
registration and sale of such Registrable Shares and, pursuant thereto, the
Corporation will as expeditiously as reasonably possible:
(a) prepare and file with the Commission a registration
statement with respect to such Registrable Shares and use its reasonable best
efforts to cause such registration statement to become and remain effective for
the period of the distribution contemplated thereby, determined as hereinafter
provided;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus(es) used in
connection therewith as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all Registrable Securities
covered by such registration statement;
(c) furnish to each seller of Registrable Shares such number of
copies of such registration statement, each amendment and supplement thereto,
the prospectus(es) included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Shares owned
by such seller;
(d) notify each seller of such Registrable Shares, at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, contains
an untrue statement of a material fact or omits any fact necessary to make the
statements therein not misleading in light of the circumstances under which they
were made, and, at the request of any such seller, the Corporation will prepare
a supplement or amendment to such
-4-
<PAGE>
prospectus so that, as thereafter delivered to the purchasers of such
Registrable Shares, such prospectus will not contain any untrue statement of a
material fact or omit to state any fact necessary to make the statements therein
not misleading in light of the circumstances under which they were made (and
such sellers shall suspend the use of the prospectus until the requisite changes
thereto have been made);
(e) use its reasonable efforts to cause all such Registrable
Shares to be listed on each securities exchange or market on which the Common
Stock is then listed;
(f) use its reasonable efforts to cause such Registrable
Securities to be registered with or approved by such other governmental agencies
or authorities as may be necessary to consummate the disposition of such
Registrable Securities;
(g) provide a transfer agent and registrar for all such
Registrable Shares not later than the effective date of such registration
statement;
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take such other actions as are reasonably
required in order to expedite or facilitate the disposition of such Registrable
Shares;
(i) make available for inspection by any underwriter
participating in any disposition pursuant to such registration statement, and
any attorney, accountant or other agent retained by any such underwriter, all
financial and other records, pertinent corporate documents and properties of the
Corporation, and cause the Corporation's officers, directors, employees and
independent accountants to supply all information reasonably requested by any
such underwriter, attorney, accountant or agent in connection with such
registration statement;
(j) advise each seller of such Registrable Shares, promptly
after it shall receive notice or obtain knowledge thereof, of the issuance of
any stop order by the Commission suspending the effectiveness of such
registration statement or the initiation or threatening of any proceeding for
such purpose and promptly use all reasonable efforts to prevent the issuance of
any stop order or to obtain its withdrawal if any such stop order shall be
issued (and, if such stop order shall be issued, such sellers shall suspend the
use of the prospectus until it shall be withdrawn);
(k) at the request of the managing underwriters in connection
with an underwritten offering, furnish on the date or dates provided for in the
underwriting agreement (i) an opinion of counsel, addressed to the underwriters,
covering such matters as such underwriters and sellers may reasonably request,
including such matters as are customarily furnished in connection with an
underwritten offering; and (ii) a letter or letters from the independent
certified public accountants of the Corporation addressed to the underwriters,
covering such matters as such underwriters may reasonably request, in which
letter(s) such accountants shall state, without limiting the generality of the
foregoing, that they are independent certified public accountants within the
meaning of the Securities Act and that in their opinion the financial statements
and
-5-
<PAGE>
other financial data of the Corporation included in the registration statement,
the prospectus(es), or any amendment or supplement thereto, comply in all
material respects with the applicable accounting requirements of the Securities
Act; and
(l) notwithstanding any provision of this Section 3 to the
contrary, the Corporation shall not be required to amend or supplement a
prospectus if (i) such amendment or supplement would require the Corporation to
disclose a material financing, acquisition or other transaction then being
pursued by the Corporation and the Corporation shall determine in good faith
that such disclosure is not in the best interests of the Corporation or would
interfere with such transaction or (ii) the Corporation shall determine in good
faith that there is a valid business purpose or reason for suspending the use of
such prospectus in accordance with Section 3(d) hereof instead of making such
amendment or supplement.
For purposes of Sections 3(a) and 3(b), the period of distribution of
Registrable Shares in a firm commitment underwritten public offering shall be
deemed to extend until each underwriter has completed the distribution of all
securities purchased by it, and the period of distribution of Registrable Shares
in any other registration shall be deemed to extend until the earlier of (i) the
sale of all Registrable Shares covered thereby and (ii) the end of the period of
distribution for the Corporation or the holders of its shares of Common Stock on
whose behalf the registration has initially been made.
4. Registration Expenses.
---------------------
4.1 Corporation's Expenses. All expenses incident to the
----------------------
Corporation's performance of or compliance with this Agreement, including
without limitation all registration and filing fees, fees and expenses of
compliance with securities, listing fees, printing expenses, messenger and
delivery expenses, and fees and disbursements of counsel for the Corporation and
all independent certified public accountants, underwriters (excluding discounts
and commissions) and other Persons retained by the Corporation (all such
expenses being herein called "Registration Expenses") shall be borne by the
Corporation.
4.2 Holder's Expenses. Notwithstanding anything to the contrary
-----------------
contained herein, each holder of Registrable Shares shall bear and pay all
underwriting discounts and commissions and transfer taxes applicable to the
Registrable Shares sold for such holder's account and all fees and disbursements
of counsel such holder retains in connection with the registration of
Registrable Shares.
5. Indemnification.
---------------
5.1 By the Corporation. The Corporation agrees to indemnify, to the
------------------
extent permitted by law, each holder of Registrable Shares, its managers,
officers and directors and each Person who controls such holder (within the
meaning of the Securities Act) against all losses, claims, damages, liabilities
and expenses (including without limitation, attorneys' fees) ("Liabilities")
caused by any untrue or alleged untrue statement of material fact contained in
any
-6-
<PAGE>
registration statement, prospectus or preliminary prospectus, or any amendment
thereof or supplement thereto, or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Corporation by such holder expressly for
use therein or by such holder's failure to deliver a copy of the registration
statement or prospectus or any amendments or supplements thereto after the
Corporation has furnished such holder with a sufficient number of copies of the
same. In connection with an underwritten offering, the Corporation shall
indemnify such underwriters, their officers and directors and each Person who
controls such underwriters (within the meaning of the Securities Act) to the
same extent as provided above with respect to the indemnification of the holders
of Registrable Shares. The payments required by this Section 5.1 will be made
periodically during the course of the investigation or defense, as and when
bills are received or expenses incurred.
5.2 By Each Holder. In connection with any registration statement in
--------------
which a holder of Registrable Shares is participating, each such holder shall
furnish to the Corporation in writing such information and affidavits as the
Corporation reasonably requests for use in connection with any such registration
statement or prospectus and, to the extent permitted by law, shall indemnify the
Corporation, its directors and officers and each Person who controls the
Corporation (within the meaning of the Securities Act) against any Liabilities
resulting from any untrue or alleged untrue statement of material fact contained
in the registration statement, prospectus or preliminary prospectus, or any
amendment thereof or supplement thereto, or any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein not misleading, but only to the extent that such untrue
statement or omission is contained in any information or affidavit so furnished
in writing by such holder; provided that the obligation to indemnify will be
several, not joint and several, among such holders of Registrable Shares, and
the liability of each such holder of Registrable Shares under this Section 5
shall be limited to the net amount received by such holder from the sale of
Registrable Shares pursuant to such registration statement.
5.3 Procedure. Any Person entitled to indemnification hereunder
---------
shall (i) give prompt written notice to the indemnifying party of any claim with
respect to which it seeks indemnification and (ii) unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party will not be subject to any liability for any settlement made
by the indemnified party without its consent (but such consent will not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
-7-
<PAGE>
5.4 Contribution. To the extent any indemnification by an
------------
indemnifying party provided for in this Section 5 is prohibited or limited by
law, the 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 Liabilities in such proportion as is appropriate to reflect the
relative fault of the indemnifying party and the indemnified party in connection
with the statements or omissions which resulted in such Liabilities, as well as
any other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified party shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of material
fact or omission or alleged omission to state a material fact, has been made by,
or relates to information supplied by, such indemnifying party or indemnified
party, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5.4 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. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
5.5 Survival. The indemnification and contribution provided for
--------
under this Agreement will remain in full force and effect regardless of any
investigation made by or on behalf of the indemnified party or any officer,
director or controlling Person of such indemnified party and will survive the
transfer of securities.
6. Compliance with Rule 144. In the event that the Corporation (a)
------------------------
registers a class of securities under Section 12 of the Exchange Act, (b) issues
an offering circular meeting the requirements of Regulation A under the
Securities Act, or (c) commences to file reports under Section 13 or 15(d) of
the Exchange Act, then at the request of any holder who proposes to sell
securities in compliance with Rule 144 of the Commission, the Corporation will
(i) forthwith furnish to such holder, upon request, a written statement of
compliance with the filing requirements of the Commission as set forth in Rule
144, as such rule may be amended from time to time, and (ii) use its reasonable
best efforts to make available to the public and such holders such information
as will enable the holders to make sales pursuant to Rule 144.
7. Participation in Underwritten Registrations. No Person may
-------------------------------------------
participate in any registration hereunder which is underwritten unless such
Person (a) agrees to sell its shares of Common Stock on the basis provided in
any underwriting arrangements approved by the Corporation or any other Person or
Persons entitled to approve such arrangements, and (b) completes and executes
all questionnaires, powers of attorney, custody agreements, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements.
-8-
<PAGE>
8. Holdback Agreements. Each holder of Registrable Shares agrees not to
-------------------
effect any public sale or distribution of equity securities of the Corporation,
or any securities convertible into or exchangeable or exercisable for such
securities, (i) during the seven (7) days prior to and during the one hundred
and eighty (180) days following the effective date of an IPO (except as part of
such underwritten registration), or (ii) during the seven (7) days prior to and
during the ninety (90) days following the effective date of an underwritten
Public Offering, other than an IPO (except as part of such underwritten
registration), in each case unless the underwriters managing the registered
Public Offering otherwise agree. Each holder of Registrable Shares agrees to
enter into customary lock-up agreements consistent with the foregoing if
requested by any underwriter of any such Public Offering.
9. Miscellaneous.
-------------
9.1 Other Registration Rights. The Corporation may hereafter grant
-------------------------
to any Person or Persons the right to request the Corporation to register any
equity securities of the Corporation, or any securities convertible or
exchangeable into or exercisable for such securities, without the prior written
consent of the holders of the Registrable Shares.
9.2 Assignment of Registration Rights. The registration rights of
---------------------------------
any Purchaser under this Agreement with respect to any Registrable Shares may be
assigned to any Person who acquires such Registrable Shares; provided that (a)
--------
the assigning Purchaser shall give the Corporation written notice at or prior to
the time of such assignment stating the name and address of the assignee and
identifying the shares with respect to which the rights under this Agreement are
being assigned; (b) such assignee shall agree in writing, in form and substance
reasonably satisfactory to the Corporation, to be bound as a Purchaser by the
provisions of this Agreement; and (c) immediately following such assignment the
further disposition of such securities by such assignee is restricted under the
Securities Act.
9.3 Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto will bind and inure to the benefit of the
respective permitted successors and assigns of the parties hereto, whether so
expressed or not.
9.4 Severability. Whenever possible, each provision of this
------------
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
9.5 Descriptive Headings. The descriptive headings of this Agreement
--------------------
are inserted for convenience of reference only and do not constitute a part of,
and shall not be utilized in interpreting, this Agreement.
-9-
<PAGE>
9.6 Notices. Any notices required or permitted to be sent hereunder
-------
shall be delivered personally or mailed, certified mail, return receipt
requested, or delivered by overnight courier service to the following addresses,
or such other address as any party hereto designates by written notice to the
Corporation, and shall be deemed to have been given upon delivery, if delivered
personally, three days after mailing, if mailed, or one business day after
delivery to the courier, if delivered by overnight courier service:
If to the Corporation, to:
divine interVentures, inc.
676 North Michigan Avenue
Suite 3410
Chicago, Illinois 60611
Attention: Michael P. Cullinane
Executive Vice President
and Chief Financial Officer
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661
Attention: Mark D. Wood, Esq.
If to the Purchasers or other holders of Registrable Shares, to the
addresses set forth in the stock records of the Corporation,
9.7 Governing Law. All questions concerning the construction,
-------------
validity and interpretation of this Agreement, and the performance of the
obligations imposed by this Agreement, shall be governed by the laws of the
State of Illinois applicable to contracts made and wholly to be performed in
that state.
9.8 Final Agreement. This Agreement, constitutes the complete and
---------------
final agreement of the parties concerning the matters referred to herein and
supersedes all prior agreements and understandings.
9.9 Execution. A Person who has executed a Subscription Agreement
---------
and signs a signature page hereto shall become a party hereto upon the issuance
to such Person of Preferred Shares for which such Person has subscribed. This
Agreement may be executed in any number of counterparts, each of which when so
executed and delivered shall be deemed an original, and such counterparts
together shall constitute one instrument.
-10-
<PAGE>
9.10 No Strict Construction. The language used in this Agreement will
----------------------
be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction will be used against any
party.
* * * * *
-11-
<PAGE>
IN WITNESS WHEREOF, the corporation has executed this Agreement on the date
first set forth above.
divine interVentures, inc.
By: /s/ Larry S. Freedman
____________________________________________________
Its: Secretary
__________________________________________________
<PAGE>
divine interVentures, inc.
COUNTERPART SIGNATURE PAGE
TO
FOUNDERS REGISTRATION RIGHTS AGREEMENT
--------------------------------------
The undersigned hereby executes the Founders Shares Registration Rights
Agreement by and among divine interVentures, inc. (the "Corporation") and
certain persons who own issued and outstanding shares of Common Stock of the
Corporation and hereby authorizes this signature page to be attached as a
counterpart of such document executed by the Corporation. The undersigned
hereby agrees to be bound by, and shall be entitled to the rights and benefits
of, the terms and provisions of the Founders Shares Registration Rights
Agreement.
Dated: August __, 1999
--------------------------------------------------
(Signature)
--------------------------------------------------
(Print Name of Purchaser)
<PAGE>
EXHIBIT 10.9
SERIES A REGISTRATION RIGHTS AGREEMENT
--------------------------------------
THIS SERIES A REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made as
of September 3, 1999, by and among divine interventures, inc., a Delaware
corporation (the "Corporation"), and each Person who becomes a party hereto as
provided in Section 9.9 hereof (the "Purchasers").
R E C I T A L S
---------------
A. Pursuant to the Corporation's 1999 Stock Purchase Plan, the Purchasers
have executed Subscription Agreements (the "Subscription Agreements") in which
they have agreed to purchase shares (the "Series A Preferred Shares") of Series
A Preferred Stock (as defined below) at a purchase price of $0.25 per share.
B. The Corporation is requiring that the Purchasers enter into this
Agreement as a condition to the Corporation's acceptance of their subscriptions
for the Series A Preferred Shares.
C. The Corporation deems it desirable to enter into this Agreement in
order to induce the Purchasers to purchase the Series A Preferred Shares
pursuant to the Subscription Agreements.
AGREEMENTS
----------
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 hereto hereby agree as follows:
1. Definitions. As used in this Agreement.
-----------
"Class A Common Stock" means the Class A Common Stock, $0.001 par value per
share, of the Corporation.
"Class B Common Stock" means the Class B Common Stock, $0.001 par value per
share of the Corporation.
"Commission" means the United States Securities and Exchange Commission or
any successor thereto.
"Common Stock" means, collectively, the Class A Common Stock and the Class
B Common Stock.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any similar federal statute, as the same shall be in effect from time to time.
<PAGE>
"Founders Shares" at any time (i) any shares of Class A Common Stock then
outstanding which were sold by the Corporation prior to the date hereof at a
purchase price of $0.001 per share, (ii) any shares of Class A Common Stock then
outstanding which were issued upon conversion of shares of Class B Common Stock
which were sold prior to the date hereof at a purchase price of $0.001 per
share, (iii) any shares of Class A Common Stock then issuable upon conversion of
outstanding shares of Class B Common Stock which were sold prior to the date
hereof at a purchase price of $0.001 per share, (iv) any shares of Class A
Common Stock then outstanding which were issued as, or were issued directly or
indirectly upon the conversion or exercise of other securities issued as, a
dividend or other distribution with respect to or in replacement of any shares
referred to in (i), (ii) or (iii); and (v) any shares of Class A Common Stock
then issuable directly or indirectly upon the conversion or exercise of other
securities which were issued as a dividend or other distribution with respect to
or in replacement of any shares referred to in (i), (ii) or (iii).
"IPO" means the Corporation's first underwritten public offering of shares
of Common Stock, pursuant to a registration statement filed with the Commission.
"Person" means an individual, corporation, partnership, limited liability
company, limited partnership, syndicate, person (including, without limitation,
a "Person" as defined in Section 13(d)(3) of the Exchange Act), trust,
association or entity or government, political subdivision, agency or
instrumentality of a government.
"Public Offering" means any offering by the Corporation of its equity
securities to the public pursuant to an effective registration statement under
the Securities Act.
"Registrable Shares" means at any time (i) any shares of Class A Common
Stock then outstanding which were issued upon conversion of Series A Preferred
Shares or upon conversion of shares of Class B Common Stock issued upon
conversion of Series A Preferred Shares; (ii) any shares of Class A Common Stock
then issuable upon conversion of then outstanding Series A Preferred Shares or
upon conversion of shares of Class B Common Stock issued or issuable upon
conversion of Series A Preferred Shares; (iii) any shares of Class A Common
Stock then outstanding which were issued as, or were issued directly or
indirectly upon the conversion or exercise of other securities issued as, a
dividend or other distribution with respect or in replacement of any shares
referred to in (i) or (ii); and (iv) any shares of Class A Common Stock then
issuable directly or indirectly upon the conversion or exercise of other
securities which were issued as a dividend or other distribution with respect to
or in replacement of any shares referred to in (i) or (ii); provided, however,
that Registrable Shares shall not include any shares which have been (a)
disposed of pursuant to an effective registration statement under the Securities
Act, (b) sold or otherwise transferred in a transaction in which the rights
under the provisions of this Agreement have not been assigned, or (c) sold
pursuant to Rule 144. For purposes of this Agreement, a Person will be deemed
to be a holder of Registrable Shares whenever such Person has the then-existing
right to acquire such Registrable Shares (by conversion or otherwise), whether
or not such acquisition actually has been effected.
-2-
<PAGE>
"Rule 144" means Rule 144 (including Rule 144(k)) of the Commission under
the Securities Act or any similar provision then in force under the Securities
Act.
"Rule 701" means Rule 701 of the Commission under the Securities Act or any
similar provision then in force under the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal statute, as the same shall be in effect from time to time.
"Series A Preferred Stock" means, collectively, the Series A-1 Preferred
Stock and the Series A-2 Preferred Stock.
"Series A-1 Preferred Stock" means the Series A-1 Junior Convertible
Preferred Stock, $0.001 par value per share, of the Corporation.
"Series A-2 Preferred Stock" means the Series A-2 Junior Convertible
Preferred Stock, $0.001 par value per share, of the Corporation.
2. Piggyback Registration.
----------------------
2.1 Right to Piggyback. After the consummation of an IPO, whenever
------------------
the Corporation proposes to register Common Stock under the Securities Act
(other than pursuant to a registration statement filed on Form S-8 or Form S-4,
or any successor forms, or otherwise filed in connection with a merger,
acquisition, exchange offer or other business combination transaction or an
offering of securities solely to the Corporation's existing security holders or
employees), whether for sale on its own account or pursuant to a demand for
registration by other holders of shares of Common Stock, and the registration
form to be used may be used for the registration of any Registrable Shares (a
"Piggyback Registration"), the Corporation will give prompt written notice to
all holders of the Registrable Shares of its intention to effect such a
registration and will include in such registration all Registrable Shares
(subject to, and in accordance with, the priorities set forth in Sections 2.2
and 2.3 below) with respect to which the Corporation has received written
requests for inclusion within twenty (20) days after the Corporation's notice.
Notwithstanding the foregoing, if a Piggyback Registration is not an
underwritten registration, the Corporation shall not be required to include any
Registrable Shares held by any Person in such Piggyback Registration if such
Person, at the time of the filing of the registration statement for such
Piggyback Registration, would be permitted to sell all of the Registrable Shares
held by such Person, without registration, pursuant to Rule 144 or Rule 701.
2.2 Priority on Non-Demand Registrations. If a Piggyback
------------------------------------
Registration is an underwritten registration on behalf of the Corporation that
does not constitute a "demand" registration required pursuant to an agreement
with the Corporation, and the managing underwriters advise the Corporation in
writing that in their opinion the number of shares of Common Stock requested to
be included in such registration exceeds the number which can be
-3-
<PAGE>
marketed (a) at a price per share reasonably related to the then-current market
value per share of the Common Stock, and (b) without materially and adversely
affecting the entire offering, the Corporation will include in such registration
up to the amount determined advisable by the underwriters:
(i) first, the shares of Common Stock that the Corporation proposes to
sell;
(ii) second, any shares of Common Stock held by stockholders of the
Corporation requested to be included in such registration which, pursuant to the
terms of the agreements granting the registration rights applicable to such
shares (whether entered into prior to or after the date of this Agreement), are
entitled to priority in such registration over the Registrable Shares (which
shares entitled to such priority shall not include the Founders Shares), and in
such relative priorities as they may be entitled; and
(iii) third, the Registrable Shares, and any other shares of Common Stock
held by stockholders of the Corporation which are not entitled to priority over
the Registrable Shares (but excluding the Founders Shares), requested to be
included in such registration, pro rata among the holders of such Registrable
--- ----
Shares and other shares on the basis of the number of shares which are owned by
such holders and requested to be included in such registration.
2.3 Priority on Demand Registrations. If a Piggyback Registration
--------------------------------
is an underwritten registration pursuant to a demand for registration by other
holders of shares of Common Stock and the managing underwriters advise the
Corporation in writing that in their opinion the number of shares of Common
Stock requested to be included in such registration exceeds the number which can
be marketed (a) at a price per share reasonably related to the then-current
market value per share of the Common Stock, and (b) without materially and
adversely affecting the entire offering, the Corporation will include in such
registration up to an amount determined advisable by the underwriters:
(i) first, the shares of Common Stock requested to be included therein
by the holders on behalf of whom such registration has been initially requested
and any securities that the Corporation proposes to sell, to the extent, and in
such relative priorities as, permitted in such "demand" registration;
(ii) second, any other shares of Common Stock held by stockholders of the
Corporation requested to be included in such registration which, pursuant to the
terms of the agreements granting the registration rights applicable to such
shares (whether entered into prior to or after the date of this Agreement), are
entitled to priority in such registration over the Registrable Shares (which
shares entitled to such priority shall not include the Founders Shares, and in
such relative priorities as they may be entitled; and
(iii) third, the Registrable Shares, and any other shares of Common Stock
held by stockholders of the Corporation which are not entitled to priority over
the Registrable Shares (but
-4-
<PAGE>
excluding the Founders Shares), requested to be included in such registration;
pro rata among the holders of such Registrable Shares and other shares on the
- --- ----
basis of the number of shares which are owned by such holders and requested to
be included in such registration.
Without limiting this Section 2.3 or Section 2.2, no Founders Shares shall
be included in an underwritten registration by the Corporation unless all of the
Registrable Shares requested to be included in such registration pursuant to
this Agreement are permitted to be included in such registration.
2.4 Right to Terminate Registration. The Corporation shall have the
-------------------------------
right to withdraw any registration initiated by it under this Section 2 prior to
the effectiveness of such registration whether or not any holder of its
securities has elected to include securities in such registration.
3. Registration Procedures. Whenever the holders of Registrable Shares
-----------------------
have requested that any Registrable Shares be registered pursuant to this
Agreement, the Corporation will use its reasonable best efforts to effect the
registration and sale of such Registrable Shares and, pursuant thereto, the
Corporation will as expeditiously as reasonably possible:
(a) prepare and file with the Commission a registration
statement with respect to such Registrable Shares and use its reasonable best
efforts to cause such registration statement to become and remain effective for
the period of the distribution contemplated thereby, determined as hereinafter
provided;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus(es) used in
connection therewith as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all Registrable Securities
covered by such registration statement;
(c) furnish to each seller of Registrable Shares such number of
copies of such registration statement, each amendment and supplement thereto,
the prospectus(es) included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Shares owned
by such seller;
(d) notify each seller of such Registrable Shares, at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, contains
an untrue statement of a material fact or omits any fact necessary to make the
statements therein not misleading in light of the circumstances under which they
were made, and, at the request of any such seller, the Corporation will prepare
a supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Shares, such prospectus will not contain any
untrue statement of a material fact or omit to state any fact
-5-
<PAGE>
necessary to make the statements therein not misleading in light of the
circumstances under which they were made (and such sellers shall suspend the use
of the prospectus until the requisite changes thereto have been made);
(e) use its reasonable efforts to cause all such Registrable
Shares to be listed on each securities exchange or market on which the Common
Stock is then listed;
(f) use its reasonable efforts to cause such Registrable
Securities to be registered with or approved by such other governmental agencies
or authorities as may be necessary to consummate the disposition of such
Registrable Securities;
(g) provide a transfer agent and registrar for all such
Registrable Shares not later than the effective date of such registration
statement;
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take such other actions as are reasonably
required in order to expedite or facilitate the disposition of such Registrable
Shares;
(i) make available for inspection by any underwriter
participating in any disposition pursuant to such registration statement, and
any attorney, accountant or other agent retained by any such underwriter, all
financial and other records, pertinent corporate documents and properties of the
Corporation, and cause the Corporation's officers, directors, employees and
independent accountants to supply all information reasonably requested by any
such underwriter, attorney, accountant or agent in connection with such
registration statement;
(j) advise each seller of such Registrable Shares, promptly
after it shall receive notice or obtain knowledge thereof, of the issuance of
any stop order by the Commission suspending the effectiveness of such
registration statement or the initiation or threatening of any proceeding for
such purpose and promptly use all reasonable efforts to prevent the issuance of
any stop order or to obtain its withdrawal if any such stop order shall be
issued (and, if such stop order shall be issued, such sellers shall suspend the
use of the prospectus until it shall be withdrawn);
(k) at the request of the managing underwriters in connection
with an underwritten offering, furnish on the date or dates provided for in the
underwriting agreement (i) an opinion of counsel, addressed to the underwriters,
covering such matters as such underwriters and sellers may reasonably request,
including such matters as are customarily furnished in connection with an
underwritten offering; and (ii) a letter or letters from the independent
certified public accountants of the Corporation addressed to the underwriters,
covering such matters as such underwriters may reasonably request, in which
letter(s) such accountants shall state, without limiting the generality of the
foregoing, that they are independent certified public accountants within the
meaning of the Securities Act and that in their opinion the financial statements
and other financial data of the Corporation included in the registration
statement, the prospectus(es),
-6-
<PAGE>
or any amendment or supplement thereto, comply in all material respects with the
applicable accounting requirements of the Securities Act; and
(l) notwithstanding any provision of this Section 3 to the
contrary, the Corporation shall not be required to amend or supplement a
prospectus if (i) such amendment or supplement would require the Corporation to
disclose a material financing, acquisition or other transaction then being
pursued by the Corporation and the Corporation shall determine in good faith
that such disclosure is not in the best interests of the Corporation or would
interfere with such transaction or (ii) the Corporation shall determine in good
faith that there is a valid business purpose or reason for suspending the use of
such prospectus in accordance with Section 3(d) hereof instead of making such
amendment or supplement.
For purposes of Sections 3(a) and 3(b), the period of distribution of
Registrable Shares in a firm commitment underwritten public offering shall be
deemed to extend until each underwriter has completed the distribution of all
Registrable Shares purchased by it, and the period of distribution of
Registrable Shares in any other registration shall be deemed to extend until the
earlier of (i) the sale of all Registrable Shares covered thereby and (ii) the
end of the period of distribution for the Corporation or the holders of its
shares of Common Stock on whose behalf the registration has initially been made.
4. Registration Expenses.
---------------------
4.1 Corporation's Expenses. All expenses incident to the
----------------------
Corporation's performance of or compliance with this Agreement, including
without limitation all registration and filing fees, fees and expenses of
compliance with securities, listing fees, printing expenses, messenger and
delivery expenses, and fees and disbursements of counsel for the Corporation and
all independent certified public accountants, underwriters (excluding discounts
and commissions) and other Persons retained by the Corporation (all such
expenses being herein called "Registration Expenses") shall be borne by the
Corporation.
4.2 Holder's Expenses. Notwithstanding anything to the contrary
-----------------
contained herein, each holder of Registrable Shares shall bear and pay all
underwriting discounts and commissions and transfer taxes applicable to the
Registrable Shares sold for such holder's account and all fees and disbursements
of counsel such holder retains in connection with the registration of
Registrable Shares.
5. Indemnification.
---------------
5.1 By the Corporation. The Corporation agrees to indemnify, to the
------------------
extent permitted by law, each holder of Registrable Shares, its managers,
officers and directors and each Person who controls such holder (within the
meaning of the Securities Act) against all losses, claims, damages, liabilities
and expenses (including without limitation, attorneys' fees) ("Liabilities")
caused by any untrue or alleged untrue statement of material fact contained in
any
-7-
<PAGE>
registration statement, prospectus or preliminary prospectus, or any amendment
thereof or supplement thereto, or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Corporation by such holder expressly for
use therein or by such holder's failure to deliver a copy of the registration
statement or prospectus or any amendments or supplements thereto after the
Corporation has furnished such holder with a sufficient number of copies of the
same. In connection with an underwritten offering, the Corporation shall
indemnify such underwriters, their officers and directors and each Person who
controls such underwriters (within the meaning of the Securities Act) to the
same extent as provided above with respect to the indemnification of the holders
of Registrable Shares. The payments required by this Section 5.1 will be made
periodically during the course of the investigation or defense, as and when
bills are received or expenses incurred.
5.2 By Each Holder. In connection with any registration statement in
--------------
which a holder of Registrable Shares is participating, each such holder shall
furnish to the Corporation in writing such information and affidavits as the
Corporation reasonably requests for use in connection with any such registration
statement or prospectus and, to the extent permitted by law, shall indemnify the
Corporation, its directors and officers and each Person who controls the
Corporation (within the meaning of the Securities Act) against any Liabilities
resulting from any untrue or alleged untrue statement of material fact contained
in the registration statement, prospectus or preliminary prospectus, or any
amendment thereof or supplement thereto, or any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein not misleading, but only to the extent that such untrue
statement or omission is contained in any information or affidavit so furnished
in writing by such holder; provided that the obligation to indemnify will be
several, not joint and several, among such holders of Registrable Shares, and
the liability of each such holder of Registrable Shares under this Section 5
shall be limited to the net amount received by such holder from the sale of
Registrable Shares pursuant to such registration statement.
5.3 Procedure. Any Person entitled to indemnification hereunder
---------
shall (i) give prompt written notice to the indemnifying party of any claim with
respect to which it seeks indemnification and (ii) unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party will not be subject to any liability for any settlement made
by the indemnified party without its consent (but such consent will not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
-8-
<PAGE>
5.4 Contribution. To the extent any indemnification by an
------------
indemnifying party provided for in this Section 5 is prohibited or limited by
law, the 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 Liabilities in such proportion as is appropriate to reflect the
relative fault of the indemnifying party and the indemnified party in connection
with the statements or omissions which resulted in such Liabilities, as well as
any other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified party shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of material
fact or omission or alleged omission to state a material fact, has been made by,
or relates to information supplied by, such indemnifying party or indemnified
party, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5.4 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. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
5.5 Survival. The indemnification and contribution provided for
--------
under this Agreement will remain in full force and effect regardless of any
investigation made by or on behalf of the indemnified party or any officer,
director or controlling Person of such indemnified party and will survive the
transfer of securities.
6. Compliance with Rule 144. In the event that the Corporation (a)
------------------------
registers a class of securities under Section 12 of the Exchange Act, (b) issues
an offering circular meeting the requirements of Regulation A under the
Securities Act, or (c) commences to file reports under Section 13 or 15(d) of
the Exchange Act, then at the request of any holder who proposes to sell
securities in compliance with Rule 144 of the Commission, the Corporation will
(i) forthwith furnish to such holder, upon request, a written statement of
compliance with the filing requirements of the Commission as set forth in Rule
144, as such rule may be amended from time to time, and (ii) use its reasonable
best efforts to make available to the public and such holders such information
as will enable the holders to make sales pursuant to Rule 144.
7. Participation in Underwritten Registrations. No Person may
-------------------------------------------
participate in any registration hereunder which is underwritten unless such
Person (a) agrees to sell its shares of Common Stock on the basis provided in
any underwriting arrangements approved by the Corporation or any other Person or
Persons entitled to approve such arrangements, and (b) completes and executes
all questionnaires, powers of attorney, custody agreements, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements.
-9-
<PAGE>
8. Holdback Agreements. Each holder of Registrable Shares agrees not to
-------------------
effect any public sale or distribution of equity securities of the Corporation,
or any securities convertible into or exchangeable or exercisable for such
securities, (i) during the seven (7) days prior to, and during the one hundred
and eighty (180) days following, the effective date of a registration statement
filed by the Corporation with the Commission for an IPO (except as part of such
underwritten registration), or (ii) during the seven (7) days prior to and
during the ninety (90) days following the effective date of a registration
statement filed by the Corporation with the Commission for any underwritten
Public Offering, other than an IPO (except as part of such underwritten
registration), in each case unless the underwriters managing the Public Offering
otherwise agree. Each holder of Registrable Shares agrees to enter into
customary lock-up agreements consistent with the foregoing if requested by any
underwriter of any such Public Offering.
9. Miscellaneous.
-------------
9.1 Other Registration Rights. The Corporation may hereafter grant
-------------------------
to any Person or Persons the right to request the Corporation to register any
equity securities of the Corporation, or any securities convertible or
exchangeable into or exercisable for such securities, without the prior written
consent of the holders of the Registrable Shares.
9.2 Assignment of Registration Rights. The registration rights of
---------------------------------
any Purchaser under this Agreement with respect to any Registrable Shares may be
assigned to any Person who acquires such Registrable Shares; provided that (a)
--------
the assigning Purchaser shall give the Corporation written notice at or prior to
the time of such assignment stating the name and address of the assignee and
identifying the shares with respect to which the rights under this Agreement are
being assigned; (b) such assignee shall agree in writing, in form and substance
reasonably satisfactory to the Corporation, to be bound as a Purchaser by the
provisions of this Agreement; and (c) immediately following such assignment, the
further disposition of such securities by such assignee is restricted under the
Securities Act.
9.3 Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto will bind and inure to the benefit of the
respective permitted successors and assigns of the parties hereto, whether so
expressed or not.
9.4 Severability. Whenever possible, each provision of this
------------
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
-10-
<PAGE>
9.5 Descriptive Headings. The descriptive headings of this Agreement
--------------------
are inserted for convenience of reference only and do not constitute a part of,
and shall not be utilized in interpreting, this Agreement.
9.6 Notices. Any notices required or permitted to be sent hereunder
-------
shall be delivered personally or mailed, certified mail, return receipt
requested, or delivered by overnight courier service to the following addresses,
or such other address as any party hereto designates by written notice to the
Corporation, and shall be deemed to have been given upon delivery, if delivered
personally; three days after mailing, if mailed; or one business day after
delivery to the courier, if delivered by overnight courier service:
If to the Corporation, to:
divine interventures, inc.
676 North Michigan Avenue
Suite 3410
Chicago, Illinois 60611
Attention: General Counsel
and Chief Financial Officer
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661
Attention: Mark D. Wood, Esq.
If to the Purchasers or other holders of Registrable Shares, to the
addresses set forth in the stock records of the Corporation,
9.7 Governing Law. All questions concerning the construction,
-------------
validity and interpretation of this Agreement, and the performance of the
obligations imposed by this Agreement, shall be governed by the laws of the
State of Delaware applicable to contracts made and wholly to be performed in
that state.
9.8 Amendments and Waivers. The provisions of this Agreement may be
----------------------
amended upon the written agreement of the Corporation and the holder or holders
of a majority of the Registrable Shares entitled to the rights hereunder
originally held by the Purchasers. Any waiver, permit, consent or approval of
any kind or character on the part of any holders of any provision or condition
of this Agreement must be made in writing and shall be effective only to the
extent specifically set forth in writing
-11-
<PAGE>
9.9 Final Agreement. This Agreement, constitutes the complete and
---------------
final agreement of the parties concerning the matters referred to herein and
supersedes all prior agreements and understandings.
9.10 Execution. A Person who has executed a Subscription Agreement
---------
and signs a signature page hereto shall become a party hereto upon the issuance
to such Person of Preferred Shares for which such Person has subscribed. This
Agreement may be executed in any number of counterparts, each of which when so
executed and delivered shall be deemed an original, and such counterparts
together shall constitute one instrument.
9.11 No Strict Construction. The language used in this Agreement will
----------------------
be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction will be used against any
party.
* * * * *
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<PAGE>
IN WITNESS WHEREOF, the corporation has executed this Agreement on the date
first set forth above.
divine interventures, inc.
By: /s/ Larry S. Freedman
-----------------------------------
Its: Secretary
<PAGE>
divine interventures, inc.
COUNTERPART SIGNATURE PAGE
TO
SERIES A REGISTRATION RIGHTS AGREEMENT
--------------------------------------
The undersigned hereby executes the Series A Registration Rights Agreement
by and among divine interventures, inc. (the "Corporation") and certain persons
who own issued and outstanding shares of Series A Junior Convertible Preferred
Stock of the Corporation and hereby authorizes this signature page to be
attached as a counterpart of such document executed by the Corporation. The
undersigned hereby agrees to be bound by, and shall be entitled to the rights
and benefits of, the terms and provisions of the Series A Registration Rights
Agreement.
Dated: ___________ __, 1999
_________________________________________________
(Signature)
_________________________________________________
(Print Name of Purchaser)
<PAGE>
EXHIBIT 10.10
SERIES B REGISTRATION RIGHTS AGREEMENT
--------------------------------------
THIS SERIES B REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made as
of September 17, 1999, by and among divine interventures, inc., a Delaware
corporation (the "Corporation"), and each Person who becomes a party hereto as
provided in Section 9.10 hereof (the "Purchasers").
R E C I T A L S
---------------
A. Pursuant to the Corporation's 1999 Stock Purchase Plan, the Purchasers
have executed Subscription Agreements (the "Subscription Agreements") in which
they have agreed to purchase shares (the "Series B Preferred Shares") of Series
B Preferred Stock (as defined below) at a purchase price of $0.50 per share.
B. The Corporation is requiring that the Purchasers enter into this
Agreement as a condition to the Corporation's acceptance of their subscriptions
for the Series B Preferred Shares.
C. The Corporation deems it desirable to enter into this Agreement in
order to induce the Purchasers to purchase the Series B Preferred Shares
pursuant to the Subscription Agreements.
AGREEMENTS
----------
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 hereto hereby agree as follows:
1. Definitions. As used in this Agreement.
-----------
"Class A Common Stock" means the Class A Common Stock, $0.001 par value per
share, of the Corporation.
"Class B Common Stock" means the Class B Common Stock, $0.001 par value per
share of the Corporation.
"Commission" means the United States Securities and Exchange Commission or
any successor thereto.
"Common Stock" means, collectively, the Class A Common Stock and the Class
B Common Stock.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any similar federal statute, as the same shall be in effect from time to time.
<PAGE>
"Founders Shares" means at any time (i) any shares of Class A Common Stock
then outstanding which were sold by the Corporation prior to the date hereof at
a purchase price of $0.001 per share, (ii) any shares of Class A Common Stock
then outstanding which were issued upon conversion of shares of Class B Common
Stock which were sold prior to the date hereof at a purchase price of $0.001 per
share, (iii) any shares of Class A Common Stock then issuable upon conversion of
outstanding shares of Class B Common Stock which were sold prior to the date
hereof at a purchase price of $0.001 per share, (iv) any shares of Class A
Common Stock then outstanding which were issued as, or were issued directly or
indirectly upon the conversion or exercise of other securities issued as, a
dividend or other distribution with respect to or in replacement of any shares
referred to in (i), (ii) or (iii); and (v) any shares of Class A Common Stock
then issuable directly or indirectly upon the conversion or exercise of other
securities which were issued as a dividend or other distribution with respect to
or in replacement of any shares referred to in (i), (ii) or (iii).
"IPO" means the Corporation's first underwritten public offering of shares
of Common Stock, pursuant to a registration statement filed with the Commission.
"Junior Preferred Stock" means, collectively, the Series A-1 Junior
Convertible Preferred Stock, $0.001 par value per share, and the Series A-2
Junior Convertible Preferred Stock, $0.001 par value per share, of the
Corporation.
"Junior Preferred Shares" means at any time (i) any shares of Class A
Common Stock then outstanding which were issued upon conversion of shares of
Junior Preferred Stock or upon conversion of shares of Class B Common Stock
issued upon conversion of Junior Preferred Stock; (ii) any shares of Class A
Common Stock then issuable upon conversion of shares of then outstanding Junior
Preferred Stock or upon conversion of shares of Class B Common Stock issued or
issuable upon conversion of Junior Preferred Stock; (iii) any shares of Class A
Common Stock then outstanding which were issued as, or were issued directly or
indirectly upon the conversion or exercise of other securities issued as, a
dividend or other distribution with respect to or in replacement of any shares
referred to in (i) or (ii); and (iv) any shares of Class A Common Stock then
issuable directly or indirectly upon the conversion or exercise of other
securities which were issued as a dividend or other distribution with respect to
or in replacement of any shares referred to in (i) or (ii); provided, however,
that Junior Preferred Shares shall not include any shares which have been (a)
disposed of pursuant to an effective registration statement under the Securities
Act, (b) sold or otherwise transferred in a transaction in which the
registration rights applicable to such shares have not been assigned, or (c)
sold pursuant to Rule 144.
"Person" means an individual, corporation, partnership, limited liability
company, limited partnership, syndicate, person (including, without limitation,
a "Person" as defined in Section 13(d)(3) of the Exchange Act), trust,
association or entity or government, political subdivision, agency or
instrumentality of a government.
-2-
<PAGE>
"Public Offering" means any offering by the Corporation of its equity
securities to the public pursuant to an effective registration statement under
the Securities Act.
"Registrable Shares" means at any time (i) any shares of Class A Common
Stock then outstanding which were issued upon conversion of Series B Preferred
Shares or upon conversion of shares of Class B Common Stock issued upon
conversion of Series B Preferred Shares; (ii) any shares of Class A Common Stock
then issuable upon conversion of then outstanding Series B Preferred Shares or
upon conversion of shares of Class B Common Stock issued or issuable upon
conversion of Series B Preferred Shares; (iii) any shares of Class A Common
Stock then outstanding which were issued as, or were issued directly or
indirectly upon the conversion or exercise of other securities issued as, a
dividend or other distribution with respect or in replacement of any shares
referred to in (i) or (ii); and (iv) any shares of Class A Common Stock then
issuable directly or indirectly upon the conversion or exercise of other
securities which were issued as a dividend or other distribution with respect to
or in replacement of any shares referred to in (i) or (ii); provided, however,
that Registrable Shares shall not include any shares which have been (a)
disposed of pursuant to an effective registration statement under the Securities
Act, (b) sold or otherwise transferred in a transaction in which the rights
under the provisions of this Agreement have not been assigned, or (c) sold
pursuant to Rule 144. For purposes of this Agreement, a Person will be deemed to
be a holder of Registrable Shares whenever such Person has the then-existing
right to acquire such Registrable Shares (by conversion or otherwise), whether
or not such acquisition actually has been effected.
"Rule 144" means Rule 144 (including Rule 144(k)) of the Commission under
the Securities Act or any similar provision then in force under the Securities
Act.
"Rule 701" means Rule 701 of the Commission under the Securities Act or any
similar provision then in force under the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal statute, as the same shall be in effect from time to time.
"Series B Preferred Stock" means, collectively, the Series B-1 Preferred
Stock and the Series B-2 Preferred Stock.
"Series B-1 Preferred Stock" means the Series B-1 Convertible Preferred
Stock, $0.001 par value per share, of the Corporation.
"Series B-2 Preferred Stock" means the Series B-2 Convertible Preferred
Stock, $0.001 par value per share, of the Corporation.
-3-
<PAGE>
2. Piggyback Registration.
----------------------
2.1 Right to Piggyback. After the consummation of an IPO, whenever
------------------
the Corporation proposes to register Common Stock under the Securities Act
(other than pursuant to a registration statement filed on Form S-8 or Form S-4,
or any successor forms, or otherwise filed in connection with a merger,
acquisition, exchange offer or other business combination transaction or an
offering of securities solely to the Corporation's existing security holders or
employees), whether for sale on its own account or pursuant to a demand for
registration by other holders of shares of Common Stock, and the registration
form to be used may be used for the registration of any Registrable Shares (a
"Piggyback Registration"), the Corporation will give prompt written notice to
all holders of the Registrable Shares of its intention to effect such a
registration and will include in such registration all Registrable Shares
(subject to, and in accordance with, the priorities set forth in Sections 2.2
and 2.3 below) with respect to which the Corporation has received written
requests for inclusion within twenty (20) days after the Corporation's notice.
Notwithstanding the foregoing, if a Piggyback Registration is not an
underwritten registration, the Corporation shall not be required to include any
Registrable Shares held by any Person in such Piggyback Registration if such
Person, at the time of the filing of the registration statement for such
Piggyback Registration, would be permitted to sell all of the Registrable Shares
held by such Person, without registration, pursuant to Rule 144 or Rule 701.
2.2 Priority on Non-Demand Registrations. If a Piggyback
------------------------------------
Registration is an underwritten registration on behalf of the Corporation that
does not constitute a "demand" registration required pursuant to an agreement
with the Corporation, and the managing underwriters advise the Corporation in
writing that in their opinion the number of shares of Common Stock requested to
be included in such registration exceeds the number which can be marketed (a) at
a price per share reasonably related to the then-current market value per share
of the Common Stock, and (b) without materially and adversely affecting the
entire offering, the Corporation will include in such registration up to the
amount determined advisable by the underwriters:
(i) first, the shares of Common Stock that the Corporation proposes to
sell;
(ii) second, any shares of Common Stock held by stockholders of the
Corporation requested to be included in such registration which, pursuant to the
terms of the agreements granting the registration rights applicable to such
shares (whether entered into prior to or after the date of this Agreement), are
entitled to priority in such registration over the Registrable Shares (which
shares entitled to such priority shall not include the Founders Shares or the
Junior Preferred Shares), and in such relative priorities as they may be
entitled; and
(iii) third, the Registrable Shares, the Junior Preferred Shares and
any other shares of Common Stock held by stockholders of the Corporation which
are not entitled to priority over the Registrable Shares (but excluding the
Founders Shares), requested to be included in such registration, pro rata among
--- ----
the holders of such Registrable Shares, Junior Preferred Shares and
-4-
<PAGE>
other shares on the basis of the number of shares which are owned by such
holders and requested to be included in such registration.
2.3 Priority on Demand Registrations. If a Piggyback Registration is
--------------------------------
an underwritten registration pursuant to a demand for registration by other
holders of shares of Common Stock and the managing underwriters advise the
Corporation in writing that in their opinion the number of shares of Common
Stock requested to be included in such registration exceeds the number which can
be marketed (a) at a price per share reasonably related to the then-current
market value per share of the Common Stock, and (b) without materially and
adversely affecting the entire offering, the Corporation will include in such
registration up to an amount determined advisable by the underwriters:
(i) first, the shares of Common Stock requested to be included therein by
the holders on behalf of whom such registration has been initially requested and
any securities that the Corporation proposes to sell, to the extent, and in such
relative priorities as, permitted in such "demand" registration;
(ii) second, any other shares of Common Stock held by stockholders of the
Corporation requested to be included in such registration which, pursuant to the
terms of the agreements granting the registration rights applicable to such
shares (whether entered into prior to or after the date of this Agreement), are
entitled to priority in such registration over the Registrable Shares (which
shares entitled to such priority shall not include the Founders Shares or the
Junior Preferred Shares), and in such relative priorities as they may be
entitled; and
(iii) third, the Registrable Shares, the Junior Preferred Shares and any
other shares of Common Stock held by stockholders of the Corporation which are
not entitled to priority over the Registrable Shares (but excluding the Founders
Shares), requested to be included in such registration; pro rata among the
--- ----
holders of such Registrable Shares, Junior Preferred Shares and other shares on
the basis of the number of shares which are owned by such holders and requested
to be included in such registration.
Without limiting this Section 2.3 or Section 2.2, no Founders Shares shall
be included in an underwritten registration by the Corporation unless all of the
Registrable Shares requested to be included in such registration pursuant to
this Agreement are permitted to be included in such registration.
2.4 Right to Terminate Registration. The Corporation shall have the
-------------------------------
right to withdraw any registration initiated by it under this Section 2 prior to
the effectiveness of such registration whether or not any holder of its
securities has elected to include securities in such registration.
3. Registration Procedures. Whenever the holders of Registrable Shares
-----------------------
have requested that any Registrable Shares be registered pursuant to this
Agreement, the Corporation
-5-
<PAGE>
will use its reasonable best efforts to effect the registration and sale of such
Registrable Shares and, pursuant thereto, the Corporation will as expeditiously
as reasonably possible:
(a) prepare and file with the Commission a registration statement with
respect to such Registrable Shares and use its reasonable best efforts to cause
such registration statement to become and remain effective for the period of the
distribution contemplated thereby, determined as hereinafter provided;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus(es) used in
connection therewith as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all Registrable Securities
covered by such registration statement;
(c) furnish to each seller of Registrable Shares such number of copies
of such registration statement, each amendment and supplement thereto, the
prospectus(es) included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Shares owned
by such seller;
(d) notify each seller of such Registrable Shares, at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event as a result of which the prospectus included
in such registration statement, as then in effect, contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading in light of the circumstances under which they were made, and, at
the request of any such seller, the Corporation will prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the purchasers
of such Registrable Shares, such prospectus will not contain any untrue
statement of a material fact or omit to state any fact necessary to make the
statements therein not misleading in light of the circumstances under which they
were made (and such sellers shall suspend the use of the prospectus until the
requisite changes thereto have been made);
(e) use its reasonable efforts to cause all such Registrable Shares to
be listed on each securities exchange or market on which the Common Stock is
then listed;
(f) use its reasonable efforts to cause such Registrable Securities to
be registered with or approved by such other governmental agencies or
authorities as may be necessary to consummate the disposition of such
Registrable Securities;
(g) provide a transfer agent and registrar for all such Registrable
Shares not later than the effective date of such registration statement;
-6-
<PAGE>
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take such other actions as are reasonably
required in order to expedite or facilitate the disposition of such Registrable
Shares;
(i) make available for inspection by any underwriter participating in
any disposition pursuant to such registration statement, and any attorney,
accountant or other agent retained by any such underwriter, all financial and
other records, pertinent corporate documents and properties of the Corporation,
and cause the Corporation's officers, directors, employees and independent
accountants to supply all information reasonably requested by any such
underwriter, attorney, accountant or agent in connection with such registration
statement;
(j) advise each seller of such Registrable Shares, promptly after it
shall receive notice or obtain knowledge thereof, of the issuance of any stop
order by the Commission suspending the effectiveness of such registration
statement or the initiation or threatening of any proceeding for such purpose
and promptly use all reasonable efforts to prevent the issuance of any stop
order or to obtain its withdrawal if any such stop order shall be issued (and,
if such stop order shall be issued, such sellers shall suspend the use of the
prospectus until it shall be withdrawn);
(k) at the request of the managing underwriters in connection with an
underwritten offering, furnish on the date or dates provided for in the
underwriting agreement (i) an opinion of counsel, addressed to the underwriters,
covering such matters as such underwriters and sellers may reasonably request,
including such matters as are customarily furnished in connection with an
underwritten offering; and (ii) a letter or letters from the independent
certified public accountants of the Corporation addressed to the underwriters,
covering such matters as such underwriters may reasonably request, in which
letter(s) such accountants shall state, without limiting the generality of the
foregoing, that they are independent certified public accountants within the
meaning of the Securities Act and that in their opinion the financial statements
and other financial data of the Corporation included in the registration
statement, the prospectus(es), or any amendment or supplement thereto, comply in
all material respects with the applicable accounting requirements of the
Securities Act; and
(l) notwithstanding any provision of this Section 3 to the contrary,
the Corporation shall not be required to amend or supplement a prospectus if (i)
such amendment or supplement would require the Corporation to disclose a
material financing, acquisition or other transaction then being pursued by the
Corporation and the Corporation shall determine in good faith that such
disclosure is not in the best interests of the Corporation or would interfere
with such transaction or (ii) the Corporation shall determine in good faith that
there is a valid business purpose or reason for suspending the use of such
prospectus in accordance with Section 3(d) hereof instead of making such
amendment or supplement.
For purposes of Sections 3(a) and 3(b), the period of distribution of
Registrable Shares in a firm commitment underwritten public offering shall be
deemed to extend until each
-7-
<PAGE>
underwriter has completed the distribution of all Registrable Shares purchased
by it, and the period of distribution of Registrable Shares in any other
registration shall be deemed to extend until the earlier of (i) the sale of all
Registrable Shares covered thereby and (ii) the end of the period of
distribution for the Corporation or the holders of its shares of Common Stock on
whose behalf the registration has initially been made.
4. Registration Expenses.
---------------------
4.1 Corporation's Expenses. All expenses incident to the
----------------------
Corporation's performance of or compliance with this Agreement, including
without limitation all registration and filing fees, fees and expenses of
compliance with securities, listing fees, printing expenses, messenger and
delivery expenses, and fees and disbursements of counsel for the Corporation and
all independent certified public accountants, underwriters (excluding discounts
and commissions) and other Persons retained by the Corporation (all such
expenses being herein called "Registration Expenses") shall be borne by the
Corporation.
4.2 Holder's Expenses. Notwithstanding anything to the contrary
-----------------
contained herein, each holder of Registrable Shares shall bear and pay all
underwriting discounts and commissions and transfer taxes applicable to the
Registrable Shares sold for such holder's account and all fees and disbursements
of counsel such holder retains in connection with the registration of
Registrable Shares.
5. Indemnification.
---------------
5.1 By the Corporation. The Corporation agrees to indemnify, to the
------------------
extent permitted by law, each holder of Registrable Shares, its managers,
officers and directors and each Person who controls such holder (within the
meaning of the Securities Act) against all losses, claims, damages, liabilities
and expenses (including without limitation, attorneys' fees) ("Liabilities")
caused by any untrue or alleged untrue statement of material fact contained in
any registration statement, prospectus or preliminary prospectus, or any
amendment thereof or supplement thereto, or any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as the same are caused by or
contained in any information furnished in writing to the Corporation by such
holder expressly for use therein or by such holder's failure to deliver a copy
of the registration statement or prospectus or any amendments or supplements
thereto after the Corporation has furnished such holder with a sufficient number
of copies of the same. In connection with an underwritten offering, the
Corporation shall indemnify such underwriters, their officers and directors and
each Person who controls such underwriters (within the meaning of the Securities
Act) to the same extent as provided above with respect to the indemnification of
the holders of Registrable Shares. The payments required by this Section 5.1
will be made periodically during the course of the investigation or defense, as
and when bills are received or expenses incurred.
-8-
<PAGE>
5.2 By Each Holder. In connection with any registration statement in
--------------
which a holder of Registrable Shares is participating, each such holder shall
furnish to the Corporation in writing such information and affidavits as the
Corporation reasonably requests for use in connection with any such registration
statement or prospectus and, to the extent permitted by law, shall indemnify the
Corporation, its directors and officers and each Person who controls the
Corporation (within the meaning of the Securities Act) against any Liabilities
resulting from any untrue or alleged untrue statement of material fact contained
in the registration statement, prospectus or preliminary prospectus, or any
amendment thereof or supplement thereto, or any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein not misleading, but only to the extent that such untrue
statement or omission is contained in any information or affidavit so furnished
in writing by such holder; provided that the obligation to indemnify will be
several, not joint and several, among such holders of Registrable Shares, and
the liability of each such holder of Registrable Shares under this Section 5
shall be limited to the net amount received by such holder from the sale of
Registrable Shares pursuant to such registration statement.
5.3 Procedure. Any Person entitled to indemnification hereunder
---------
shall (i) give prompt written notice to the indemnifying party of any claim with
respect to which it seeks indemnification and (ii) unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party will not be subject to any liability for any settlement made
by the indemnified party without its consent (but such consent will not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
5.4 Contribution. To the extent any indemnification by an
------------
indemnifying party provided for in this Section 5 is prohibited or limited by
law, the 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 Liabilities in such proportion as is appropriate to reflect the
relative fault of the indemnifying party and the indemnified party in connection
with the statements or omissions which resulted in such Liabilities, as well as
any other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified party shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of material
fact or omission or alleged omission to state a material fact, has been made by,
or relates to information supplied by, such indemnifying party or indemnified
party, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
-9-
<PAGE>
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5.4 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. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
5.5 Survival. The indemnification and contribution provided for
--------
under this Agreement will remain in full force and effect regardless of any
investigation made by or on behalf of the indemnified party or any officer,
director or controlling Person of such indemnified party and will survive the
transfer of securities.
6. Compliance with Rule 144. In the event that the Corporation (a)
------------------------
registers a class of securities under Section 12 of the Exchange Act, (b) issues
an offering circular meeting the requirements of Regulation A under the
Securities Act, or (c) commences to file reports under Section 13 or 15(d) of
the Exchange Act, then at the request of any holder who proposes to sell
securities in compliance with Rule 144 of the Commission, the Corporation will
(i) forthwith furnish to such holder, upon request, a written statement of
compliance with the filing requirements of the Commission as set forth in Rule
144, as such rule may be amended from time to time, and (ii) use its reasonable
best efforts to make available to the public and such holders such information
as will enable the holders to make sales pursuant to Rule 144.
7. Participation in Underwritten Registrations. No Person may
-------------------------------------------
participate in any registration hereunder which is underwritten unless such
Person (a) agrees to sell its shares of Common Stock on the basis provided in
any underwriting arrangements approved by the Corporation or any other Person or
Persons entitled to approve such arrangements, and (b) completes and executes
all questionnaires, powers of attorney, custody agreements, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements.
8. Holdback Agreements. Each holder of Registrable Shares agrees not to
-------------------
effect any public sale or distribution of equity securities of the Corporation,
or any securities convertible into or exchangeable or exercisable for such
securities, (i) during the seven (7) days prior to, and during the one hundred
and eighty (180) days following, the effective date of a registration statement
filed by the Corporation with the Commission for an IPO (except as part of such
underwritten registration), or (ii) during the seven (7) days prior to and
during the ninety (90) days following the effective date of a registration
statement filed by the Corporation with the Commission for any underwritten
Public Offering, other than an IPO (except as part of such underwritten
registration), in each case unless the underwriters managing the Public Offering
otherwise agree. Each holder of Registrable Shares agrees to enter into
customary lock-up agreements consistent with the foregoing if requested by any
underwriter of any such Public Offering.
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<PAGE>
9. Miscellaneous.
-------------
9.1 Other Registration Rights. The Corporation may hereafter grant
-------------------------
to any Person or Persons the right to request the Corporation to register any
equity securities of the Corporation, or any securities convertible or
exchangeable into or exercisable for such securities, without the prior written
consent of the holders of the Registrable Shares.
9.2 Assignment of Registration Rights. The registration rights of
---------------------------------
any Purchaser under this Agreement with respect to any Registrable Shares may be
assigned to any Person who acquires such Registrable Shares; provided that (a)
--------
the assigning Purchaser shall give the Corporation written notice at or prior to
the time of such assignment stating the name and address of the assignee and
identifying the shares with respect to which the rights under this Agreement are
being assigned; (b) such assignee shall agree in writing, in form and substance
reasonably satisfactory to the Corporation, to be bound as a Purchaser by the
provisions of this Agreement; and (c) immediately following such assignment, the
further disposition of such securities by such assignee is restricted under the
Securities Act.
9.3 Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto will bind and inure to the benefit of the
respective permitted successors and assigns of the parties hereto, whether so
expressed or not.
9.4 Severability. Whenever possible, each provision of this
------------
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
9.5 Descriptive Headings. The descriptive headings of this Agreement
--------------------
are inserted for convenience of reference only and do not constitute a part of,
and shall not be utilized in interpreting, this Agreement.
9.6 Notices. Any notices required or permitted to be sent hereunder
-------
shall be delivered personally or mailed, certified mail, return receipt
requested, or delivered by overnight courier service to the following addresses,
or such other address as any party hereto designates by written notice to the
Corporation, and shall be deemed to have been given upon delivery, if delivered
personally; three days after mailing, if mailed; or one business day after
delivery to the courier, if delivered by overnight courier service:
-11-
<PAGE>
If to the Corporation, to:
divine interventures, inc.
676 North Michigan Avenue
Suite 3410
Chicago, Illinois 60611
Attention: General Counsel
and Chief Financial Officer
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661
Attention: Mark D. Wood, Esq.
If to the Purchasers or other holders of Registrable Shares, to the
addresses set forth in the stock records of the Corporation,
9.7 Governing Law. All questions concerning the construction,
-------------
validity and interpretation of this Agreement, and the performance of the
obligations imposed by this Agreement, shall be governed by the laws of the
State of Delaware applicable to contracts made and wholly to be performed in
that state.
9.8 Amendments and Waivers. The provisions of this Agreement may be
----------------------
amended upon the written agreement of the Corporation and the holder or holders
of a majority of the Registrable Shares entitled to the rights hereunder
originally held by the Purchasers. Any waiver, permit, consent or approval of
any kind or character on the part of any holders of any provision or condition
of this Agreement must be made in writing and shall be effective only to the
extent specifically set forth in writing.
9.9 Final Agreement. This Agreement, constitutes the complete and
---------------
final agreement of the parties concerning the matters referred to herein and
supersedes all prior agreements and understandings.
9.10 Execution. A Person who has executed a Subscription Agreement
---------
and signs a signature page hereto shall become a party hereto upon the issuance
to such Person of Preferred Shares for which such Person has subscribed. This
Agreement may be executed in any number of counterparts, each of which when so
executed and delivered shall be deemed an original, and such counterparts
together shall constitute one instrument.
-12-
<PAGE>
9.11 No Strict Construction. The language used in this Agreement will
----------------------
be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction will be used against any
party.
* * * * *
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<PAGE>
IN WITNESS WHEREOF, the corporation has executed this Series B Registration
Rights Agreement on the date first set forth above.
divine interventures, inc.
By: /s/ Larry S. Freedman
-----------------------------------
Its: Secretary
----------------------------------
<PAGE>
divine interventures, inc.
COUNTERPART SIGNATURE PAGE
TO
SERIES B REGISTRATION RIGHTS AGREEMENT
--------------------------------------
The undersigned hereby executes the Series B Registration Rights Agreement
by and among divine interventures, inc. (the "Corporation") and certain persons
who own issued and outstanding shares of Series B Convertible Preferred Stock of
the Corporation and hereby authorizes this signature page to be attached as a
counterpart of such document executed by the Corporation. The undersigned hereby
agrees to be bound by, and shall be entitled to the rights and benefits of, the
terms and provisions of the Series B Registration Rights Agreement.
Dated: ___________ __, 1999
_________________________________________________
(Signature)
_________________________________________________
(Print Name of Purchaser)
<PAGE>
EXHIBIT 10.11
SERIES C REGISTRATION RIGHTS AGREEMENT
--------------------------------------
THIS SERIES C REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made as
of September 30, 1999, by and among divine interventures, inc., a Delaware
corporation (the "Corporation"), and each Person who becomes a party hereto as
provided in Section 9.10 hereof (the "Purchasers").
R E C I T A L S
---------------
A. The Purchasers have executed Subscription Agreements (the
"Subscription Agreements") in which they have agreed to purchase shares (the
"Series C Preferred Shares") of the Corporation's Series C Senior Convertible
Preferred Stock, $0.001 par value per share.
B. The Corporation is requiring that the Purchasers enter into this
Agreement as a condition to the Corporation's acceptance of their subscriptions
for the Series C Preferred Shares.
C. The Corporation deems it desirable to enter into this Agreement in
order to induce the Purchasers to purchase the Series C Shares pursuant to the
Subscription Agreements.
AGREEMENTS
----------
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 hereto hereby agree as follows:
1. Definitions. As used in this Agreement.
-----------
"Class A Common Stock" means the Class A Common Stock, $0.001 par value per
share of the Corporation.
"Class B Common Stock" means the Class B Common Stock, $0.001 par value per
share, of the Corporation.
"Commission" means the United States Securities and Exchange Commission or
any successor thereto.
"Common Stock" means, collectively, the Class A Common Stock and the Class
B Common Stock.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any similar federal statute, as the same shall be in effect from time to time.
"Founders Shares" means at any time (i) any shares of Class A Common Stock
then outstanding which were sold by the Corporation prior to the date hereof at
a purchase price of
<PAGE>
$0.001 per share, (ii) any shares of Class A Common Stock then outstanding which
were issued upon conversion of shares of Class B Common Stock which were sold
prior to the date hereof at a purchase price of $0.001 per share, (iii) any
shares of Class A Common Stock then issuable upon conversion of outstanding
shares of Class B Common Stock which were sold prior to the date hereof at a
purchase price of $0.001 per share, (iv) any shares of Class A Common Stock then
outstanding which were issued as, or were issued directly or indirectly upon the
conversion or exercise of other securities issued as, a dividend or other
distribution with respect to or in replacement of any shares referred to in (i),
(ii) or (iii); and (v) any shares of Class A Common Stock then issuable directly
or indirectly upon the conversion or exercise of other securities which were
issued as a dividend or other distribution with respect to or in replacement of
any shares referred to in (i), (ii) or (iii).
"IPO" means the Corporation's first underwritten public offering of shares
of Common Stock pursuant to an effective registration statement under the
Securities Act.
"Junior Preferred Stock" means, collectively, the Series A Junior
Convertible Preferred Stock, $0.001 par value per share, and the Series B
Convertible Preferred Stock, $0.001 par value per share, of the Corporation.
"Junior Preferred Shares" means at any time (i) any shares of Class A
Common Stock then outstanding which were issued upon conversion of shares of
Junior Preferred Stock or upon conversion of shares of Class B Common Stock
issued upon conversion of Junior Preferred Stock; (ii) any shares of Class A
Common Stock then issuable upon conversion of shares of then outstanding Junior
Preferred Stock or upon conversion of shares of Class B Common Stock issued or
issuable upon conversion of Junior Preferred Stock; (iii) any shares of Class A
Common Stock then outstanding which were issued as, or were issued directly or
indirectly upon the conversion or exercise of other securities issued as, a
dividend or other distribution with respect to or in replacement of any shares
referred to in (i) or (ii); and (iv) any shares of Class A Common Stock then
issuable directly or indirectly upon the conversion or exercise of other
securities which were issued as a dividend or other distribution with respect to
or in replacement of any shares referred to in (i) or (ii); provided, however,
that Junior Preferred Shares shall not include any shares which have been (a)
disposed of pursuant to an effective registration statement under the Securities
Act, (b) sold or otherwise transferred in a transaction in which the
registration rights applicable to such shares have not been assigned, or (c)
sold pursuant to Rule 144.
"Person" means an individual, corporation, partnership, limited liability
company, limited partnership, syndicate, person (including, without limitation,
a "Person" as defined in Section 13(d)(3) of the Exchange Act), trust,
association or entity or government, political subdivision, agency or
instrumentality of a government.
"Public Offering" means any offering by the Corporation of its equity
securities to the public pursuant to an effective registration statement under
the Securities Act.
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<PAGE>
"Registrable Shares" means at any time (i) any shares of Class A Common
Stock then outstanding which were issued upon conversion of Series C Preferred
Shares or upon conversion of shares of Class B Common Stock issued upon
conversion of Series C Preferred Shares; (ii) any shares of Class A Common Stock
then issuable upon conversion of then outstanding Series C Preferred Shares or
upon conversion of shares of Class B Common Stock issued or issuable upon
conversion of Series C Preferred Shares; (iii) any shares of Class A Common
Stock then outstanding which were issued as, or were issued directly or
indirectly upon the conversion or exercise of other securities issued as, a
dividend or other distribution with respect or in replacement of any shares
referred to in (i) or (ii); and (iv) any shares of Class A Common Stock then
issuable directly or indirectly upon the conversion or exercise of other
securities which were issued as a dividend or other distribution with respect to
or in replacement of any shares referred to in (i) or (ii); provided, however,
that Registrable Shares shall not include any shares which have been (a)
disposed of pursuant to an effective registration statement under the Securities
Act, (b) sold or otherwise transferred in a transaction in which the rights
under the provisions of this Agreement have not been assigned, or (c) sold
pursuant to Rule 144. For purposes of this Agreement, a Person will be deemed to
be a holder of Registrable Shares whenever such Person has the then-existing
right to acquire such Registrable Shares (by conversion or otherwise), whether
or not such acquisition actually has been effected.
"Rule 144" means Rule 144 (including Rule 144(k)) of the Commission under
the Securities Act or any similar provision then in force under the Securities
Act.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal statute, as the same shall be in effect from time to time.
2. Piggyback Registration.
----------------------
2.1 Right to Piggyback. After the consummation of an IPO, whenever
------------------
the Corporation proposes to register Common Stock under the Securities Act
(other than pursuant to a registration statement filed on Form S-8 or Form S-4,
or any successor forms, or otherwise filed in connection with a merger,
acquisition, exchange offer or other business combination transaction or an
offering of securities solely to the Corporation's existing security holders or
employees) whether for sale on its own account or pursuant to a demand for
registration by other holders of shares of Common Stock, and the registration
form to be used may be used for the registration of any Registrable Shares (a
"Piggyback Registration"), the Corporation will give prompt written notice to
all holders of the Registrable Shares of its intention to effect such a
registration and will include in such registration all Registrable Shares
(subject to, and in accordance with, the priorities set forth in Sections 2.2
and 2.3 below) with respect to which the Corporation has received written
requests for inclusion within twenty (20) days after the Corporation's notice.
Notwithstanding the foregoing, if a Piggyback Registration is not an
underwritten registration, the Corporation shall not be required to include any
Registrable Shares held by any Person in such Piggyback Registration if such
Person at the time of the filing of the registration statement for such
Piggyback
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<PAGE>
Registration would be permitted to sell all of the Registrable Shares held by
such Person, without registration, pursuant to Rule 144.
2.2 Priority on Non-Demand Registrations. If a Piggyback
------------------------------------
Registration is an underwritten registration on behalf of the Corporation that
does not constitute a "demand" registration required pursuant to an agreement
with the Corporation, and the managing underwriters advise the Corporation in
writing that in their opinion the number of shares of Common Stock requested to
be included in such registration exceeds the number which can be marketed (a) at
a price per share reasonably related to the then-current market value per share
of the Common Stock, and (b) without materially and adversely affecting the
entire offering, the Corporation will include in such registration up to the
amount determined advisable by the underwriters:
(i) first, the shares of Common Stock that the Corporation proposes to
sell;
(ii) second, any shares of Common Stock held by stockholders of the
Corporation requested to be included in such registration which, pursuant to the
terms of the agreements granting the registration rights applicable to such
shares (whether entered into prior to or after the date of this Agreement), are
entitled to priority in such registration over the Registrable Shares (which
shares entitled to such priority shall not include the Founders Shares or the
Junior Preferred Shares), and in such relative priorities as they may be
entitled; and
(iii) third, the Registrable Shares, the Junior Preferred Shares and any
other shares of Common Stock held by stockholders of the Corporation which are
not entitled to priority over the Registrable Shares (but excluding the Founders
Shares), requested to be included in such registration, pro rata among
--- ----
the holders of such Registrable Shares, Junior Preferred Shares and other shares
on the basis of the number of shares which are owned by such holders and
requested to be included in such registration.
2.3 Priority on Demand Registrations. If a Piggyback Registration is an
--------------------------------
underwritten registration pursuant to a demand for registration by other holders
of shares of Common Stock and the managing underwriters advise the Corporation
in writing that in their opinion the number of shares of Common Stock requested
to be included in such registration exceeds the number which can be marketed (a)
at a price per share reasonably related to the then-current market value per
share of the Common Stock, and (b) without materially and adversely affecting
the entire offering, the Corporation will include in such registration up to the
amount determined advisable by the underwriters:
(i) first, the shares of Common Stock requested to be included therein by
the holders on behalf of whom such registration has been initially requested and
any securities that the Corporation proposes to sell, to the extent, and in such
relative priorities as, permitted in such "demand" registration;
-4-
<PAGE>
(ii) second, any other shares of Common Stock held by stockholders of the
Corporation requested to be included in such registration which, pursuant to the
terms of the agreements granting the registration rights applicable to such
shares (whether entered into prior to or after the date of this Agreement), are
entitled to priority in such registration over the Registrable Shares (which
shares entitled to such priority shall not include the Founders Shares or the
Junior Preferred Shares), and in such relative priorities as they may be
entitled; and
(iii) third, the Registrable Shares, the Junior Preferred Shares and any
other shares of Common Stock held by stockholders of the Corporation which are
not entitled to priority over the Registrable Shares (but excluding the Founders
Shares), requested to be included in such registration; pro rata among the
--- ----
holders of such Registrable Shares, Junior Preferred Shares and other shares on
the basis of the number of shares which are owned by such holders and requested
to be included in such registration.
Without limiting this Section 2.3 or Section 2.2, no Founders Shares shall
be included in an underwritten registration by the Corporation unless all of the
Registrable Shares requested to be included in such registration pursuant to
this Agreement are permitted to be included in such registration.
2.4 Right to Terminate Registration. The Corporation shall have the
-------------------------------
right to withdraw any registration initiated by it under this Section 2 prior to
the effectiveness of such registration whether or not any holder of its
securities has elected to include securities in such registration.
3. Registration Procedures. Whenever the holders of Registrable Shares
-----------------------
have requested that any Registrable Shares be registered pursuant to this
Agreement, the Corporation will use its reasonable best efforts to effect the
registration and sale of such Registrable Shares and, pursuant thereto, the
Corporation will as expeditiously as reasonably possible:
(a) prepare and file with the Commission a registration
statement with respect to such Registrable Shares and use its reasonable best
efforts to cause such registration statement to become and remain effective for
the period of the distribution contemplated thereby, determined as hereinafter
provided;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus(es) used in
connection therewith as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all Registrable Securities
covered by such registration statement;
(c) furnish to each seller of Registrable Shares such number of
copies of such registration statement, each amendment and supplement thereto,
the prospectus(es) included in such registration statement (including each
preliminary prospectus) and such other
-5-
<PAGE>
documents as such seller may reasonably request in order to facilitate the
disposition of the Registrable Shares owned by such seller;
(d) notify each seller of such Registrable Shares, at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, contains
an untrue statement of a material fact or omits any fact necessary to make the
statements therein not misleading in light of the circumstances under which they
were made, and, at the request of any such seller, the Corporation will prepare
a supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Shares, such prospectus will not contain any
untrue statement of a material fact or omit to state any fact necessary to make
the statements therein not misleading in light of the circumstances under which
they were made (and such sellers shall suspend the use of the prospectus until
the requisite changes thereto have been made);
(e) use its reasonable efforts to cause all such Registrable
Shares to be listed on each securities exchange or market on which the Common
Stock is then listed;
(f) use its reasonable efforts to cause such Registrable
Securities to be registered with or approved by such other governmental agencies
or authorities as may be necessary to consummate the disposition of such
Registrable Securities;
(g) provide a transfer agent and registrar for all such
Registrable Shares not later than the effective date of such registration
statement;
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take such other actions as are reasonably
required in order to expedite or facilitate the disposition of such Registrable
Shares;
(i) make available for inspection by any underwriter
participating in any disposition pursuant to such registration statement, and
any attorney, accountant or other agent retained by any such underwriter, all
financial and other records, pertinent corporate documents and properties of the
Corporation, and cause the Corporation's officers, directors, employees and
independent accountants to supply all information reasonably requested by any
such underwriter, attorney, accountant or agent in connection with such
registration statement;
(j) advise each seller of such Registrable Shares, promptly
after it shall receive notice or obtain knowledge thereof, of the issuance of
any stop order by the Commission suspending the effectiveness of such
registration statement or the initiation or threatening of any proceeding for
such purpose and promptly use all reasonable efforts to prevent the issuance of
any stop order or to obtain its withdrawal if any such stop order shall be
issued (and, if such stop order shall be issued, such sellers shall suspend the
use of the prospectus until it shall be withdrawn);
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<PAGE>
(k) at the request of the managing underwriters in connection
with an underwritten offering, furnish on the date or dates provided for in the
underwriting agreement (i) an opinion of counsel, addressed to the underwriters,
covering such matters as such underwriters and sellers may reasonably request,
including such matters as are customarily furnished in connection with an
underwritten offering; and (ii) a letter or letters from the independent
certified public accountants of the Corporation addressed to the underwriters,
covering such matters as such underwriters may reasonably request, in which
letter(s) such accountants shall state, without limiting the generality of the
foregoing, that they are independent certified public accountants within the
meaning of the Securities Act and that in their opinion the financial statements
and other financial data of the Corporation included in the registration
statement, the prospectus(es), or any amendment or supplement thereto, comply in
all material respects with the applicable accounting requirements of the
Securities Act; and
(l) notwithstanding any provision of this Section 3 to the
contrary, the Corporation shall not be required to amend or supplement a
prospectus if (i) such amendment or supplement would require the Corporation to
disclose a material financing, acquisition or other transaction then being
pursued by the Corporation and the Corporation shall determine in good faith
that such disclosure is not in the best interests of the Corporation or would
interfere with such transaction or (ii) the Corporation shall determine in good
faith that there is a valid business purpose or reason for suspending the use of
such prospectus in accordance with Section 3(d) hereof instead of making such
amendment or supplement.
For purposes of Sections 3(a) and 3(b), the period of distribution of
Registrable Shares in a firm commitment underwritten public offering shall be
deemed to extend until each underwriter has completed the distribution of all
securities purchased by it, and the period of distribution of Registrable Shares
in any other registration shall be deemed to extend until the earlier of (i) the
sale of all Registrable Shares covered thereby and (ii) the end of the period of
distribution for the Corporation or the holders of its shares of Common Stock on
whose behalf the registration has initially been made.
4. Registration Expenses.
---------------------
4.1 Corporation's Expenses. All expenses incident to the
----------------------
Corporation's performance of or compliance with this Agreement, including
without limitation all registration and filing fees, fees and expenses of
compliance with securities, listing fees, printing expenses, messenger and
delivery expenses, and fees and disbursements of counsel for the Corporation and
all independent certified public accountants, underwriters (excluding discounts
and commissions) and other Persons retained by the Corporation (all such
expenses being herein called "Registration Expenses") shall be borne by the
Corporation.
4.2 Holder's Expenses. Notwithstanding anything to the contrary
-----------------
contained herein, each holder of Registrable Shares shall bear and pay all
underwriting discounts and commissions and transfer taxes applicable to the
Registrable Shares sold for such holder's account
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<PAGE>
and all fees and disbursements of counsel such holder retains in connection with
the registration of Registrable Shares.
5. Indemnification.
---------------
5.1 By the Corporation. The Corporation agrees to indemnify, to the
------------------
extent permitted by law, each holder of Registrable Shares, its managers,
officers and directors and each Person who controls such holder (within the
meaning of the Securities Act) against all losses, claims, damages, liabilities
and expenses (including without limitation, attorneys' fees) ("Liabilities")
caused by any untrue or alleged untrue statement of material fact contained in
any registration statement, prospectus or preliminary prospectus, or any
amendment thereof or supplement thereto, or any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as the same are caused by or
contained in any information furnished in writing to the Corporation by such
holder expressly for use therein or by such holder's failure to deliver a copy
of the registration statement or prospectus or any amendments or supplements
thereto after the Corporation has furnished such holder with a sufficient number
of copies of the same. In connection with an underwritten offering, the
Corporation shall indemnify such underwriters, their officers and directors and
each Person who controls such underwriters (within the meaning of the Securities
Act) to the same extent as provided above with respect to the indemnification of
the holders of Registrable Shares. The payments required by this Section 5.1
will be made periodically during the course of the investigation or defense, as
and when bills are received or expenses incurred.
5.2 By Each Holder. In connection with any registration statement in
--------------
which a holder of Registrable Shares is participating, each such holder shall
furnish to the Corporation in writing such information and affidavits as the
Corporation reasonably requests for use in connection with any such registration
statement or prospectus and, to the extent permitted by law, shall indemnify the
Corporation, its directors and officers and each Person who controls the
Corporation (within the meaning of the Securities Act) against any Liabilities
resulting from any untrue or alleged untrue statement of material fact contained
in the registration statement, prospectus or preliminary prospectus, or any
amendment thereof or supplement thereto, or any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein not misleading, but only to the extent that such untrue
statement or omission is contained in any information or affidavit so furnished
in writing by such holder; provided that the obligation to indemnify will be
several, not joint and several, among such holders of Registrable Shares, and
the liability of each such holder of Registrable Shares under this Section 5
shall be limited to the net amount received by such holder from the sale of
Registrable Shares pursuant to such registration statement.
5.3 Procedure. Any Person entitled to indemnification hereunder
---------
shall (i) give prompt written notice to the indemnifying party of any claim with
respect to which it seeks indemnification and (ii) unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim,
-8-
<PAGE>
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such defense is assumed,
the indemnifying party will not be subject to any liability for any settlement
made by the indemnified party without its consent (but such consent will not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
5.4 Contribution. To the extent any indemnification by an
------------
indemnifying party provided for in this Section 5 is prohibited or limited by
law, the 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 Liabilities in such proportion as is appropriate to reflect the
relative fault of the indemnifying party and the indemnified party in connection
with the statements or omissions which resulted in such Liabilities, as well as
any other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified party shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of material
fact or omission or alleged omission to state a material fact, has been made by,
or relates to information supplied by, such indemnifying party or indemnified
party, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5.4 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. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
5.5 Survival. The indemnification and contribution provided for
--------
under this Agreement will remain in full force and effect regardless of any
investigation made by or on behalf of the indemnified party or any officer,
director or controlling Person of such indemnified party and will survive the
transfer of securities.
6. Compliance with Rule 144. In the event that the Corporation (a)
------------------------
registers a class of securities under Section 12 of the Exchange Act, (b) issues
an offering circular meeting the requirements of Regulation A under the
Securities Act, or (c) commences to file reports under Section 13 or 15(d) of
the Exchange Act, then at the request of any holder who proposes to sell
securities in compliance with Rule 144 of the Commission, the Corporation will
(i) forthwith furnish to such holder, upon request, a written statement of
compliance with the filing requirements of the Commission as set forth in Rule
144, as such rule may be amended from time
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<PAGE>
to time, and (ii) use its reasonable best efforts to make available to the
public and such holders such information as will enable the holders to make
sales pursuant to Rule 144.
7. Participation in Underwritten Registrations. No Person may
-------------------------------------------
participate in any registration hereunder which is underwritten unless such
Person (a) agrees to sell its shares of Common Stock on the basis provided in
any underwriting arrangements approved by the Corporation or any other Person or
Persons entitled to approve such arrangements, and (b) completes and executes
all questionnaires, powers of attorney, custody agreements, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements.
8. Holdback Agreements. Each holder of Registrable Shares agrees not to
------------------
effect any public sale or distribution of equity securities of the Corporation,
or any securities convertible into or exchangeable or exercisable for such
securities, (i) during the seven (7) days prior to, and during the one hundred
and eighty (180) days following, the effective date of an IPO (except as part of
such underwritten registration), or (ii) during the seven (7) days prior to and
during the ninety (90) days following the effective date of any underwritten
Public Offering, other than an IPO, (except as part of such underwritten
registration), in each case unless the underwriters managing the Public Offering
otherwise agree. Each holder of Registrable Shares agrees to enter into
customary lock-up agreements consistent with the foregoing if requested by any
underwriter of any such Public Offering.
9. Miscellaneous.
-------------
9.1 Other Registration Rights. The Corporation may hereafter grant
-------------------------
to any Person or Persons the right to request the Corporation to register any
equity securities of the Corporation, or any securities convertible or
exchangeable into or exercisable for such securities, without the prior written
consent of the holders of the Registrable Shares.
9.2 Assignment of Registration Rights. The registration rights of
---------------------------------
any Purchaser under this Agreement with respect to any Registrable Shares may be
assigned to any Person who acquires such Registrable Shares; provided that (a)
--------
the assigning Purchaser shall give the Corporation written notice at or prior to
the time of such assignment stating the name and address of the assignee and
identifying the shares with respect to which the rights under this Agreement are
being assigned; (b) such assignee shall agree in writing, in form and substance
reasonably satisfactory to the Corporation, to be bound as a Purchaser by the
provisions of this Agreement; and (c) immediately following such assignment the
further disposition of such securities by such assignee is restricted under the
Securities Act.
9.3 Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto will bind and inure to the benefit of the
respective permitted successors and assigns of the parties hereto, whether so
expressed or not.
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<PAGE>
9.4 Severability. Whenever possible, each provision of this
------------
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
9.5 Descriptive Headings. The descriptive headings of this Agreement
--------------------
are inserted for convenience of reference only and do not constitute a part of,
and shall not be utilized in interpreting, this Agreement.
9.6 Notices. Any notices required or permitted to be sent hereunder
-------
shall be delivered personally or mailed, certified mail, return receipt
requested, or delivered by overnight courier service to the following addresses,
or such other address as any party hereto designates by written notice to the
Corporation, and shall be deemed to have been given upon delivery, if delivered
personally, three days after mailing, if mailed, or one business day after
delivery to the courier, if delivered by overnight courier service:
If to the Corporation, to:
divine interventures, inc.
676 North Michigan Avenue
Suite 3410
Chicago, Illinois 60611
Attention: General Counsel or Chief Financial Officer
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661
Attention: Mark D. Wood, Esq.
If to the Purchasers or other holders of Registrable Shares, to the
addresses set forth in the stock records of the Corporation.
9.7 Governing Law. All questions concerning the construction,
-------------
validity and interpretation of this Agreement, and the performance of the
obligations imposed by this Agreement, shall be governed by the laws of the
State of Delaware applicable to contracts made and wholly to be performed in
that state.
9.8 Amendments and Waivers. The provisions of this Agreement may be
----------------------
amended upon the written agreement of the Corporation and the holder or holders
of a majority
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<PAGE>
of the Registrable Shares entitled to the rights hereunder originally held by
the Purchasers. Any waiver, permit, consent or approval of any kind or character
on the part of any holders of any provision or condition of this Agreement must
be made in writing and shall be effective only to the extent specifically set
forth in writing.
9.9 Final Agreement. This Agreement, constitutes the complete and
---------------
final agreement of the parties concerning the matters referred to herein and
supersedes all prior agreements and understandings.
9.10 Execution. A Person who has executed a Subscription Agreement
---------
and signs a signature page hereto shall become a party hereto upon the issuance
to such Person of Preferred Shares for which such Person has subscribed. This
Agreement may be executed in any number of counterparts, each of which when so
executed and delivered shall be deemed an original, and such counterparts
together shall constitute one instrument.
9.11 No Strict Construction. The language used in this Agreement
----------------------
will be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction will be used against any
party.
* * * * *
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<PAGE>
IN WITNESS WHEREOF, the corporation has executed this Agreement on the date
first set forth above.
divine interventures, inc.
By: /s/ Andrew J. Filipowski
------------------------------------
Its: CEO and President
___________________________________
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<PAGE>
November 29, 1999
divine interventures, inc.
COUNTERPART SIGNATURE PAGE
TO
SERIES C REGISTRATION RIGHTS AGREEMENT
--------------------------------------
The undersigned hereby executes the Series C Registration Rights Agreement
by and among divine interventures, inc. (the "Corporation") and certain persons
who own issued and outstanding shares of Series C Senior Convertible Preferred
Stock of the Corporation and hereby authorizes this signature page to be
attached as a counterpart of such document executed by the Corporation. The
undersigned hereby agrees to be bound by, and shall be entitled to the rights
and benefits of, the terms and provisions of the Series C Registration Rights
Agreement.
Dated: _______, 1999
_________________________________
(Signature)
__________________________________
(Print Name of Purchaser)
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<PAGE>
EXHIBIT 10.12
SERIES D REGISTRATION RIGHTS AGREEMENT
--------------------------------------
THIS SERIES D REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made as
---------
of December 7, 1999, by and among divine interVentures, inc., a Delaware
corporation (the "Corporation") and those persons set forth on the Schedule of
----------- -----------
Purchasers hereto (collectively, the "Purchasers" and individually, a
- ---------- ----------
"Purchaser").
---------
Pursuant to that Purchase Agreement, dated as of the date hereof, by and
between the Purchasers and the Corporation (as amended and modified from time to
time, the "Purchase Agreement"), the other documents and instruments referred to
------------------
therein and consummation of the transactions contemplated thereby, each of the
Purchasers is acquiring shares of the Corporation's Series D Senior
Participating Convertible Redeemable Preferred Stock, $0.001 par value per share
or Series D-1 Senior Participating Convertible Redeemable Preferred Stock,
$0.001 par value per share (collectively, the "Series D Preferred Shares"). In
-------------------------
order to induce the Purchasers to enter into the Purchase Agreement and the
other agreements contemplated thereby and to purchase the Series D Preferred
Shares in the manner contemplated thereby, the Corporation has agreed to provide
the registration rights set forth in this Agreement. Except as otherwise
indicated herein, capitalized terms used herein shall have the meanings set
forth in Section 1 hereof.
---------
Notwithstanding anything to the contrary herein, this Agreement shall apply
to a party hereto only with respect to periods beginning (i) in the case of the
Company, the date any Purchaser first acquires Purchaser Shares under the
Purchase Agreement, and (ii) in the case of a Purchaser, the Closing Date for
such Purchaser. To the extent the Purchase Agreement is terminated in accordance
with its terms with respect to any party hereto, this Agreement shall have no
further force and effect with respect to such party.
AGREEMENTS
----------
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 hereto hereby agree as follows:
1. Definitions. As used in this Agreement.
-----------
"Class A Common Stock" means the Class A Common Stock, $0.001 par value per
--------------------
share of the Corporation.
"Class B Common Stock" means the Class B Common Stock, $0.001 par value per
--------------------
share, of the Corporation.
"Commission" means the United States Securities and Exchange Commission or
----------
any successor thereto.
<PAGE>
"Common Stock" means, collectively, the Class A Common Stock and the Class
------------
B Common Stock.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
------------
any similar federal statute, as the same shall be in effect from time to time.
"Founders Shares" means at any time (i) any shares of Class A Common Stock
---------------
then outstanding which were sold by the Corporation prior to the date hereof at
a purchase price of $0.001 per share, (ii) any shares of Class A Common Stock
then outstanding which were issued upon conversion of shares of Class B Common
Stock which were sold prior to the date hereof at a purchase price of $0.001 per
share, (iii) any shares of Class A Common Stock then issuable upon conversion of
outstanding shares of Class B Common Stock which were sold prior to the date
hereof at a purchase price of $0.001 per share, (iv) any shares of Class A
Common Stock then outstanding which were issued as, or were issued directly or
indirectly upon the conversion or exercise of other securities issued as, a
dividend or other distribution with respect to or in replacement of any shares
referred to in (i), (ii) or (iii); and (v) any shares of Class A Common Stock
then issuable directly or indirectly upon the conversion or exercise of other
securities which were issued as a dividend or other distribution with respect to
or in replacement of any shares referred to in (i), (ii) or (iii); provided that
Founders Shares shall not include any shares which have been disposed of
pursuant to an effective registration statement under the Securities Act or sold
pursuant to Rule 144.
"IPO" means the Corporation's first underwritten public offering of shares
---
of Common Stock pursuant to an effective registration statement under the
Securities Act.
"Junior Preferred Stock" means, collectively, the Series A Junior
----------------------
Convertible Preferred Stock, $0.001 par value per share, the Series B
Convertible Preferred Stock, $0.001 par value per share, and the Series C
Convertible Preferred Stock, $0.001 par value per share, of the Corporation.
"Junior Preferred Shares" means at any time (i) any shares of Class A
-----------------------
Common Stock then outstanding which were issued upon conversion of shares of
Junior Preferred Stock or upon conversion of shares of Class B Common Stock
issued upon conversion of Junior Preferred Stock; (ii) any shares of Class A
Common Stock then issuable upon conversion of shares of then outstanding Junior
Preferred Stock or upon conversion of shares of Class B Common Stock issued or
issuable upon conversion of Junior Preferred Stock; (iii) any shares of Class A
Common Stock then outstanding which were issued as, or were issued directly or
indirectly upon the conversion or exercise of other securities issued as, a
dividend or other distribution with respect to or in replacement of any shares
referred to in (i) or (ii); and (iv) any shares of Class A Common Stock then
issuable directly or indirectly upon the conversion or exercise of other
securities which were issued as a dividend or other distribution with respect to
or in replacement of any shares referred to in (i) or (ii); provided, however,
that Junior Preferred Shares shall not include any shares which have been (a)
disposed of pursuant to an effective registration statement under the Securities
Act, (b) sold or otherwise transferred in a transaction in which the
registration rights applicable to such shares have not been assigned, or (c)
sold pursuant to Rule 144.
-2-
<PAGE>
"Other Registrable Shares" means shares of the Company's outstanding or
------------------------
issuable Class A Common Stock with respect to which the holder thereof has a
contractual registration right that is pari passu in order of priority to the
Purchaser Registrable Shares, whether such agreement is entered into as of or
after the date of this Agreement, but excluding Founders Shares.
"Person" means an individual, corporation, partnership, limited liability
------
company, limited partnership, syndicate, person (including, without limitation,
a "Person" as defined in Section 13(d)(3) of the Exchange Act), trust,
association or entity or government, political subdivision, agency or
instrumentality of a government.
"Public Offering" means any offering by the Corporation of its equity
---------------
securities to the public pursuant to an effective registration statement under
the Securities Act.
"Purchaser Registrable Shares" means at any time (i) any shares of Common
----------------------------
Stock then outstanding which were issued upon conversion of Series D Preferred
Shares originally issued to the Purchasers; (ii) any shares of Common Stock then
issuable upon conversion of then outstanding Series D Preferred Shares
originally issued to the Purchasers; (iii) any shares of Common Stock then
outstanding which were issued as, or were issued directly or indirectly upon the
conversion or exercise of other securities issued as, a dividend or other
distribution with respect or in replacement of any shares referred to in (i) or
(ii); and (iv) any shares of Common Stock then issuable directly or indirectly
upon the conversion or exercise of other securities which were issued as a
dividend or other distribution with respect to or in replacement of any shares
referred to in (i), (ii) or (iii); provided, however, that Purchaser Registrable
Shares shall cease to be Purchaser Registrable Shares when such Purchaser
Registrable Shares have been (a) disposed of pursuant to an effective
registration statement under the Securities Act, (b) sold or otherwise
transferred in a transaction in which the rights under the provisions of this
Agreement have not been properly assigned, or (c) sold pursuant to Rule 144. For
purposes of this Agreement, a Person will be deemed to be a holder of Purchaser
Registrable Shares whenever such Person has the then-existing right to acquire
such Purchaser Registrable Shares (by conversion or otherwise), whether or not
such acquisition actually has been effected. Subject to the foregoing, Purchaser
Registrable Shares shall continue to constitute Purchaser Registrable Shares in
the hands of any permitted transferee of a Purchaser.
"Rule 144" means Rule 144 (including Rule 144(k)) of the Commission under
--------
the Securities Act or any similar provision then in force under the Securities
Act.
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
similar federal statute, as the same shall be in effect from time to time.
2. Piggyback Registration.
----------------------
2.1 Right to Piggyback. After the consummation of an IPO, whenever
------------------
the Corporation proposes to register Common Stock under the Securities Act
(other than pursuant to a registration statement filed on Form S-8 or Form S-4,
or any successor forms, or otherwise filed in connection with a merger,
acquisition, exchange offer or other business combination transaction or an
offering of securities solely to the Corporation's existing security holders or
employees)
-3-
<PAGE>
whether for sale on its own account or pursuant to a demand for registration by
other holders of shares of Common Stock, and the registration form to be used
may be used for the registration of any Purchaser Registrable Shares (a
"Piggyback Registration"), the Corporation will give prompt written notice to
----------------------
all holders of the Purchaser Registrable Shares of its intention to effect such
a registration and will include in such registration all Purchaser Registrable
Shares (subject to, and in accordance with, the priorities set forth in Sections
--------
2.2 and Section 2.3 below) with respect to which the Corporation has received
- --- -----------
written requests for inclusion within twenty (20) days after the Corporation's
notice. Notwithstanding the foregoing, if a Piggyback Registration is not an
underwritten registration, the Corporation shall not be required to include any
Purchaser Registrable Shares held by any Person in such Piggyback Registration
if such Person at the time of the filing of the registration statement for such
Piggyback Registration would be permitted to sell all of the Purchaser
Registrable Shares held by such Person, without registration, pursuant to Rule
144.
2.2 Priority on Non-Demand Registrations. If a Piggyback
------------------------------------
Registration is an underwritten registration on behalf of the Corporation that
does not constitute a "demand" registration required pursuant to an agreement
with the Corporation, and the managing underwriters advise the Corporation in
writing that in their opinion the number of shares of Common Stock requested to
be included in such registration exceeds the number which can be marketed (a) at
a price per share reasonably related to the then-current market value per share
of the Common Stock, and (b) without materially and adversely affecting the
entire offering, the Corporation will include in such registration up to the
amount determined advisable by the underwriters:
(i) first, the shares of Common Stock that the Corporation proposes to
sell;
(ii) second, the Purchaser Registrable Shares and the Other Registrable
Shares requested to be included in such registration, pro rata among the holders
--- ----
of such Purchaser Registrable Shares and Other Registrable Shares based on the
number of shares of Common Stock requested to be included in such registration
by the holders thereof; and
(iii) third, the Junior Preferred Shares and any other shares of Common
Stock held by stockholders of the Corporation which are not Other Registrable
Shares (including the Founders Shares), requested to be included in such
registration, pro rata among the holders of such Junior Preferred Shares and
--- ----
other shares on the basis of the number of shares which are owned by such
holders and requested to be included in such registration, or otherwise pursuant
to any contractual registration rights applicable to such shares.
2.3 Priority on Demand Registrations. If a Piggyback Registration is
--------------------------------
an underwritten registration pursuant to a demand for registration (other than a
Demand Registration under Section 3 hereof, the priority of which will be
---------
governed by Section 3.4 below) by holders of Other Registrable Shares and the
-----------
managing underwriters advise the Corporation in writing that in their opinion
the number of shares of Common Stock requested to be included in such
registration exceeds the number which can be marketed (a) at a price per share
reasonably related to the then-current market value per share of the Common
Stock, and (b) without materially and adversely affecting the entire offering,
the Corporation will include in such registration up to the amount determined
advisable by the underwriters:
-4-
<PAGE>
(i) first, (A) the shares of Common Stock requested to be included therein
by the holders of Other Registrable Shares on behalf of whom such registration
has been initially requested; (B) the Purchaser Registrable Shares requested to
be included in such registration by the holders of Purchaser Registrable Shares
hereunder; and (C) any securities that the Corporation proposes to sell, pro
---
rata, among the parties in clauses (A), (B) and (C)based on the number of shares
- ----
of Common Stock requested to be included in such registration by the holders
thereof; and
(ii) second, the Junior Preferred Shares and any other shares of Common
Stock held by stockholders of the Corporation which are not entitled to be pari
passu with the Purchaser Registrable Shares with respect to such registration
(including the Founders Shares), requested to be included in such registration,
pro rata among the holders of such Junior Preferred Shares and other shares on
- --- ----
the basis of the number of shares which are owned by such holders and requested
to be included in such registration, or otherwise pursuant to any contractual
registration rights applicable to such shares.
Without limiting this Section 2.3 or Section 2.2, (i) no Founders Shares
----------- -----------
shall be included in an underwritten registration by the Corporation unless all
of the Purchaser Registrable Shares requested to be included in such
registration pursuant to this Agreement are permitted to be included in such
registration, and (ii) no shares of Common Stock (including Founders Shares)
held by executive officers of the Corporation shall be included in an
underwritten registration if the managing underwriters advise the Corporation
that the inclusion of shares of Common Stock held by executive officers of the
Corporation will adversely affect the offering.
2.4 Right to Terminate Registration. The Corporation shall have the
-------------------------------
right to withdraw any registration initiated by it under this Section 2 prior to
---------
the effectiveness of such registration whether or not any holder of its
securities has elected to include securities in such registration.
3. Demand Registrations.
--------------------
3.1 Requests for Registration. The holders of the outstanding
-------------------------
Purchaser Registrable Shares may request registration under the Securities Act
(a "Demand Registration) of all or any portion of its Purchaser Registrable
-------------------
Shares on Form S-1 or any similar long-form registration ("Long-Form
---------
Registrations") or, if available, on Form S-2 or S-3 or any similar short-form
- -------------
registration ("Short-Form Registrations") at any time following the earlier of
------------------------ --------------
(a) six (6) months following the consummation by the Corporation of an IPO, and
---
(b) the third anniversary of the date hereof. Each request for a Demand
Registration shall specify the approximate number of Purchaser Registrable
Shares requested to be registered and the anticipated per share price range for
such offering. Within ten (10) days after receipt of any such request, the
Corporation will give written notice of such requested registration to all other
holders of Purchaser Registrable Shares and, subject to Section 3.4 below, will
-----------
include in such registration all Purchaser Registrable Shares with respect to
which the Corporation has received written requests for inclusion therein within
fifteen (15) days after the receipt of the Corporation's notice. Notwithstanding
anything to the contrary herein, if a Demand Registration would constitute an
IPO, the Corporation may elect to pre-empt such Demand Registration with a
primary registration by giving written notice to that effect within five (5)
days
-5-
<PAGE>
of determining the Purchaser Registrable Shares requested to be included in the
Demand Registration, in which case such registration would constitute a
Piggyback Registration to which the priorities in Section 2.2 would apply.
-----------
3.2 Long-Form Registrations. The holders of at least a majority of
-----------------------
the Purchaser Registrable Shares held by the Corporate Investors (as defined in
the Series D Stockholders Agreement dated as of the date hereof) will be
entitled to request one (1) Long-Form Registration and the holders of at least a
majority of the Purchaser Registrable Shares held by Financial Investors (as
defined in the Series D Stockholders Agreement dated as of the date hereof) will
be entitled to request one (1) Long-Form Registrations, in each case in which
the Corporation will pay all Registration Expenses. The holders of at least a
majority of the Purchaser Registrable Shares will be entitled to request
unlimited Long-Form Registrations in which the holders of Purchaser Registrable
Shares pay their share of Registration Expenses, as provided in Section 5. A
---------
registration will not count as one of the Corporation paid Long-Form
Registrations until it has become effective and unless the holders of Purchaser
Registrable Shares are able to register and sell at least eighty percent (80%)
of the Purchaser Registrable Shares initially requested to be registered;
provided that, in any event, the Corporation will pay all Registration Expenses
in connection with any registration initiated as a Corporation paid Long-Form
Registration whether or not it has become effective .
3.3 Short-Form Registrations. In addition to the Long-Form
------------------------
Registrations provided pursuant to Section 3.2, the holders of at least fifteen
-----------
percent (15%) of the Purchaser Registrable Shares will be entitled to request
unlimited Short-Form Registrations in which the Corporation will pay all
Registration Expenses. Demand Registrations will be Short-Form Registrations
whenever the Corporation is permitted to use any applicable short form. After
the Corporation has become subject to the reporting requirements of the Exchange
Act, the Corporation will use its best efforts to make Short-Form Registrations
available for the sale of Purchaser Registrable Shares.
3.4 Priority on Demand Registrations. The Corporation will not
--------------------------------
include in any Demand Registration any securities which are not Purchaser
Registrable Shares (except for Other Registrable Shares) without the prior
written consent of the holders of a majority of the Purchaser Registrable
Shares. If a Demand Registration is an underwritten offering and the managing
underwriters advise the Corporation in writing that in their opinion the number
of Purchaser Registrable Shares and, if permitted hereunder, other securities
requested to be included in such offering exceeds the number of Purchaser
Registrable Shares and other securities, if any, which can be sold in an orderly
manner in such offering within a price range acceptable to the holders of a
majority of the Purchaser Registrable Shares initially requesting registration,
the Corporation will include in such registration (i) first, the Purchaser
-----
Registrable Shares and Other Registrable Shares requested to be included in such
registration by the holders thereof, pro rata among such holders on the basis of
the number of shares of Purchaser Registrable Shares and Other Registrable
Shares requested to be included in such registration by the holders thereof, and
(ii) second, the other securities requested to be included in such registration
------
which in the opinion of such underwriters can be sold in an orderly manner
within the price range of such offering.
3.5 Restrictions on Demand Registrations. The Corporation will not
------------------------------------
be obligated to effect any Demand Registration within six months after the
effective date of a previous Demand
-6-
<PAGE>
Registration. The Corporation may postpone for up to ninety (90) days (but not
more than once in a six (6) month period) the filing or the effectiveness of a
registration statement for a Demand Registration if the Corporation's board of
directors determines that such Demand Registration is reasonably likely to have
an adverse effect on any proposal or plan by the Corporation or any of its
subsidiaries to engage in any acquisition of assets (other than in the ordinary
course of business) or any merger, consolidation, tender offer or any other
material financing or transaction; provided that, in such event, the holders of
Purchaser Registrable Shares initially requesting such Demand Registration will
be entitled to withdraw such request and, if such request is withdrawn, such
Demand Registration will not count as one of the Corporation paid Demand
Registrations hereunder and the Corporation will pay all Registration Expenses
in connection with such withdrawn registration.
3.6 Selection of Underwriters. The holders of a majority of the
-------------------------
Purchaser Registrable Shares initially requesting registration will have the
right to approve (which approval will not be unreasonably withheld) the
investment banker(s) and manager(s) selected by the Corporation's board of
directors to administer the offering.
3.7 Other Registration Rights. The Corporation will not grant to any
-------------------------
Persons the right to request the Corporation to register any equity securities
of the Corporation, or any securities convertible or exchangeable into or
exercisable for such securities, other than rights which are pari passu or
junior in all respects to the rights granted to the holders of Purchaser
Registrable Shares hereunder (including, without limitation, priority in any
registration by the Corporation), without the prior written consent of the
holders of (a) at least a majority of the outstanding Purchaser Shares held by
the Corporate Investors, and (b) a majority of the outstanding Purchaser Shares
held by the Financial Investors (as each such term is defined in the Series D
Stockholders Agreement dated as of the date hereof).
4. Registration Procedures. Whenever the holders of Purchaser Registrable
-----------------------
Shares have requested that any Purchaser Registrable Shares be registered
pursuant to this Agreement, the Corporation will use its reasonable best efforts
to effect the registration and sale of such Purchaser Registrable Shares in
accordance with the intended method of disposition thereof, and, pursuant
thereto, the Corporation will as expeditiously as reasonably possible:
(a) prepare and file with the Commission a registration
statement with respect to such Purchaser Registrable Shares and thereafter use
its reasonable best efforts to cause such registration statement to become and
remain effective for the period of the distribution contemplated thereby,
determined as hereinafter provided (provided that before filing a registration
statement or prospectus or any amendments or supplements thereto with respect to
a Demand Registration, the Corporation will furnish to the counsel selected by
the holders of a majority of the Purchaser Registrable Shares initiating such
registration statement copies of all such documents proposed to be filed, which
documents will be subject to review of such counsel);
(b) notify each holder of Purchaser Registrable Shares of the
effectiveness of each Registration Statement filed hereunder and prepare and
file with the Commission such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be necessary to
comply with the Securities Act; and, with respect to Demand
-7-
<PAGE>
Registrations, as may be necessary to keep such registration statement effective
for a period of either (i) not less than six months (subject to extension
pursuant to Section 8) or, if such registration statement relates to an
---------
underwritten offering, such period as in the opinion of counsel for the
underwriters a prospectus is required by law to be delivered in connection with
sales of Purchaser Registrable Shares by an underwriter or dealer or (ii) such
shorter period as will terminate when all of the securities covered by such
registration statement have been disposed of in accordance with the intended
methods of disposition by the seller or sellers thereof set forth in such
registration statement (but in any event not before the expiration of any longer
period required under the Securities Act), and to comply with the provisions of
the Securities Act with respect to the disposition of all securities covered by
such registration statement until such time as all of such securities have been
disposed of in accordance with the intended methods of disposition by the seller
or sellers thereof set forth in such registration statement;
(c) furnish to each seller of Purchaser Registrable Shares such
number of copies of such registration statement, each amendment and supplement
thereto, the prospectus(es) included in such registration statement (including
each preliminary prospectus) and such other documents as such seller may
reasonably request in order to facilitate the disposition of the Purchaser
Registrable Shares owned by such seller;
(d) notify each seller of such Purchaser Registrable Shares, at
any time when a prospectus relating thereto is required to be delivered under
the Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, contains
an untrue statement of a material fact or omits any fact necessary to make the
statements therein not misleading in light of the circumstances under which they
were made, and, at the request of any such seller, the Corporation will prepare
a supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Purchaser Registrable Shares, such prospectus will not
contain any untrue statement of a material fact or omit to state any fact
necessary to make the statements therein not misleading in light of the
circumstances under which they were made (and such sellers shall suspend the use
of the prospectus until the requisite changes thereto have been made);
(e) use its reasonable best efforts to cause all such Purchaser
Registrable Shares to be listed on each securities exchange or market on which
the Common Stock is then listed;
(f) use its reasonable best efforts to cause such Purchaser
Registrable Shares to be registered or qualified with or approved by such other
governmental agencies or authorities in such jurisdictions as may be necessary
to consummate the disposition of such Purchaser Registrable Shares;
(g) provide a transfer agent and registrar for all such
Purchaser Registrable Shares not later than the effective date of such
registration statement;
-8-
<PAGE>
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take such other actions as are reasonably
required in order to expedite or facilitate the disposition of such Purchaser
Registrable Shares;
(i) make available for inspection by any seller of Purchaser
Registrable Shares, any underwriter participating in any disposition pursuant to
such registration statement, and any attorney, accountant or other agent
retained by any such seller or underwriter, all financial and other records,
pertinent corporate documents and properties of the Corporation, and cause the
Corporation's officers, directors, employees and independent accountants to
supply all information reasonably requested by any such seller or underwriter,
attorney, accountant or agent in connection with such registration statement;
(j) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months beginning with the first day of
the Corporation's first full calendar quarter after the effective date of the
registration statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act and Rule 158 thereunder;
(k) advise each seller of such Purchaser Registrable Shares,
promptly after it shall receive notice or obtain knowledge thereof, of the
issuance of any stop order by the Commission suspending the effectiveness of
such registration statement or the initiation or threatening of any proceeding
for such purpose and promptly use its reasonable best efforts to prevent the
issuance of any stop order or to obtain its withdrawal if any such stop order
shall be issued (and, if such stop order shall be issued, such sellers shall
suspend the use of the prospectus until it shall be withdrawn);
(l) at the request of the managing underwriters in connection
with an underwritten offering, furnish on the date or dates provided for in the
underwriting agreement (i) an opinion of counsel, addressed to the underwriters
and, if permitted by applicable professional standards, to the sellers of
Purchaser Registrable Shares, covering such matters as such underwriters and
sellers may reasonably request, including such matters as are customarily
furnished in connection with an underwritten offering; and (ii) a letter or
letters from the independent certified public accountants of the Corporation
addressed to the underwriters and, if permitted by applicable professional
standards, to the sellers of Purchaser Registrable Shares, covering such matters
as such underwriters or sellers may reasonably request, in which letter(s) such
accountants shall state, without limiting the generality of the foregoing, that
they are independent certified public accountants within the meaning of the
Securities Act and that in their opinion the financial statements and other
financial data of the Corporation included in the registration statement, the
prospectus(es), or any amendment or supplement thereto, comply in all material
respects with the applicable accounting requirements of the Securities Act; and
Notwithstanding any provision of this Section 4 to the contrary, the
---------
Corporation shall not be required to amend or supplement a prospectus if such
amendment of supplement would require the Corporation to disclose a material
financing, acquisition or other transaction then being pursued
-9-
<PAGE>
by the Corporation and the Executive Committee of the Board of Directors of the
Corporation shall determine in good faith that such disclosure is not in the
best interests of the Corporation or would interfere with such transaction;
provided that the Corporation shall give immediate notice thereof to holders of
Purchaser Registrable Shares.
For purposes of Section 4(a) and Section 4(b), the period of distribution
------------ ------------
of Purchaser Registrable Shares in a firm commitment underwritten public
offering shall be deemed to extend until each underwriter has completed the
distribution of all securities purchased by it, and the period of distribution
of Purchaser Registrable Shares in any other registration shall be deemed to
extend until the earlier of (i) the sale of all Purchaser Registrable Shares
covered thereby and (ii) the end of the period of distribution for the holders
of its shares of Common Stock on whose behalf the registration has been made.
5. Registration Expenses.
---------------------
5.1 Corporation's Expenses. All expenses incident to the
----------------------
Corporation's performance of or compliance with this Agreement, including
without limitation all registration and filing fees, fees and expenses of
compliance with securities or blue sky laws, listing fees, printing expenses,
messenger and delivery expenses, and fees and disbursements of counsel for the
Corporation and all independent certified public accountants, underwriters
(excluding discounts and commissions) and other Persons retained by the
Corporation (all such expenses being herein called "Registration Expenses")
shall be borne by the Corporation.
5.2 Reimbursement. In connection with each Demand Registration, the
-------------
Corporation will reimburse the holders of Purchaser Registrable Shares covered
by such registration for the reasonable fees and disbursements of one counsel
chosen by the holders of a majority of the Purchaser Registrable Shares
initially requesting such registration. In connection with each Demand
Registration and each Piggyback Registration, the Corporation shall reimburse
the holders of Purchaser Registrable Shares included in such registration for
the reasonable fees and disbursements of each additional counsel retained by any
holder of Purchaser Registrable Shares for the purpose of rendering any legal
opinion required by the Corporation or the managing underwriter(s) to be
rendered on behalf of such holder in connection with any underwritten Demand
Registration or Piggyback Registration.
5.3 Holder's Expenses. Notwithstanding anything to the contrary
-----------------
contained herein, each holder of Purchaser Registrable Shares shall bear and pay
all underwriting discounts and commissions and transfer taxes applicable to the
Purchaser Registrable Shares sold for such holder's account.
-10-
<PAGE>
6. Indemnification.
---------------
6.1 By the Corporation. The Corporation agrees to indemnify, to the
------------------
extent permitted by law, each holder of Purchaser Registrable Shares, its
managers, officers and directors and each Person who controls such holder
(within the meaning of the Securities Act) against all losses, claims, damages,
liabilities and expenses (including without limitation, attorneys' fees)
("Liabilities") caused by any untrue or alleged untrue statement of material
------------
fact contained in any registration statement, prospectus or preliminary
prospectus, or any amendment thereof or supplement thereto, or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, except insofar as the same are
caused by or contained in any information furnished in writing to the
Corporation by such holder expressly for use therein or by such holder's failure
to deliver a copy of the registration statement or prospectus or any amendments
or supplements thereto after the Corporation has furnished such holder with a
sufficient number of copies of the same. In connection with an underwritten
offering, the Corporation shall indemnify such underwriters, their officers and
directors and each Person who controls such underwriters (within the meaning of
the Securities Act) to the same extent as provided above with respect to the
indemnification of the holders of Purchaser Registrable Shares. The payments
required by this Section 6.1 will be made periodically during the course of the
-----------
investigation or defense, as and when bills are received or expenses incurred.
6.2 By Each Holder. In connection with any registration statement in
--------------
which a holder of Purchaser Registrable Shares is participating, each such
holder shall furnish to the Corporation in writing such information and
affidavits as the Corporation reasonably requests for use in connection with any
such registration statement or prospectus and, to the extent permitted by law,
shall indemnify the Corporation, its directors and officers and each Person who
controls the Corporation (within the meaning of the Securities Act) against any
Liabilities resulting from any untrue or alleged untrue statement of material
fact contained in the registration statement, prospectus or preliminary
prospectus, or any amendment thereof or supplement thereto, or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, but only to the extent that such
untrue statement or omission is contained in any information or affidavit so
furnished in writing by such holder expressly for use in such registration
statement or prospectus; provided that the obligation to indemnify under this
Section 6.2 or to contribute under Section 6.4 below will be several, not joint
- ----------- -----------
and several, among such holders of Purchaser Registrable Shares, and the
liability of each such holder of Purchaser Registrable Shares under this Section
-------
6.2 and under Section 6.4 shall be limited to the net amount received by such
- --- -----------
holder from the sale of Purchaser Registrable Shares pursuant to such
registration statement.
6.3 Procedure. Any Person entitled to indemnification hereunder shall
---------
(i) give prompt written notice to the indemnifying party of any claim with
respect to which it seeks indemnification (provided that the failure to give
prompt notice shall not impair any Person's right to indemnification hereunder
to the extent such failure has not prejudiced the indemnifying party) and (ii)
unless in such indemnified party's reasonable judgment a conflict of interest
between such indemnified and indemnifying parties may exist with respect to such
claim, permit such indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to the
-11-
<PAGE>
indemnified party. If such defense is assumed, the indemnifying party will not
be subject to any liability for any settlement made by the indemnified party
without its consent (but such consent will not be unreasonably withheld). An
indemnifying party who is not entitled to, or elects not to, assume the defense
of a claim will not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with respect to
such claim, unless in the reasonable judgment of any indemnified party a
conflict of interest may exist between such indemnified party and any other of
such indemnified parties with respect to such claim.
6.4 Contribution. To the extent any indemnification by an
------------
indemnifying party provided for in this Section 6 is prohibited or limited by
---------
law, the 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 Liabilities in such proportion as is appropriate to reflect the
relative fault of the indemnifying party and the indemnified party in connection
with the statements or omissions which resulted in such Liabilities, as well as
any other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified party shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of material
fact or omission or alleged omission to state a material fact, has been made by,
or relates to information supplied by, such indemnifying party or indemnified
party, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 6.4 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;
provided that the limits in the final proviso of Section 6.2 shall apply to this
-----------
Section 6.4. No Person guilty of fraudulent misrepresentation (within the
- -----------
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
6.5 Other Indemnification Provisions. The indemnification and
--------------------------------
contribution provided for under this Agreement will remain in full force and
effect regardless of any investigation made by or on behalf of the indemnified
party or any officer, director or controlling Person of such indemnified party
and will survive the transfer of securities.
7. Compliance with Rule 144. In the event that the Corporation (a)
------------------------
registers a class of securities under Section 12 of the Exchange Act, (b) issues
an offering circular meeting the requirements of Regulation A under the
Securities Act, or (c) commences to file reports under Section 13 or 15(d) of
the Exchange Act, then at the request of any holder who proposes to sell
securities in compliance with Rule 144 of the Commission, the Corporation will
(i) forthwith furnish to such holder, upon request, a written statement of
compliance with the filing requirements of the Commission as set forth in Rule
144, as such rule may be amended from time to time, and (ii) use its reasonable
best efforts to make available to the public and such holders such information
as will enable the holders to make sales pursuant to Rule 144.
-12-
<PAGE>
8. Participation in Underwritten Registrations. No Person may
-------------------------------------------
participate in any registration hereunder which is underwritten unless such
Person (a) agrees to sell its shares of Common Stock on the basis provided in
any underwriting arrangements approved by the Corporation or any other Person or
Persons entitled to approve such arrangements, and (b) completes and executes
all questionnaires, powers of attorney, custody agreements, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrange ments. Each Person that is participating in any
registration hereunder agrees that, upon receipt of any notice from the
Corporation of the happening of any event of the kind described in Section 4(d)
------------
above, such Person will forthwith discontinue the disposition of its Purchaser
Registrable Shares pursuant to the registration statement until such Person's
receipt of the copies of a supplemented or amended prospectus as contemplated by
such Section 4(d). In the event the Corporation shall give any such notice, the
------------
applicable time period mentioned in Section 4(b) during which a registration
------------
statement is to remain effective shall be extended by the number of days during
the period from and including the date of the giving of such notice pursuant to
this Section 8 to and including the date when each seller of Purchaser
---------
Registrable Shares covered by such registration statement shall have received
the copies of the supplemented or amended prospectus contemplated by Section
-------
4(d).
- ----
9. Holdback Agreements. Each holder of Purchaser Registrable Shares
-------------------
agrees not to effect any public sale or distribution of equity securities of the
Corporation, or any securities convertible into or exchangeable or exercisable
for such securities, (i) during the seven (7) days prior to, and during the one
hundred and eighty (180) days following, the effective date of an IPO (except as
part of such underwritten registration), or (ii) during the seven (7) days prior
to and during the ninety (90) days following the effective date of any
underwritten Public Offering, other than an IPO, (except as part of such
underwritten registration), in the case of each of Section 9(i) and Section
------------ -------
9(ii) unless the underwriters managing the Public Offering otherwise agree to a
- -----
shorter period and unless any of the holders of Founders Shares, directors,
officers and/or 5% shareholders of the Corporation are subject to a shorter
period. Each holder of Purchaser Registrable Shares agrees to enter into
customary lock-up agreements consistent with the foregoing if requested by any
underwriter of any such Public Offering.
10. Miscellaneous.
-------------
10.1 Assignment of Registration Rights. The registration rights of any
---------------------------------
Purchaser under this Agreement with respect to any Purchaser Registrable Shares
may be assigned to any Person who acquires such Purchaser Registrable Shares;
provided that (a) the assigning Purchaser shall give the Corporation written
- --------
notice at or prior to the time of such assignment stating the name and address
of the assignee and identifying the shares with respect to which the rights
under this Agreement are being assigned; (b) such assignee shall agree in
writing, in form and substance reasonably satisfactory to the Corporation, to be
bound as a Purchaser by the provisions of this Agreement; and (c) immediately
following such assignment the further disposition of such securities by such
assignee is restricted under the Securities Act.
-13-
<PAGE>
10.2 No Inconsistent Agreements. The Corporation is not a party to
--------------------------
and will not hereafter enter into any agreement with respect to its securities
which is inconsistent with or violates the rights granted to the holders of
Purchaser Registrable Shares in this Agreement.
10.3 Adjustments Affecting Purchaser Registrable Shares. The
--------------------------------------------------
Corporation will not take any action, or permit any change to occur, with
respect to its securities which would materially and adversely affect the
ability of the holders of Purchaser Registrable Shares to include such Purchaser
Registrable Shares in a registration undertaken pursuant to this Agreement or
which would adversely affect the marketability of such Purchaser Registrable
Shares in any such registration (including, without limitation, effecting a
stock split or a combination of shares).
10.4 Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto will bind and inure to the benefit of the
respective permitted successors and assigns of the parties hereto, whether so
expressed or not.
10.5 Severability. Whenever possible, each provision of this Agreement
------------
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
this Agreement.
10.6 Descriptive Headings. The descriptive headings of this Agreement
--------------------
are inserted for convenience of reference only and do not constitute a part of,
and shall not be utilized in interpreting, this Agreement.
10.7 Notices. Any notices required or permitted to be sent hereunder
-------
shall be delivered personally or mailed, certified mail, return receipt
requested, or delivered by overnight courier service to the following addresses,
or such other address as any party hereto designates by written notice to the
Corporation, and shall be deemed to have been given upon delivery, if delivered
personally, three days after mailing, if mailed, or one business day after
delivery to the courier, if delivered by overnight courier service:
If to the Corporation, to:
divine interVentures, inc.
4225 Naperville Road
Suite 400
Lisle, Illinois 60532
Attention: General Counsel
-14-
<PAGE>
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661
Attention: Matthew S. Brown, Esq.
If to the Purchasers or other holders of Purchaser Registrable Shares, to
the addresses set forth in the stock records of the Corporation.
10.8 Governing Law. All questions concerning the construction,
-------------
validity and interpretation of this Agreement, and the performance of the
obligations imposed by this Agreement, shall be governed by the laws of the
State of Delaware applicable to contracts made and wholly to be performed in
that state.
10.9 Amendments and Waivers. The provisions of this Agreement may be
----------------------
amended upon the written agreement of the Corporation and the holder or holders
of (a) at least a majority of the outstanding Purchaser Shares held by the
Corporate Investors, and (b) a majority of the outstanding Purchaser Shares held
by the Financial Investors (as each such term is defined in the Purchase
Agreement). Any waiver, permit, consent or approval of any kind or character on
the part of any holders of any provision or condition of this Agreement must be
made in writing and shall be effective only to the extent specifically set forth
in writing.
10.10 Final Agreement. This Agreement, constitutes the complete and
---------------
final agreement of the parties concerning the matters referred to herein and
supersedes all prior agreements and understandings.
10.11 Execution. This Agreement may be executed in any number of
---------
counterparts, each of which when so executed and delivered shall be deemed an
original, and such counterparts together shall constitute one instrument.
10.12 No Strict Construction. The language used in this Agreement will
----------------------
be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction will be used against any
party.
<PAGE>
SCHEDULE OF PURCHASERS
----------------------
Frontenac VII Limited Partnership
Frontenac Masters VII Limited Partnership
First Chicago Investment Corporation
Cross Creek Partners X, LLC
Mesirow Capital Partners VII
Sumitomo Corporation of America
Sumitomo Corporation
Microsoft Corporation
Dell USA L.P.
CBW/SK divine Investments
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
DIVINE INTERVENTURES, INC.
By: /s/ Michael P. Cullinane
--------------------------
Michael P. Cullinane
Executive Vice President
(SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT)
<PAGE>
FRONTENAC VII LIMITED PARTNERSHIP
By: Frontenac Company VII, L.L.C.
Its: General Partner
By: /s/ Jeremy Silverman
----------------------
Its: Member
---------------------
FRONTENAC MASTERS VII LIMITED PARTNERSHIP
By: Frontenac Company VII, L.L.C.
Its: General Partner
By: /s/ Jeremy Silverman
----------------------
Its: Member
---------------------
(SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT)
<PAGE>
FIRST CHICAGO INVESTMENT CORPORATION
By: /s/ Eric C. Larson
----------------------------
Its: Attorney In Fact
---------------------------
CROSS CREEK PARTNERS X, LLC
By: /s/ Eric C. Larson
----------------------------
Its: General Partner
---------------------------
(SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT)
<PAGE>
MICROSOFT CORPORATION
By: /s/ Greg Moffei
----------------------------
Its: Chief Financial Officer
---------------------------
(SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT)
<PAGE>
MESIROW CAPITAL PARTNERS VII,
an Illinois Limited Partnership
By: Mesirow Financial Services, Inc.
Its: General Partner
By: /s/ Daniel P. Howell
----------------------
Daniel P. Howell
Vice President
(SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT)
<PAGE>
SUMITOMO CORPORATION
By: /s/ Isao Momota
------------------------
Its: Financial Investor
----------------------
Isao Momota
Media Division
(SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT)
<PAGE>
SUMITOMO CORPORATION OF AMERICA
By: /s/ Kotaro Nakata
------------------------
Its:Kotaro Nakata
----------------------
Vice President,
Investment Management
(SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT)
<PAGE>
DELL USA L.P.
By: Dell Gen. P. Corp.
Its: General Partner
By: /s/ Alex C. Smith
------------------------------
Name: Alex C. Smith
----------------------------
Title: VP. Business Development
---------------------------
(SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT)
<PAGE>
CBW/SK DIVINE INVESTMENTS,
a New York general partnership
By: /s/ Sanjay Kumar
-------------------------------
Sanjay Kumar, a General Partner
(SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT)
<PAGE>
Exhibit 10.13
Consulting and Non-Compete Agreement, dated as of March 29, 1999 (the
"Agreement"), by and between PLATINUM technology International, inc.,
a Delaware corporation (the "Company"), and Andrew J. Filipowski (the
"Consultant").
The Company is intending to enter into a Merger Agreement with Computer
Associates International, Inc. (the "Merger Agreement"), pursuant to which the
Company will become a subsidiary of Computer Associates International, Inc. The
Consultant is a senior executive of the Company, has unique knowledge of the
Company's business and has occupied a position of trust and confidence. The
Company and the Consultant desire that, effective upon the Merger (as defined in
the Merger Agreement), the Consultant will continue as a consultant to the
Company and will agree to refrain from competing with the Company all as set
forth in this Agreement.
In consideration of the mutual agreements, the Consultant and the Company
agree as follows:
1. Services. For the Consulting Period (as defined in Section 2), the
Consultant shall provide from time to time and as requested by the Company the
consulting services set forth in Schedule A (the "Services"). The Consultant
shall report to the President of Computer Associates International, Inc. The
Consultant shall devote such time and energy to the business of the Company as
reasonably required to perform the Services; the parties agree that the
performance of the Services is not intended to require full time effort (and the
Consultant is free to take other full time employment not inconsistent with the
terms of this Agreement). The Company shall not require the Consultant to
travel a greater amount than in connection with his current employment.
2. Term. The Consultant and the Company agree that the consulting period
(the "Consulting Period") begins on the Effective Date (as defined in Section 7)
and ends on the second anniversary of the Effective Date. The Consultant
acknowledges that the Consulting Period may be terminated at any time, with or
without cause or for any or no reason, at the option either of the Company or
the Consultant, on 30 days written notice, as provided in Section 4.
3. Consulting Fee. Commencing on the Effective Date, the Company shall
pay the Consultant a consulting fee at the annual rate of $1,000,000, payable
quarterly in arrears. The Company shall reimburse Consultant for all reasonable
costs and expenses incurred in connection with Consultant's performance of the
Services.
4. Termination. (a) Termination without Cause. If the Company
terminates the Consulting Period without Cause prior to the second anniversary
of the Effective Date, the Consultant shall be entitled to continued payment of
all consulting fees.
(b) Termination for Cause. If (i) the Company terminates the
Consulting Period at any time for Cause, or (ii) the Consultant terminates the
Consulting Period at any time, the Consultant shall be entitled to receive the
consulting fees paid through the date of termination. "Cause" shall mean (A) the
Consultant's material breach of any material term of this Agreement, including,
but not limited to, the covenants set forth in Section 5 hereof, subject to the
Consultant's right to cure any breach that is curable within a reasonable period
following notice
<PAGE>
by the Company, (B) the Consultant's conviction of a felony, or (C) any willful
misconduct by the Consultant resulting in substantial loss to the Company,
substantial damage to the Company's reputation or judicially determined theft or
misappropriation from the Company.
(c) Termination upon Death or Disability. If the Consultant dies or
becomes Disabled, in which event the Consulting Period shall terminate, the
Consultant (or, in the case of death, his estate), shall be entitled to
continued payment of all consulting fees as death or disability benefits.
"Disabled" shall mean the Consultant's adjudication as mentally incompetent, or
the occurrence of a mental or physical disability for 120 or more days within
any calendar year. Any question as to the existence of his disability as to
which the Consultant and the Company cannot agree shall be determined in writing
by a qualified independent physician mutually acceptable to the Consultant and
the Company. If the Consultant and the Company cannot agree on a qualified
independent physician, each shall appoint such a physician and those two
physicians shall select a third who shall make such determination in writing.
The determination of disability made in writing to the Consultant and the
Company shall be final and conclusive for all purposes.
(d) General. Upon the termination of the Consulting Period, for any
reason, (i) the Company shall have no further obligations to the Consultant
hereunder, other than as specifically set forth in this Agreement and (ii) the
Consultant shall continue to be bound (subject to the time periods and
limitations set forth herein) by the terms of this Agreement other than Section
1. Confidential Information shall remain confidential under Section 5(c) for so
long as such information is "Confidential Information".
5. Non-Competition; Confidentiality; Payments. (a) In consideration
for, and as a condition to, the Company's payment of the non-compete payment and
entering into this Agreement, and in connection with the merger described
herein, until the eighth anniversary of the Effective Date, the Consultant will
not directly or indirectly, on Consultant's own behalf or in the service of or
on behalf of any other individual or entity, either as a proprietor, employee,
agent, independent contractor, consultant, director, officer, partner or
stockholder (other than a stockholder of a corporation listed on a national
securities exchange or whose stock is regularly traded in the over-the-counter
market, provided that the Consultant at no time owns, directly or indirectly, in
excess of 2% of the outstanding stock of any class of any such corporation):
(i) participate or engage in any activities or business developing,
manufacturing, marketing or distributing any products or services offered
by the Company on the date of this Agreement, or any products or services
offered by the Company in the future and in which the Consultant actively
participated, recognizing that the Company offers products and services
globally ("Competitive Activities"), including, without limitation, (A)
selling goods or rendering services of the type (or similar to the type)
sold or rendered by the Company, whether by means of electronic,
traditional or other form of commerce; (B) soliciting any person or entity
that is a current customer, that has been a customer within the past three
years or that is or was a prospective customer prior to or during the
Consulting Period, in each case, of the Company or an affiliate of the
Company (provided that it shall not be deemed a breach of this Agreement if
the Consultant solicits such customers for goods or services unrelated to
the Competitive Activities), (C) assisting
2
<PAGE>
any person in any way to do, or attempt to do, anything prohibited by
clauses (A) or (B) above and (D) be employed by any person or entity that
has received services of the type described above from the Consultant or
with which the Consultant otherwise had material contact while employed by
the Company or which received services of the type described above from any
office or employee of the Company over which Consultant had management
responsibility, in either case to provide or supervise, directly or
indirectly, the services comprising a Competitive Activity; or
(ii) perform any action, activity or course of conduct which is
detrimental in any material respect to the businesses or business
reputation of the Company (or any of its affiliates), including without
limitation (A) soliciting, recruiting or hiring any employees of the
Company (or any of its affiliates) or persons who have worked for the
Company (or any of its affiliates) at any time since January 1, 1998;
provided that the Consultant may hire any employee of the Company (I) that
has been terminated by the Company, (II) in connection with a business
that is not a Competitive Activity (including any VC Business that is not a
Competitive Activity), but Consultant may not solicit or recruit for such
purposes, or (III) to work in a VC Business (as hereinafter defined), but
not to work in or for any company in which any VC Business invests or
otherwise acquires an interest, and (B) soliciting or encouraging any
employee of the Company (or any of its affiliates) to leave the employment
of the Company.
(b) Notwithstanding anything to the contrary herein, Consultant may
remain a director at those companies for which Consultant is a director as of
the Effective Date and may engage in any activities or businesses:
(i) involving venture capital activities (a "VC Business"), including,
without limitation, activities undertaken through Platinum Venture Partners
or any similar entities as may be formed in the future, holding
directorships, and through such partnerships exercising veto power over
certain decisions in companies in which venture capital investments have
been made; provided that the Consultant shall not without permission in any
such venture invest in any company whose primary business is a Competitive
Activity; or
(ii) for which the Company has given permission in writing, which
shall not be unreasonably withheld (or delayed) after the fifth anniversary
of the Effective Date, provided Consultant's engaging in such activities or
business would not have a material adverse impact on any of the Company's
lines of business; or
(iii) which Computer Associates International, Inc. shall have
confirmed (which confirmation shall not be unreasonably withheld or
delayed) in writing to Consultant are not inconsistent with the
prohibitions of Sections 5(a) and 5(b) hereof.
(c) The Consultant shall not, without the written consent of the
Company, disclose to any other person or use, whether directly or indirectly,
any Confidential Information relating to or used by the Company or any of its
affiliates, whether in written, oral or other form,
3
<PAGE>
except in connection with the performance of his duties hereunder. "Confidential
Information" shall mean information about the Company or any of its affiliates,
and their clients and customers that is not disclosed by the Company or any of
its affiliates for financial reporting purposes and that was learned by the
Consultant in the course of employment by the Company or any of its affiliates
or in the course of performing the services under this Agreement, including
(without limitation) any proprietary knowledge, product and service designs,
trade secrets, manuals, technical information and plans, contracts, systems,
procedures, databases, electronic files, disks and printouts, correspondence,
internal reports, personnel files, information about employees of the Company
and its affiliates relating to their education, experience, skills, abilities,
compensation and benefits, and inter-personal relationships with suppliers to
and customers of the Company and its affiliates, sales and advertising material,
business plans, marketing plans, financial data (including without limitation
the revenues, costs or profits associated with services), customer and industry
lists, customer information, customer lists coupled with product or service
pricing, customer contacts, supplier contacts and other contact information,
pricing policies, supplies, agents, risk analyses, engineering information and
computer reports, computer software, computer systems, computer formats,
computer screen designs and computer input and output specifications, inclusive
of any pertinent documentation, techniques, processes, technical information and
know-how. The Consultant acknowledges that such Confidential Information is
specialized, unique in nature and of great value to the Company and its
affiliates, and that such information gives the Company and its affiliates a
competitive advantage. The Consultant's obligations under this Section 5(b)
shall survive the termination of the Consulting Period and of this Agreement and
shall be fully enforceable thereafter in accordance with the terms of this
Agreement.
(d) (i) Confidential Information does not include information which
(A) is or becomes part of the public domain other than as a result of the
Consultant's disclosure, or (B) becomes available to the Consultant on a
nonconfidential basis from a source other than the Company, provided that source
is not bound with respect to that information by a confidentiality agreement
with the Company or otherwise prohibited from transmitting that information by a
contractual, legal or other obligation.
(ii) If the Consultant is requested or (in the opinion of his
counsel) required by law or judicial order to disclose any Confidential
Information, the Consultant shall provide the Company with prompt notice of any
such request or requirement so that the Company may seek an appropriate
protective order or waiver of the Consultant's compliance with the provisions of
this Section 5(c). The Consultant will not oppose any reasonable action by, and
will cooperate with, the Company to obtain an appropriate protective order or
other reliable assurance that confidential treatment will be accorded the
Confidential Information. If, failing the entry of a protective order or the
receipt of a waiver hereunder, the Consultant is, in the opinion of his counsel,
compelled by law to disclose a portion of the Confidential Information, the
Consultant may disclose to the relevant tribunal without liability hereunder
that portion of the Confidential Information which counsel advises the
Consultant he is legally required to disclose, and each of the parties hereto
agrees to exercise such party's best efforts to obtain assurance that
confidential treatment will be accorded such Confidential Information.
4
<PAGE>
(e) If an award by a court or arbitration panel declares that any term
or provision of this Section 5 is excessive in duration or scope or is
unreasonable or unenforceable, the parties agree that the court or arbitration
panel making such determination shall have the power to reduce the scope,
duration or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified.
(f) In the event of a breach or threatened breach by the Consultant of
the provisions of this Section 5, the Consultant acknowledges that the Company
will suffer irreparable injury and may not have an adequate remedy at law and
therefore may be entitled to a temporary restraining order or a preliminary or
permanent injunction restraining the Consultant from such breach without the
requirement of posting security or proving actual damages as well as an
equitable accounting of all profits or benefits arising out of such violation.
In addition, in the event of a breach (that is not immaterial) at any time by
the Consultant of the provisions of this Section 5, the Consultant agrees as
liquidated damages hereunder to repay the full amount of the non-compete
payments made pursuant to Section 5(g). Nothing contained in this Section 5 or
elsewhere in this Agreement shall be construed as prohibiting the Company from
pursuing any other remedies available at law or equity for such breach or
threatened breach by the Consultant.
(g) In consideration of the Consultant's covenants under this Section
5, the Company shall pay the Consultant a non-compete payment at the annual rate
of $3,000,000 in the first year, $3,000,000 in the second year, $4,000,000 in
the third year, $4,000,000 in the fourth year, $3,000,000 in the fifth year,
$3,000,000 in the sixth year, $2,000,000 in the seventh year and $1,000,000 in
the eighth year, quarterly in arrears, commencing on the Effective Date.
(h) By executing this Agreement, Consultant assigns and transfers to
the Company all his right, title, and interest in and to all intellectual
property created, developed, conceived, or reduced to practice while employed as
a Consultant by the Company or its predecessor(s) arising in connection with the
Services. While he is employed by the Company and when he ceases to be employed
by the Company, Consultant shall fully and promptly disclose in writing to the
Company, and hold in trust for the sole right and benefit of the Company, all
ideas, plans, designs, methods, techniques, discoveries, inventions,
developments, improvements, trade secrets, computer programs and software, and
other proprietary data, records, and information that Consultant solely or
jointly develops or reduces to practice while employed by, and arising in
connection with the Services to, the Company (collectively "Intellectual
Property"), whether or not patentable or capable of copyright or trademark
registration, and whether or not created, conceived, developed, or reduced to
practice at the request of the Company or during normal working hours. While
employed by the Company and at all times thereafter, Consultant shall do all
things, and execute all documents (including applications for patents,
copyrights, and trademarks, and for renewals, extensions, and divisions
thereof), that are requested and reasonably required by the Company to create,
enforce, or evidence the Company's rights to any Intellectual Property.
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6. Cooperation. (a) The Consultant agrees to cooperate with the Company
at all times (including following termination of the Consulting Period for any
reason) by making himself reasonably available to testify on behalf of the
Company or its affiliates, in any action, suit or proceeding, whether civil,
criminal, administrative, or investigative and to assist the Company or any of
its affiliates in any such action, suit, or proceeding by providing information
and meeting and consulting with the Company or representatives or counsel to the
Company or its affiliates, as reasonably requested by such representatives or
counsel. The Consultant shall be reimbursed by the Company for any expenses
(including, but not limited to, legal fees) reasonably incurred by the
Consultant in connection with his compliance with the foregoing covenant.
(b) Consultant shall fully cooperate with the Company and Computer
Associates International, Inc. in connection with filings under the Hart-Scott-
Rodino Antitrust Improvements Act of 1978 and in connection with resolving any
investigation or other inquiry of any governmental entity under the antitrust
laws.
(c) In the event the Company fails to observe the requirements of
Section 5.1 of the Merger Agreement, whether or not enforceable or in force
under such agreement, and the aggregate loss or damage is greater than
$1,500,000, then the Consultant shall be liable for 47% of each dollar of
liability under this Section 6 (including, without limitation, forfeitures under
Section 6(d)) for such failure in excess of $1,500,000. The maximum amount of
liability under this Section for the Consultant shall be an amount equal to the
sum of the total payments under this Agreement and the value of the 675,000
options issued to the Consultant in 1999.
(d) The Consultant agrees that, in the event the Department of Justice
or other governmental entity causes a delay in the closing of the Merger, with
his approval, the Company has amended the terms of the grant of 675,000 options
in 1999 to include the following terms:
. None of the options shall be exercisable as of the Effective Date
. if all antitrust issues with the Department of Justice or other
governmental entity to permit the completion of the Merger shall
have been resolved within the four months following the
substantial compliance by Computer Associates International, Inc.
and the Company with respect to the Hart-Scott-Rodino Act of 1978
as provided in Section 7.1(e)(i), all options shall become
exercisable within one (1) year but in no event less than ninety
(90) days after the Effective Date if Company has not terminated
the Consulting Period for Cause, and Consultant has satisfied the
non-competition provisions contained herein
. if all antitrust issues with the Department of Justice or other
governmental entity to permit the completion of the Merger shall
have been resolved within the period described in Section 7.1
(e)(iii) of the Merger Agreement, 50% of the options shall become
exercisable within one (1) year but in no event less than ninety
(90) days after the Effective Date if Company has not terminated
the Consulting Period for Cause, and Consultant has satisfied
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the non-competition provisions contained herein, and the
balance shall be forfeited
. if all antitrust issues with the Department of Justice or other
governmental entity to permit the completion of the Merger shall
have been resolved within the period described in Section 7.1
(e)(iv) of the Merger Agreement, 25% of the options shall become
exercisable within one (1) year but in no event less than ninety
(90) days after the Effective Date if Company has not terminated
the Consulting Period for Cause, and Consultant has satisfied the
non-competition provisions contained herein, and the balance
shall be forfeited.
7. Conditions to Effectiveness. The Effective Date of this Agreement
(the "Effective Date") shall be the date that the merger of the Company and a
wholly-owned subsidiary of Computer Associates International, Inc., becomes
effective pursuant to the Merger Agreement. In the event the Merger Agreement
terminates, this Agreement shall terminate.
8. Duties on Termination. At the Company's request at any time or upon
termination of the Consulting Period for any reason, the Consultant agrees to
deliver promptly to the Company all notebooks, documents, memoranda, reports,
files, samples, books, correspondence, lists, computer tapes or disks, or other
written or graphic records, and the like (and all copies thereof), from the
Company's business, which are or have been in his possession or under his
control.
9. Severability. In the event that any one or more of the provisions of
this Agreement shall be or become invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
of this Agreement shall not be affected thereby.
10. Notices. All notices and other communications under this Agreement
shall be in writing and shall be given by first-class mail, certified or
registered with return receipt requested, by reputable overnight carrier or hand
delivery acknowledged in writing by the recipient personally, and shall be
deemed to have been duly given three days after mailing or immediately upon duly
acknowledged hand delivery to the respective persons named below:
If to the Company: PLATINUM technology International, inc.
1815 South Meyers Road
Oakbrook Terrace, Illinois 60181
Attention: Andrew J. Filipowski
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with a copy to:
Computer Associates International, Inc.
One Computer Associates Plaza
Islandia, New York 11788-7000
Attention: Sanjay Kumar
President and Chief Operating Officer
If to the Consultant:
Andrew J. Filipowski
1815 South Meyers Road
Oakbrook Terrace, IL 60181
Either party may change such party's address for notices by notice duly given
pursuant hereto.
11. Governing Law. This agreement and the legal relations thus created
between the parties hereto shall be governed by and construed under and in
accordance with the internal laws of the State of New York without reference to
the principles of conflicts of laws.
12. Entire Agreement. Except as specifically set forth herein, this
Agreement represents the entire agreement between the parties hereto with
respect to the subject matter hereof, and supersedes all prior agreements,
representations and understandings. The Consultant acknowledges and agrees that
neither the Company nor anyone acting on its behalf has made, and is not making,
and in executing this Agreement, the Consultant has not relied upon, any
representations, promises or inducements except to the extent the same is
expressly set forth in this Agreement. No amounts payable under this Agreement
shall be considered as compensation under the Consultant's former employment
agreement.
13. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
14. Assignment of Rights by the Consultant. The Consultant may not assign
any rights hereunder without the prior written consent of the Company. Any such
assignment in the absence of such written consent shall be void. The Company
may assign this Agreement to any successor to the Company or a substantial part
of the Company's business or assets provided that upon such assignment
references to the "Company" shall mean Company as it existed prior to such
assignment and further provided that any such assignment shall not expand
Consultant's obligations hereunder.
15. Amendments; Waivers. (a) This Agreement may not be modified, amended,
altered or supplemented except upon the written agreement executed by the
parties hereto.
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(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
16. Mutual Release. Upon the Effective Date, the Consultant is hereby
released from and the Company waives, any and all liability, claims, damages,
causes of action, judgments (including any of the foregoing with respect to
costs, penalties, losses and expenses) which the Company has or may have against
the Consultant solely in connection with expenses incurred, or non-monetary
Company resources used, by the Consultant in the performance of his ordinary
course duties as an officer of the Company, provided that Consultant is not
released from any liability pursuant to this Agreement. Upon the Effective
Date, the Company is hereby released from, and the Consultant waives (including
any of the foregoing with respect to costs, penalties, any and all liability,
claims, damages, causes of action, judgments, losses and expenses which the
Consultant may have against the Company solely in connection with expenses the
Consultant incurred, or non-monetary Company resources used, in the performance
of his ordinary course duties as an officer of the Company, provided that the
Company is not released from any liability pursuant to this Agreement, any
option agreements or any other written agreement entered into by the Consultant
in connection with the Merger.
The Company has caused this Agreement to be executed and delivered by its
duly authorized officer and the Consultant has executed and delivered this
Agreement as of the date set forth above.
/s/ Andrew J. Filipowski
------------------------------------------
ANDREW J. FILIPOWSKI
Consultant
PLATINUM technology International, inc.
By: /s/ Michael P. Cullinane
---------------------------------------
Name: Michael P. Cullinane
Title: Executive Vice President
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Schedule A
Description of Consulting Services
----------------------------------
Transition Services
Integration Services
Customer Relations and Retention
Employee Relations and Retention
Strategic Planning
<PAGE>
EXHIBIT 10.14
Consulting and Non-Compete Agreement, dated as of March 29, 1999 (the
"Agreement"), by and between PLATINUM technology International, inc.,
a Delaware corporation (the "Company"), and Michael P. Cullinane (the
"Consultant").
The Company is intending to enter into a Merger Agreement with Computer
Associates International, Inc. (the "Merger Agreement"), pursuant to which the
Company will become a subsidiary of Computer Associates International, Inc. The
Consultant is a senior executive of the Company, has unique knowledge of the
Company's business and has occupied a position of trust and confidence. The
Company and the Consultant desire that, effective upon the Merger (as defined in
the Merger Agreement), the Consultant will continue as a consultant to the
Company and will agree to refrain from competing with the Company all as set
forth in this Agreement.
In consideration of the mutual agreements, the Consultant and the Company
agree as follows:
1. Services. (a) The Consultant agrees, at the request of the Company,
that for a period of up to six months from the Effective Date (but in no event
later than September 30, 1999), to remain as an employee to provide transition
services in a capacity substantially similar to Consultant's current employment
and with continuation of compensation on the same basis as current compensation.
(b) For the Consulting Period (as defined in Section 2), the
Consultant shall provide from time to time and as requested by the Company the
consulting services set forth in Schedule A (the "Services"). The Consultant
shall report to the President of Computer Associates International, Inc. The
Consultant shall devote such time and energy to the business of the Company as
reasonably required to perform the Services; the parties agree that the
performance of the Services is not intended to require full time effort (and the
Consultant is free to take other full time employment not inconsistent with the
terms of this Agreement). The Company shall not require the Consultant to travel
a greater amount than in connection with his current employment.
2. Term. The Consultant and the Company agree that the consulting period
(the "Consulting Period") begins on the later of the Effective Date (as defined
in Section 7) and the date the transition employment services under Section 1(a)
end and ends on the second anniversary of the Effective Date. The Consultant
acknowledges that the Consulting Period may be terminated at any time, with or
without cause or for any or no reason, at the option either of the Company or
the Consultant, on 30 days written notice, as provided in Section 4.
3. Consulting Fee. Commencing on the Effective Date, the Company shall
pay the Consultant a consulting fee at the annual rate of $500,000, payable
quarterly in arrears. The Company shall reimburse Consultant for all reasonable
costs and expenses incurred in connection with Consultant's performance of the
Services.
<PAGE>
4. Termination. (a) Termination without Cause. If the Company terminates
the Consulting Period without Cause prior to the second anniversary of the
Effective Date, the Consultant shall be entitled to continued payment of all
consulting fees.
(b) Termination for Cause. If (i) the Company terminates the
Consulting Period at any time for Cause, or (ii) the Consultant terminates the
Consulting Period at any time, the Consultant shall be entitled to receive the
consulting fees paid through the date of termination. "Cause" shall mean (A) the
Consultant's material breach of any material term of this Agreement, including,
but not limited to, the covenants set forth in Section 5 hereof, subject to the
Consultant's right to cure any breach that is curable within a reasonable period
following notice by the Company, (B) the Consultant's conviction of a felony, or
(C) any willful misconduct by the Consultant resulting in substantial loss to
the Company, substantial damage to the Company's reputation or judicially
determined theft or misappropriation from the Company.
(c) Termination upon Death or Disability. If the Consultant dies or
becomes Disabled, in which event the Consulting Period shall terminate, the
Consultant (or, in the case of death, his estate), shall be entitled to
continued payment of all consulting fees as death or disability benefits.
"Disabled" shall mean the Consultant's adjudication as mentally incompetent, or
the occurrence of a mental or physical disability for 120 or more days within
any calendar year. Any question as to the existence of his disability as to
which the Consultant and the Company cannot agree shall be determined in writing
by a qualified independent physician mutually acceptable to the Consultant and
the Company. If the Consultant and the Company cannot agree on a qualified
independent physician, each shall appoint such a physician and those two
physicians shall select a third who shall make such determination in writing.
The determination of disability made in writing to the Consultant and the
Company shall be final and conclusive for all purposes.
(d) General. Upon the termination of the Consulting Period, for any
reason, (i) the Company shall have no further obligations to the Consultant
hereunder, other than as specifically set forth in this Agreement and (ii) the
Consultant shall continue to be bound (subject to the time periods and
limitations set forth herein) by the terms of this Agreement other than Section
1. Confidential Information shall remain confidential under Section 5(c) for so
long as such information is "Confidential Information".
5. Non-Competition; Confidentiality; Payments. (a) In consideration for,
and as a condition to, the Company's payment of the non-compete payment and
entering into this Agreement, and in connection with the merger described
herein, until the fifth anniversary of the later of the Effective Date and the
date the transition employment services under Section 1(a) end, the Consultant
will not directly or indirectly, on Consultant's own behalf or in the service of
or on behalf of any other individual or entity, either as a proprietor,
employee, agent, independent contractor, consultant, director, officer, partner
or stockholder (other than a stockholder of a corporation listed on a national
securities exchange or whose stock is regularly traded in the over-the-counter
market, provided that the Consultant at no time owns, directly or indirectly, in
excess of 2% of the outstanding stock of any class of any such corporation):
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(i) participate or engage in any activities or business developing,
manufacturing, marketing or distributing any products or services offered
by the Company on the date of this Agreement, or any products or services
offered by the Company in the future and in which the Consultant actively
participated, recognizing that the Company offers products and services
globally ("Competitive Activities"), including, without limitation, (A)
selling goods or rendering services of the type (or similar to the type)
sold or rendered by the Company, whether by means of electronic,
traditional or other form of commerce; (B) soliciting any person or entity
that is a current customer, that has been a customer within the past three
years or that is or was a prospective customer prior to or during the
Consulting Period, in each case, of the Company or an affiliate of the
Company (provided that it shall not be deemed a breach of this Agreement if
the Consultant solicits such customers for goods or services unrelated to
the Competitive Activities), (C) assisting any person in any way to do, or
attempt to do, anything prohibited by clauses (A) or (B) above and (D) be
employed by any person or entity that has received services of the type
described above from the Consultant or with which the Consultant otherwise
had material contact while employed by the Company or which received
services of the type described above from any office or employee of the
Company over which Consultant had management responsibility, in either case
to provide or supervise, directly or indirectly, the services comprising a
Competitive Activity; or
(ii) perform any action, activity or course of conduct which is
detrimental in any material respect to the businesses or business
reputation of the Company (or any of its affiliates), including without
limitation (A) soliciting, recruiting or hiring any employees of the
Company (or any of its affiliates) or persons who have worked for the
Company (or any of its affiliates) at any time since January 1, 1998;
provided that the Consultant may hire any employee of the Company (I) that
has been terminated by the Company, (II) in connection with a business that
is not a Competitive Activity (including any VC Business that is not a
Competitive Activity), but Consultant may not solicit or recruit for such
purposes, or (III) to work in a VC Business (as hereinafter defined), but
not to work in or for any company in which any VC Business invests or
otherwise acquires an interest, and (B) soliciting or encouraging any
employee of the Company (or any of its affiliates) to leave the employment
of the Company.
(b) Notwithstanding anything to the contrary herein, Consultant may
remain a director at those companies for which Consultant is a director as of
the Effective Date and may engage in any activities or businesses:
(i) involving venture capital activities (a "VC Business"), including,
without limitation, activities undertaken through Platinum Venture Partners
or any similar entities as may be formed in the future, holding
directorships, and through such partnerships exercising veto power over
certain decisions in companies in which venture capital investments have
been made; provided that the Consultant shall not without permission in any
such venture invest in any company whose primary business is a Competitive
Activity; or
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(ii) for which the Company has given permission in writing, which
shall not be unreasonably withheld (or delayed) after the third anniversary
of the Effective Date, provided Consultant's engaging in such activities or
business would not have a material adverse impact on any of the Company's
lines of business; or
(ii) which Computer Associates International, Inc. shall have
confirmed (which confirmation shall not be unreasonably withheld or
delayed) in writing to Consultant are not inconsistent with the
prohibitions of Sections 5(a) and 5(b) hereof.
(c) The Consultant shall not, without the written consent of the
Company, disclose to any other person or use, whether directly or indirectly,
any Confidential Information relating to or used by the Company or any of its
affiliates, whether in written, oral or other form, except in connection with
the performance of his duties hereunder. "Confidential Information" shall mean
information about the Company or any of its affiliates, and their clients and
customers that is not disclosed by the Company or any of its affiliates for
financial reporting purposes and that was learned by the Consultant in the
course of employment by the Company or any of its affiliates or in the course of
performing the services under this Agreement, including (without limitation) any
proprietary knowledge, product and service designs, trade secrets, manuals,
technical information and plans, contracts, systems, procedures, databases,
electronic files, disks and printouts, correspondence, internal reports,
personnel files, information about employees of the Company and its affiliates
relating to their education, experience, skills, abilities, compensation and
benefits, and inter-personal relationships with suppliers to and customers of
the Company and its affiliates, sales and advertising material, business plans,
marketing plans, financial data (including without limitation the revenues,
costs or profits associated with services), customer and industry lists,
customer information, customer lists coupled with product or service pricing,
customer contacts, supplier contacts and other contact information, pricing
policies, supplies, agents, risk analyses, engineering information and computer
reports, computer software, computer systems, computer formats, computer screen
designs and computer input and output specifications, inclusive of any pertinent
documentation, techniques, processes, technical information and know-how. The
Consultant acknowledges that such Confidential Information is specialized,
unique in nature and of great value to the Company and its affiliates, and that
such information gives the Company and its affiliates a competitive advantage.
The Consultant's obligations under this Section 5(b) shall survive the
termination of the Consulting Period and of this Agreement and shall be fully
enforceable thereafter in accordance with the terms of this Agreement.
(d) (i) Confidential Information does not include information which
(A) is or becomes part of the public domain other than as a result of the
Consultant's disclosure, or (B) becomes available to the Consultant on a
nonconfidential basis from a source other than the Company, provided that source
is not bound with respect to that information by a confidentiality agreement
with the Company or otherwise prohibited from transmitting that information by a
contractual, legal or other obligation.
(ii) If the Consultant is requested or (in the opinion of his counsel)
required by law or judicial order to disclose any Confidential Information, the
Consultant shall provide the
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<PAGE>
Company with prompt notice of any such request or requirement so that the
Company may seek an appropriate protective order or waiver of the Consultant's
compliance with the provisions of this Section 5(c). The Consultant will not
oppose any reasonable action by, and will cooperate with, the Company to obtain
an appropriate protective order or other reliable assurance that confidential
treatment will be accorded the Confidential Information. If, failing the entry
of a protective order or the receipt of a waiver hereunder, the Consultant is,
in the opinion of his counsel, compelled by law to disclose a portion of the
Confidential Information, the Consultant may disclose to the relevant tribunal
without liability hereunder that portion of the Confidential Information which
counsel advises the Consultant he is legally required to disclose, and each of
the parties hereto agrees to exercise such party's best efforts to obtain
assurance that confidential treatment will be accorded such Confidential
Information.
(e) If an award by a court or arbitration panel declares that any term or
provision of this Section 5 is excessive in duration or scope or is unreasonable
or unenforceable, the parties agree that the court or arbitration panel making
such determination shall have the power to reduce the scope, duration or area of
the term or provision, to delete specific words or phrases, or to replace any
invalid or unenforceable term or provision with a term or provision that is
valid and enforceable and that comes closest to expressing the intention of the
invalid or unenforceable term or provision, and this Agreement shall be
enforceable as so modified.
(f) In the event of a breach or threatened breach by the Consultant of the
provisions of this Section 5, the Consultant acknowledges that the Company will
suffer irreparable injury and may not have an adequate remedy at law and
therefore may be entitled to a temporary restraining order or a preliminary or
permanent injunction restraining the Consultant from such breach without the
requirement of posting security or proving actual damages as well as an
equitable accounting of all profits or benefits arising out of such violation.
In addition, in the event of a breach (that is not immaterial) at any time by
the Consultant of the provisions of this Section 5, the Consultant agrees as
liquidated damages hereunder to repay the full amount of the non-compete
payments made pursuant to Section 5(g). Nothing contained in this Section 5 or
elsewhere in this Agreement shall be construed as prohibiting the Company from
pursuing any other remedies available at law or equity for such breach or
threatened breach by the Consultant.
(g) In consideration of the Consultant's covenants under this Section 5,
the Company shall pay the Consultant a non-compete payment at the annual rate of
$1,800,000 in the first year, $1,800,000 in the second year, $2,300,000 in the
third year, $2,300,000 in the fourth year and $2,300,000 in the fifth year,
quarterly in arrears, commencing on the Effective Date.
(h) By executing this Agreement, Consultant assigns and transfers to the
Company all his right, title, and interest in and to all intellectual property
created, developed, conceived, or reduced to practice while employed as a
Consultant by the Company or its predecessor(s) arising in connection with the
Services. While he is employed by the Company and when he ceases to be employed
by the Company, Consultant shall fully and promptly disclose in writing to the
Company, and hold in trust for the sole right and benefit of the Company, all
ideas, plans, designs, methods, techniques, discoveries, inventions,
developments, improvements, trade secrets, computer programs and software, and
other proprietary data, records, and information that
5
<PAGE>
Consultant solely or jointly develops or reduces to practice while employed by,
and arising in connection with the Services to, the Company (collectively
"Intellectual Property"), whether or not patentable or capable of copyright or
trademark registration, and whether or not created, conceived, developed, or
reduced to practice at the request of the Company or during normal working
hours. While employed by the Company and at all times thereafter, Consultant
shall do all things, and execute all documents (including applications for
patents, copyrights, and trademarks, and for renewals, extensions, and divisions
thereof), that are requested and reasonably required by the Company to create,
enforce, or evidence the Company's rights to any Intellectual Property.
6. Cooperation. (a) The Consultant agrees to cooperate with the Company
at all times (including following termination of the Consulting Period for any
reason) by making himself reasonably available to testify on behalf of the
Company or its affiliates, in any action, suit or proceeding, whether civil,
criminal, administrative, or investigative and to assist the Company or any of
its affiliates in any such action, suit, or proceeding by providing information
and meeting and consulting with the Company or representatives or counsel to the
Company or its affiliates, as reasonably requested by such representatives or
counsel. The Consultant shall be reimbursed by the Company for any expenses
(including, but not limited to, legal fees) reasonably incurred by the
Consultant in connection with his compliance with the foregoing covenant.
(b) Consultant shall fully cooperate with the Company and Computer
Associates International, Inc. in connection with filings under the Hart-Scott-
Rodino Antitrust Improvements Act of 1978 and in connection with resolving any
investigation or other inquiry of any governmental entity under the antitrust
laws.
(c) In the event the Company fails to observe the requirements of
Section 5.1 of the Merger Agreement, whether or not enforceable or in force
under such agreement, and the aggregate loss or damage is greater than
$1,500,000, then the Consultant shall be liable for 22% of each dollar of
liability under this Section 6 (including, without limitation, forfeitures under
Section 6(d)) for such failure in excess of $1,500,000. The maximum amount of
liability under this Section for the Consultant shall be an amount equal to the
sum of the total payments under this Agreement and the value of the 350,000
options issued to the Consultant in 1999.
(d) The Consultant agrees that, in the event the Department of
Justice or other governmental entity causes a delay in the closing of the
Merger, with his approval, the Company has amended the terms of the grant of
350,000 options in 1999 to include the following terms:
. None of the options shall be exercisable as of the Effective Date
. if all antitrust issues with the Department of Justice or other
governmental entity to permit the completion of the Merger shall
have been resolved within the four months following the
substantial compliance by Computer Associates International, Inc.
and the Company with respect to the Hart-Scott-Rodino Act of 1978
as provided in Section 7.1(e)(i), all options shall become
exercisable within one (1) year but in no event less than ninety
(90)
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days after the Effective Date if Company has not terminated the
Consulting Period for Cause, and Consultant has satisfied the
non-competition provisions contained herein
. if all antitrust issues with the Department of Justice or other
governmental entity to permit the completion of the Merger shall
have been resolved within the period described in Section
7.1(e)(iii) of the Merger Agreement, 50% of the options shall
become exercisable within one (1) year but in no event less than
ninety (90) days after the Effective Date if Company has not
terminated the Consulting Period for Cause, and Consultant has
satisfied the non-competition provisions contained herein, and
the balance shall be forfeited
. if all antitrust issues with the Department of Justice or other
governmental entity to permit the completion of the Merger shall
have been resolved within the period described in Section
7.1(e)(iv) of the Merger Agreement, 25% of the options shall
become exercisable within one (1) year but in no event less than
ninety (90) days after the Effective Date if Company has not
terminated the Consulting Period for Cause, and Consultant has
satisfied the non-competition provisions contained herein, and
the balance shall be forfeited.
7. Conditions to Effectiveness. The Effective Date of this Agreement
(the "Effective Date") shall be the date that the merger of the Company and a
wholly-owned subsidiary of Computer Associates International, Inc., becomes
effective pursuant to the Merger Agreement. In the event the Merger Agreement
terminates, this Agreement shall terminate.
8. Duties on Termination. At the Company's request at any time or upon
termination of the Consulting Period for any reason, the Consultant agrees to
deliver promptly to the Company all notebooks, documents, memoranda, reports,
files, samples, books, correspondence, lists, computer tapes or disks, or other
written or graphic records, and the like (and all copies thereof), from the
Company's business, which are or have been in his possession or under his
control.
9. Severability. In the event that any one or more of the provisions of
this Agreement shall be or become invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
of this Agreement shall not be affected thereby.
10. Notices. All notices and other communications under this Agreement
shall be in writing and shall be given by first-class mail, certified or
registered with return receipt requested, by reputable overnight carrier or hand
delivery acknowledged in writing by the recipient personally, and shall be
deemed to have been duly given three days after mailing or immediately upon duly
acknowledged hand delivery to the respective persons named below:
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If to the Company: PLATINUM technology International, inc.
1815 South Meyers Road
Oakbrook Terrace, Illinois 60181
Attention: Andrew J. Filipowski
with a copy to:
Computer Associates International, Inc.
One Computer Associates Plaza
Islandia, New York 11788-7000
Attention: Sanjay Kumar
President and Chief Operating Officer
If to the Consultant:
Michael P. Cullinane
2233 Edgebrook Dr.
Lisle, IL 60532
Either party may change such party's address for notices by notice duly given
pursuant hereto.
11. Governing Law. This agreement and the legal relations thus created
between the parties hereto shall be governed by and construed under and in
accordance with the internal laws of the State of New York without reference to
the principles of conflicts of laws.
12. Entire Agreement. Except as specifically set forth herein, this
Agreement represents the entire agreement between the parties hereto with
respect to the subject matter hereof, and supersedes all prior agreements,
representations and understandings. The Consultant acknowledges and agrees that
neither the Company nor anyone acting on its behalf has made, and is not making,
and in executing this Agreement, the Consultant has not relied upon, any
representations, promises or inducements except to the extent the same is
expressly set forth in this Agreement. No amounts payable under this Agreement
shall be considered as compensation under the Consultant's former employment
agreement.
13. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
14. Assignment of Rights by the Consultant. The Consultant may not assign
any rights hereunder without the prior written consent of the Company. Any such
assignment in the absence of such written consent shall be void. The Company
may assign this Agreement to any successor to the Company or a substantial part
of the Company's business or assets provided that upon such assignment
references to the "Company" shall mean Company as it existed prior to such
assignment and further provided that any such assignment shall not expand
Consultant's obligations hereunder.
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15. Amendments; Waivers. (a) This Agreement may not be modified, amended,
altered or supplemented except upon the written agreement executed by the
parties hereto.
(b) No failure or delay by any party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
16. Mutual Release. Upon the Effective Date, the Consultant is hereby
released from and the Company waives, any and all liability, claims, damages,
causes of action, judgments (including any of the foregoing with respect to
costs, penalties, losses and expenses) which the Company has or may have against
the Consultant solely in connection with expenses incurred, or non-monetary
Company resources used, by the Consultant in the performance of his ordinary
course duties as an officer of the Company, provided that Consultant is not
released from any liability pursuant to this Agreement. Upon the Effective
Date, the Company is hereby released from, and the Consultant waives (including
any of the foregoing with respect to costs, penalties, any and all liability,
claims, damages, causes of action, judgments, losses and expenses which the
Consultant may have against the Company solely in connection with expenses the
Consultant incurred, or non-monetary Company resources used, in the performance
of his ordinary course duties as an officer of the Company, provided that the
Company is not released from any liability pursuant to this Agreement, any
option agreements or any other written agreement entered into by the Consultant
in connection with the Merger.
The Company has caused this Agreement to be executed and delivered by its
duly authorized officer and the Consultant has executed and delivered this
Agreement as of the date set forth above.
/s/ Michael P. Cullinane
---------------------------------------
Michael P. Cullinane
Consultant
PLATINUM TECHNOLOGY INTERNATIONAL, INC.
By: /s/ Andrew J. Filipowski
----------------------------------
Name: Andrew J. Filipowski
Title: President
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Schedule A
Description of Consulting Services
- ----------------------------------
Transition Services
Integration Services
Customer Relations and Retention
Employee Relations and Retention
Strategic Planning
<PAGE>
Exhibit 10.15
Consulting and Non-Compete Agreement, dated as of March 29, 1999 (the
"Agreement"), by and between PLATINUM technology International, inc.,
a Delaware corporation (the "Company"), and Paul L. Humenansky (the
"Consultant").
The Company is intending to enter into a Merger Agreement with Computer
Associates International, Inc. (the "Merger Agreement"), pursuant to which the
Company will become a subsidiary of Computer Associates International, Inc. The
Consultant is a senior executive of the Company, has unique knowledge of the
Company's business and has occupied a position of trust and confidence. The
Company and the Consultant desire that, effective upon the Merger (as defined in
the Merger Agreement), the Consultant will continue as a consultant to the
Company and will agree to refrain from competing with the Company all as set
forth in this Agreement.
In consideration of the mutual agreements, the Consultant and the Company
agree as follows:
1. Services. (a) The Consultant agrees, at the request of the Company,
that for a period of up to six months from the Effective Date (but in no event
later than September 30, 1999), to remain as an employee to provide transition
services in a capacity substantially similar to Consultant's current employment
and with continuation of compensation on the same basis as current compensation.
(b) For the Consulting Period (as defined in Section 2), the
Consultant shall provide from time to time and as requested by the Company the
consulting services set forth in Schedule A (the "Services"). The Consultant
shall report to the President of Computer Associates International, Inc. The
Consultant shall devote such time and energy to the business of the Company as
reasonably required to perform the Services; the parties agree that the
performance of the Services is not intended to require full time effort (and the
Consultant is free to take other full time employment not inconsistent with the
terms of this Agreement). The Company shall not require the Consultant to
travel a greater amount than in connection with his current employment.
2. Term. The Consultant and the Company agree that the consulting period
(the "Consulting Period") begins on the later of the Effective Date (as defined
in Section 7) and the date the transition employment services under Section 1(a)
end and ends on the second anniversary of the Effective Date. The Consultant
acknowledges that the Consulting Period may be terminated at any time, with or
without cause or for any or no reason, at the option either of the Company or
the Consultant, on 30 days written notice, as provided in Section 4.
3. Consulting Fee. Commencing on the Effective Date, the Company shall
pay the Consultant a consulting fee at the annual rate of $500,000, payable
quarterly in arrears. The Company shall reimburse Consultant for all reasonable
costs and expenses incurred in connection with Consultant's performance of the
Services.
<PAGE>
4. Termination. (a) Termination without Cause. If the Company
terminates the Consulting Period without Cause prior to the second anniversary
of the Effective Date, the Consultant shall be entitled to continued payment of
all consulting fees.
(b) Termination for Cause. If (i) the Company terminates the
Consulting Period at any time for Cause, or (ii) the Consultant terminates the
Consulting Period at any time, the Consultant shall be entitled to receive the
consulting fees paid through the date of termination. "Cause" shall mean (A) the
Consultant's material breach of any material term of this Agreement, including,
but not limited to, the covenants set forth in Section 5 hereof, subject to the
Consultant's right to cure any breach that is curable within a reasonable period
following notice by the Company, (B) the Consultant's conviction of a felony, or
(C) any willful misconduct by the Consultant resulting in substantial loss to
the Company, substantial damage to the Company's reputation or judicially
determined theft or misappropriation from the Company.
(c) Termination upon Death or Disability. If the Consultant dies or
becomes Disabled, in which event the Consulting Period shall terminate, the
Consultant (or, in the case of death, his estate), shall be entitled to
continued payment of all consulting fees as death or disability benefits.
"Disabled" shall mean the Consultant's adjudication as mentally incompetent, or
the occurrence of a mental or physical disability for 120 or more days within
any calendar year. Any question as to the existence of his disability as to
which the Consultant and the Company cannot agree shall be determined in writing
by a qualified independent physician mutually acceptable to the Consultant and
the Company. If the Consultant and the Company cannot agree on a qualified
independent physician, each shall appoint such a physician and those two
physicians shall select a third who shall make such determination in writing.
The determination of disability made in writing to the Consultant and the
Company shall be final and conclusive for all purposes.
(d) General. Upon the termination of the Consulting Period, for any
reason, (i) the Company shall have no further obligations to the Consultant
hereunder, other than as specifically set forth in this Agreement and (ii) the
Consultant shall continue to be bound (subject to the time periods and
limitations set forth herein) by the terms of this Agreement other than Section
1. Confidential Information shall remain confidential under Section 5(c) for so
long as such information is "Confidential Information".
5. Non-Competition; Confidentiality; Payments. (a) In consideration
for, and as a condition to, the Company's payment of the non-compete payment and
entering into this Agreement, and in connection with the merger described
herein, until the fifth anniversary of the later of the Effective Date and the
date the transition employment services under Section 1(a) end, the Consultant
will not directly or indirectly, on Consultant's own behalf or in the service of
or on behalf of any other individual or entity, either as a proprietor,
employee, agent, independent contractor, consultant, director, officer, partner
or stockholder (other than a stockholder of a corporation listed on a national
securities exchange or whose stock is regularly traded in the over-the-counter
market, provided that the Consultant at no time owns, directly or indirectly, in
excess of 2% of the outstanding stock of any class of any such corporation):
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(i) participate or engage in any activities or business developing,
manufacturing, marketing or distributing any products or services offered
by the Company on the date of this Agreement, or any products or services
offered by the Company in the future and in which the Consultant actively
participated, recognizing that the Company offers products and services
globally ("Competitive Activities"), including, without limitation, (A)
selling goods or rendering services of the type (or similar to the type)
sold or rendered by the Company, whether by means of electronic,
traditional or other form of commerce; (B) soliciting any person or entity
that is a current customer, that has been a customer within the past three
years or that is or was a prospective customer prior to or during the
Consulting Period, in each case, of the Company or an affiliate of the
Company (provided that it shall not be deemed a breach of this Agreement if
the Consultant solicits such customers for goods or services unrelated to
the Competitive Activities), (C) assisting any person in any way to do, or
attempt to do, anything prohibited by clauses (A) or (B) above and (D) be
employed by any person or entity that has received services of the type
described above from the Consultant or with which the Consultant otherwise
had material contact while employed by the Company or which received
services of the type described above from any office or employee of the
Company over which Consultant had management responsibility, in either case
to provide or supervise, directly or indirectly, the services comprising a
Competitive Activity; or
(ii) perform any action, activity or course of conduct which is
detrimental in any material respect to the businesses or business
reputation of the Company (or any of its affiliates), including without
limitation (A) soliciting, recruiting or hiring any employees of the
Company (or any of its affiliates) or persons who have worked for the
Company (or any of its affiliates) at any time since January 1, 1998;
provided that the Consultant may hire any employee of the Company (I) that
has been terminated by the Company, (II) in connection with a business
that is not a Competitive Activity (including any VC Business that is not a
Competitive Activity), but Consultant may not solicit or recruit for such
purposes, or (III) to work in a VC Business (as hereinafter defined), but
not to work in or for any company in which any VC Business invests or
otherwise acquires an interest, and (B) soliciting or encouraging any
employee of the Company (or any of its affiliates) to leave the employment
of the Company.
(b) Notwithstanding anything to the contrary herein, Consultant may
remain a director at those companies for which Consultant is a director as of
the Effective Date and may engage in any activities or businesses:
(i) involving venture capital activities (a "VC Business"), including,
without limitation, activities undertaken through Platinum Venture Partners
or any similar entities as may be formed in the future, holding
directorships, and through such partnerships exercising veto power over
certain decisions in companies in which venture capital investments have
been made; provided that the Consultant shall not without permission in
3
<PAGE>
any such venture invest in any company whose primary business is a
Competitive Activity; or
(ii) for which the Company has given permission in writing, which
shall not be unreasonably withheld (or delayed) after the third anniversary
of the Effective Date, provided Consultant's engaging in such activities or
business would not have a material adverse impact on any of the Company's
lines of business; or
(iii) which Computer Associates International, Inc. shall have
confirmed (which confirmation shall not be unreasonably withheld or
delayed) in writing to Consultant are not inconsistent with the
prohibitions of Sections 5(a) and 5(b) hereof.
(c) The Consultant shall not, without the written consent of the
Company, disclose to any other person or use, whether directly or indirectly,
any Confidential Information relating to or used by the Company or any of its
affiliates, whether in written, oral or other form, except in connection with
the performance of his duties hereunder. "Confidential Information" shall mean
information about the Company or any of its affiliates, and their clients and
customers that is not disclosed by the Company or any of its affiliates for
financial reporting purposes and that was learned by the Consultant in the
course of employment by the Company or any of its affiliates or in the course of
performing the services under this Agreement, including (without limitation) any
proprietary knowledge, product and service designs, trade secrets, manuals,
technical information and plans, contracts, systems, procedures, databases,
electronic files, disks and printouts, correspondence, internal reports,
personnel files, information about employees of the Company and its affiliates
relating to their education, experience, skills, abilities, compensation and
benefits, and inter-personal relationships with suppliers to and customers of
the Company and its affiliates, sales and advertising material, business plans,
marketing plans, financial data (including without limitation the revenues,
costs or profits associated with services), customer and industry lists,
customer information, customer lists coupled with product or service pricing,
customer contacts, supplier contacts and other contact information, pricing
policies, supplies, agents, risk analyses, engineering information and computer
reports, computer software, computer systems, computer formats, computer screen
designs and computer input and output specifications, inclusive of any pertinent
documentation, techniques, processes, technical information and know-how. The
Consultant acknowledges that such Confidential Information is specialized,
unique in nature and of great value to the Company and its affiliates, and that
such information gives the Company and its affiliates a competitive advantage.
The Consultant's obligations under this Section 5(b) shall survive the
termination of the Consulting Period and of this Agreement and shall be fully
enforceable thereafter in accordance with the terms of this Agreement.
(d) (i) Confidential Information does not include information which
(A) is or becomes part of the public domain other than as a result of the
Consultant's disclosure, or (B) becomes available to the Consultant on a
nonconfidential basis from a source other than the Company, provided that source
is not bound with respect to that information by a confidentiality
4
<PAGE>
agreement with the Company or otherwise prohibited from transmitting that
information by a contractual, legal or other obligation.
(ii) If the Consultant is requested or (in the opinion of his counsel)
required by law or judicial order to disclose any Confidential Information, the
Consultant shall provide the Company with prompt notice of any such request or
requirement so that the Company may seek an appropriate protective order or
waiver of the Consultant's compliance with the provisions of this Section 5(c).
The Consultant will not oppose any reasonable action by, and will cooperate
with, the Company to obtain an appropriate protective order or other reliable
assurance that confidential treatment will be accorded the Confidential
Information. If, failing the entry of a protective order or the receipt of a
waiver hereunder, the Consultant is, in the opinion of his counsel, compelled by
law to disclose a portion of the Confidential Information, the Consultant may
disclose to the relevant tribunal without liability hereunder that portion of
the Confidential Information which counsel advises the Consultant he is legally
required to disclose, and each of the parties hereto agrees to exercise such
party's best efforts to obtain assurance that confidential treatment will be
accorded such Confidential Information.
(e) If an award by a court or arbitration panel declares that any term
or provision of this Section 5 is excessive in duration or scope or is
unreasonable or unenforceable, the parties agree that the court or arbitration
panel making such determination shall have the power to reduce the scope,
duration or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified.
(f) In the event of a breach or threatened breach by the Consultant of
the provisions of this Section 5, the Consultant acknowledges that the Company
will suffer irreparable injury and may not have an adequate remedy at law and
therefore may be entitled to a temporary restraining order or a preliminary or
permanent injunction restraining the Consultant from such breach without the
requirement of posting security or proving actual damages as well as an
equitable accounting of all profits or benefits arising out of such violation.
In addition, in the event of a breach (that is not immaterial) at any time by
the Consultant of the provisions of this Section 5, the Consultant agrees as
liquidated damages hereunder to repay the full amount of the non-compete
payments made pursuant to Section 5(g). Nothing contained in this Section 5 or
elsewhere in this Agreement shall be construed as prohibiting the Company from
pursuing any other remedies available at law or equity for such breach or
threatened breach by the Consultant.
(g) In consideration of the Consultant's covenants under this Section
5, the Company shall pay the Consultant a non-compete payment at the annual rate
of $1,800,000 in the first year, $_______ in the second year, $2,300,000 in the
third year, $2,300,000 in the fourth year, and $__________ in the fifth year,
quarterly in arrears, commencing on the Effective Date.
5
<PAGE>
(h) By executing this Agreement, Consultant assigns and transfers to
the Company all his right, title, and interest in and to all intellectual
property created, developed, conceived, or reduced to practice while employed as
a Consultant by the Company or its predecessor(s) arising in connection with the
Services. While he is employed by the Company and when he ceases to be employed
by the Company, Consultant shall fully and promptly disclose in writing to the
Company, and hold in trust for the sole right and benefit of the Company, all
ideas, plans, designs, methods, techniques, discoveries, inventions,
developments, improvements, trade secrets, computer programs and software, and
other proprietary data, records, and information that Consultant solely or
jointly develops or reduces to practice while employed by, and arising in
connection with the Services to, the Company (collectively "Intellectual
Property"), whether or not patentable or capable of copyright or trademark
registration, and whether or not created, conceived, developed, or reduced to
practice at the request of the Company or during normal working hours. While
employed by the Company and at all times thereafter, Consultant shall do all
things, and execute all documents (including applications for patents,
copyrights, and trademarks, and for renewals, extensions, and divisions
thereof), that are requested and reasonably required by the Company to create,
enforce, or evidence the Company's rights to any Intellectual Property.
6. Cooperation. (a) The Consultant agrees to cooperate with the Company
at all times (including following termination of the Consulting Period for any
reason) by making himself reasonably available to testify on behalf of the
Company or its affiliates, in any action, suit or proceeding, whether civil,
criminal, administrative, or investigative and to assist the Company or any of
its affiliates in any such action, suit, or proceeding by providing information
and meeting and consulting with the Company or representatives or counsel to the
Company or its affiliates, as reasonably requested by such representatives or
counsel. The Consultant shall be reimbursed by the Company for any expenses
(including, but not limited to, legal fees) reasonably incurred by the
Consultant in connection with his compliance with the foregoing covenant.
(b) Consultant shall fully cooperate with the Company and Computer
Associates International, Inc. in connection with filings under the Hart-Scott-
Rodino Antitrust Improvements Act of 1978 and in connection with resolving any
investigation or other inquiry of any governmental entity under the antitrust
laws.
(c) In the event the Company fails to observe the requirements of
Section 5.1 of the Merger Agreement, whether or not enforceable or in force
under such agreement, and the aggregate loss or damage is greater than
$1,500,000, then the Consultant shall be liable for 22% of each dollar of
liability under this Section 6 (including, without limitation, forfeitures under
Section 6(d)) for such failure in excess of $1,500,000. The maximum amount of
liability under this Section for the Consultant shall be an amount equal to the
sum of the total payments under this Agreement and the value of the 400,000
options issued to the Consultant in 1999.
6
<PAGE>
(d) The Consultant agrees that, in the event the Department of Justice
or other governmental entity causes a delay in the closing of the Merger, with
his approval, the Company has amended the terms of the grant of 400,000 options
in 1999 to include the following terms:
. None of the options shall be exercisable as of the Effective
Date.
. if all antitrust issues with the Department of Justice or other
governmental entity to permit the completion of the Merger shall
have been resolved within the four months following the
substantial compliance by Computer Associates International, Inc.
and the Company with respect to the Hart-Scott-Rodino Act of 1978
as provided in Section 7.1(e)(i), all options shall become
exercisable within one (1) year but in no event less than ninety
(90) days after the Effective Date if Company has not terminated
the Consulting Period for Cause, and Consultant has satisfied the
non-competition provisions contained herein, and the balance
shall be forfeited.
. if all antitrust issues with the Department of Justice or other
governmental entity to permit the completion of the Merger shall
have been resolved within the period described in Section 7.1
(e)(iii) of the Merger Agreement, 50% of the options shall become
exercisable within one (1) year but in no event less than ninety
(90) days after the Effective Date if Company has not terminated
the Consulting Period for Cause, and Consultant has satisfied the
non-competition provisions contained herein, and the balance
shall be forfeited.
. if all antitrust issues with the Department of Justice or other
governmental entity to permit the completion of the Merger shall
have been resolved within the period described in Section 7.1
(e)(iv) of the Merger Agreement, 25% of the options shall become
exercisable within one (1) year but in no event less than ninety
(90) days after the Effective Date if Company has not terminated
the Consulting Period for Cause and Consultant has satisfied the
non-competition provisions contained herein, and the balance
shall be forfeited.
7. Conditions to Effectiveness. The Effective Date of this Agreement
(the "Effective Date") shall be the date that the merger of the Company and a
wholly-owned subsidiary of Computer Associates International, Inc., becomes
effective pursuant to the Merger Agreement. In the event the Merger Agreement
terminates, this Agreement shall terminate.
8. Duties on Termination. At the Company's request at any time or upon
termination of the Consulting Period for any reason, the Consultant agrees to
deliver promptly to the Company all notebooks, documents, memoranda, reports,
files, samples, books, correspondence, lists, computer tapes or disks, or other
written or graphic records, and the like (and all copies
7
<PAGE>
thereof), from the Company's business, which are or have been in his possession
or under his control.
9. Severability. In the event that any one or more of the provisions of
this Agreement shall be or become invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
of this Agreement shall not be affected thereby.
10. Notices. All notices and other communications under this Agreement
shall be in writing and shall be given by first-class mail, certified or
registered with return receipt requested, by reputable overnight carrier or hand
delivery acknowledged in writing by the recipient personally, and shall be
deemed to have been duly given three days after mailing or immediately upon duly
acknowledged hand delivery to the respective persons named below:
If to the Company: PLATINUM technology International, inc.
1815 South Meyers Road
Oakbrook Terrace, Illinois 60181
Attention: Andrew J. Filipowski
with a copy to:
Computer Associates International, Inc.
One Computer Associates Plaza
Islandia, New York 11788-7000
Attention: Sanjay Kumar
President and Chief Operating Officer
If to the Consultant:
Paul L. Humenansky
1815 South Meyers Road
Oakbrook Terrace, IL 60181
Either party may change such party's address for notices by notice duly given
pursuant hereto.
11. Governing Law. This agreement and the legal relations thus created
between the parties hereto shall be governed by and construed under and in
accordance with the internal laws of the State of New York without reference to
the principles of conflicts of laws.
12. Entire Agreement. Except as specifically set forth herein, this
Agreement represents the entire agreement between the parties hereto with
respect to the subject matter hereof, and supersedes all prior agreements,
representations and understandings. The Consultant acknowledges and agrees that
neither the Company nor anyone acting on its behalf has made, and is not making,
and in executing this Agreement, the Consultant has not relied upon, any
8
<PAGE>
representations, promises or inducements except to the extent the same is
expressly set forth in this Agreement. No amounts payable under this Agreement
shall be considered as compensation under the Consultant's former employment
agreement.
13. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
14. Assignment of Rights by the Consultant. The Consultant may not assign
any rights hereunder without the prior written consent of the Company. Any such
assignment in the absence of such written consent shall be void. The Company
may assign this Agreement to any successor to the Company or a substantial part
of the Company's business or assets provided that upon such assignment
references to the "Company" shall mean Company as it existed prior to such
assignment and further provided that any such assignment shall not expand
Consultant's obligations hereunder.
15. Amendments; Waivers. (a) This Agreement may not be modified, amended,
altered or supplemented except upon the written agreement executed by the
parties hereto.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
16. Mutual Release. Upon the Effective Date, the Consultant is hereby
released from and the Company waives, any and all liability, claims, damages,
causes of action, judgments (including any of the foregoing with respect to
costs, penalties, losses and expenses) which the Company has or may have against
the Consultant solely in connection with expenses incurred, or non-monetary
Company resources used, by the Consultant in the performance of his ordinary
course duties as an officer of the Company, provided that Consultant is not
released from any liability pursuant to this Agreement. Upon the Effective
Date, the Company is hereby released from, and the Consultant waives (including
any of the foregoing with respect to costs, penalties, any and all liability,
claims, damages, causes of action, judgments, losses and expenses which the
Consultant may have against the Company solely in connection with expenses the
Consultant incurred, or non-monetary Company resources used, in the performance
of his ordinary course duties as an officer of the Company, provided that the
Company is not released from any liability pursuant to this Agreement, any
option agreements or any other written agreement entered into by the Consultant
in connection with the Merger.
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<PAGE>
The Company has caused this Agreement to be executed and delivered by its
duly authorized officer and the Consultant has executed and delivered this
Agreement as of the date set forth above.
/s/ Paul L. Humenansky
------------------------------------------
PAUL L. HUMENANSKY
Consultant
PLATINUM technology International, inc.
By: /s/ Andrew J. Filipowski
----------------------------------------
Name: Andrew J. Filipowski
Title: President
10
<PAGE>
Schedule A
Description of Consulting Services
----------------------------------
Transition Services
Integration Services
Customer Relations and Retention
Employee Relations and Retention
Strategic Planning
11
<PAGE>
EXHIBIT 10.16
Consulting and Non-Compete Agreement, dated as of June 1, 1999 (the
"Agreement"), by and between Computer Associates International, Inc.,
a Delaware corporation (the "CA"), and Larry S. Freedman (the
"Consultant").
CA and PLATINUM technology International, inc. ("Platinum") entered into a
Merger Agreement (the "Merger Agreement"), pursuant to which Platinum will
become a subsidiary of CA. The Consultant is a senior executive of Platinum,
has unique knowledge of Platinum's business and has occupied a position of trust
and confidence. CA and the Consultant desire that, effective upon the merger
described in the Merger Agreement, the Consultant will continue as a consultant
to the CA to assist CA with respect to such matters and act as a liaison between
CA and Platinum for all purposes related to the orderly consolidation of the
operations of CA and Platinum, and will agree to refrain from competing with CA,
all as set forth in this Agreement.
In consideration of the mutual agreements, the Consultant and CA agree as
follows:
1. Services. (a) The Consultant agrees, at the request of CA, that for a
period of up to six months from the Effective Date (but in no event later than
September 30, 1999), to remain as an employee to provide transition services in
a capacity substantially similar to Consultant's current employment and with
continuation of compensation on the same basis as Consultant's current
compensation.
(b) For the Consulting Period (as defined in Section 2), the
Consultant shall provide from time to time and as requested by CA, the
consulting services set forth in Schedule A (the "Services"). The Consultant
shall report to a Senior Vice President of CA. The Consultant shall devote such
time and energy to the business of CA as reasonably required to perform the
Services; the parties agree that the performance of the Services is not intended
to require full time effort (and the Consultant is free to take other full time
employment not inconsistent with the terms of this Agreement). CA shall not
require the Consultant to travel a greater amount than in connection with his
current employment.
2. Term. The Consultant and CA agree that the consulting period (the
"Consulting Period") will begin on the later of: (i) the Effective Date (as
defined in Section 7); and (ii) the date the transition employment services
under Section 1(a) end; and the Consulting Period will end on the second (2/nd/)
anniversary of such date. The Consultant acknowledges that the Consulting
Period may be terminated at any time, with or without cause or for any or no
reason, at the option either of CA or the Consultant, on 30 days written notice,
as provided in Section 4.
3. Consulting Fee. Commencing on the Effective Date, CA shall pay the
Consultant a consulting fee at the annual rate of $260,000, payable in two (2)
equal payments made within thirty (30) days from: (i) the Effective Date; and
(ii) the first anniversary of the Effective Date. CA shall reimburse Consultant
for all reasonable costs and expenses incurred in connection with Consultant's
performance of the Services.
<PAGE>
4. Termination. (a) Termination without Cause. If CA terminates the
Consulting Period without Cause prior to the second (2/nd/) anniversary of the
Effective Date, the Consultant shall be entitled to continued payment of all
consulting fees.
(b) Termination for Cause. If (i) CA terminates the Consulting Period
at any time for Cause, or (ii) the Consultant terminates the Consulting Period
at any time, the Consultant shall be entitled to receive the consulting fees
paid through the date of termination. "Cause" shall mean (A) the Consultant's
material breach of any material term of this Agreement, including, but not
limited to, the covenants set forth in Section 5 hereof, subject to the
Consultant's right to cure any breach that is curable within a reasonable period
following notice by CA, (B) the Consultant's conviction of a felony, or (C) any
willful misconduct by the Consultant resulting in substantial loss to CA,
substantial damage to CA's reputation or judicially determined theft or
misappropriation from CA.
(c) Termination upon Death or Disability. If the Consultant dies or
becomes Disabled, in which event the Consulting Period shall terminate, the
Consultant (or, in the case of death, his estate), shall be entitled to
continued payment of all consulting fees as death or disability benefits.
"Disabled" shall mean the Consultant's adjudication as mentally incompetent, or
the occurrence of a mental or physical disability for 120 or more days within
any calendar year. Any question as to the existence of his disability as to
which the Consultant and CA cannot agree shall be determined in writing by a
qualified independent physician mutually acceptable to the Consultant and CA.
If the Consultant and CA cannot agree on a qualified independent physician, each
shall appoint such a physician and those two physicians shall select a third who
shall make such determination in writing. The determination of disability made
in writing to the Consultant and CA shall be final and conclusive for all
purposes.
(d) General. Upon the termination of the Consulting Period, for any
reason, (i) CA shall have no further obligations to the Consultant hereunder,
other than as specifically set forth in this Agreement and (ii) the Consultant
shall continue to be bound (subject to the time periods and limitations set
forth herein) by the terms of this Agreement other than Section 1. Confidential
Information shall remain confidential under Section 5(c) for so long as such
information is "Confidential Information".
5. Non-Competition; Confidentiality; Payments. (a) In consideration
for, and as a condition to, CA's payment of the non-compete payment and entering
into this Agreement, and in connection with the merger described herein, until
the second (2/nd/) anniversary of the later of the Effective Date and the date
the transition employment services under Section 1(a) end, the Consultant will
not directly or indirectly, on Consultant's own behalf or in the service of or
on behalf of any other individual or entity, either as a proprietor, employee,
agent, independent contractor, consultant, director, officer, partner or
stockholder (other than a stockholder of a corporation listed on a national
securities exchange or whose stock is regularly traded in the over-the-counter
market, provided that the Consultant at no time owns, directly or indirectly, in
excess of 2% of the outstanding stock of any class of any such corporation):
2
<PAGE>
(i) participate or engage in any activities or business developing,
manufacturing, marketing or distributing any products or services offered
by CA as of the Effective Date (such "products or services offered by CA as
of the Effective Date" shall relate only to those products and services
acquired by CA as a result of its acquisition of Platinum), or any products
or services offered by CA subsequent to the Effective Date and in which the
Consultant actively participated, recognizing that CA offers products and
services globally ("Competitive Activities"), including, without
limitation, (A) selling goods or rendering services of the type (or similar
to the type) sold or rendered by CA, whether by means of electronic,
traditional or other form of commerce; (B) soliciting any person or entity
that is a current customer, that has been a customer within the past three
years or that is or was a prospective customer prior to or during the
Consulting Period, in each case, of CA or an affiliate of CA (provided that
it shall not be deemed a breach of this Agreement if the Consultant
solicits such customers for goods or services unrelated to the Competitive
Activities), (C) assisting any person in any way to do, or attempt to do,
anything prohibited by clauses (A) or (B) above and (D) be employed by any
person or entity that has received services of the type described above
from the Consultant or with which the Consultant otherwise had material
contact while employed by CA, Platinum, its and their subsidiaries, its and
their predecessor or successor entities and assigns (collectively,
"Employer") or which received services of the type described above from any
office or employee of Employer over which Consultant had management
responsibility, in either case to provide or supervise, directly or
indirectly, the services comprising a Competitive Activity; or
(ii) perform any action, activity or course of conduct which is
detrimental in any material respect to the businesses or business
reputation of CA (or any of its affiliates), including without limitation:
(A) soliciting, recruiting or hiring any employees of CA (or any of its
affiliates) or persons who have worked for CA (or any of its affiliates) at
any time since January 1, 1998; and (B) soliciting or encouraging any
employee of CA (or any of its affiliates) to leave the employment of CA.
(b) Notwithstanding anything to the contrary herein, Consultant may
remain a director at those companies for which Consultant is a director as of
the Effective Date, and may engage in any activities or businesses:
(i) involving venture capital activities (a "VC Business"), including,
without limitation, activities undertaken through Platinum Venture Partners
or any similar entities as may be formed in the future, holding
directorships, and through such partnerships exercising veto power over
certain decisions in companies in which venture capital investments have
been made; provided that the Consultant shall not without permission in any
such venture invest in any company whose primary business is a Competitive
Activity; or
3
<PAGE>
(ii) for which CA has given permission in writing, which shall not be
unreasonably withheld (or delayed) after the first (1/st/) anniversary of
the Effective Date, provided Consultant's engaging in such activities or
business would not have a material adverse impact on any of CA's lines of
business.
(c) (i) The Consultant shall not, without the written consent of CA,
disclose to any other person or use, whether directly or indirectly, any
Confidential Information relating to or used by Employer, whether in written,
oral or other form, except in connection with the performance of his duties
hereunder. "Confidential Information" shall mean information about Employer or
any of its affiliates, and their clients and customers that is not disclosed by
Employer for financial reporting purposes and that was learned by the Consultant
in the course of employment by Employer or in the course of performing the
services under this Agreement, including (without limitation) any proprietary
knowledge, product and service designs, trade secrets, manuals, technical
information and plans, contracts, systems, procedures, databases, electronic
files, disks and printouts, correspondence, internal reports, personnel files,
information about employees of Employer relating to their education, experience,
skills, abilities, compensation and benefits, and inter-personal relationships
with suppliers to and customers of Employer, sales and advertising material,
business plans, marketing plans, financial data (including without limitation
the revenues, costs or profits associated with services), customer and industry
lists, customer information, customer lists coupled with product or service
pricing, customer contacts, supplier contacts and other contact information,
pricing policies, supplies, agents, risk analyses, engineering information and
computer reports, computer software, computer systems, computer formats,
computer screen designs and computer input and output specifications, inclusive
of any pertinent documentation, techniques, processes, technical information and
know-how. The Consultant acknowledges that such Confidential Information is
specialized, unique in nature and of great value to Employer, and that such
information gives Employer a competitive advantage. The Consultant's
obligations under this Section 5(c) shall survive the termination of the
Consulting Period and of this Agreement and shall be fully enforceable
thereafter in accordance with the terms of this Agreement.
(ii) Confidential Information does not include information which (A)
is or becomes part of the public domain other than as a result of the
Consultant's disclosure, or (B) becomes available to the Consultant on a
nonconfidential basis from a source other than Employer, provided that source is
not bound with respect to that information by a confidentiality agreement with
Employer or otherwise prohibited from transmitting that information by a
contractual, legal or other obligation.
(iii) If the Consultant is requested or (in the opinion of his
counsel) required by law or judicial order to disclose any Confidential
Information, the Consultant shall provide CA with prompt notice of any such
request or requirement so that CA may seek an appropriate protective order or
waiver of the Consultant's compliance with the provisions of this Section 5(c).
The Consultant will not oppose any reasonable action by, and will cooperate
with, CA to obtain an appropriate protective order or other reliable assurance
that confidential treatment will be
4
<PAGE>
accorded the Confidential Information. If, failing the entry of a protective
order or the receipt of a waiver hereunder, the Consultant is, in the opinion of
his counsel, compelled by law to disclose a portion of the Confidential
Information, the Consultant may disclose to the relevant tribunal without
liability hereunder that portion of the Confidential Information which counsel
advises the Consultant he is legally required to disclose, and each of the
parties hereto agrees to exercise such party's best efforts to obtain assurance
that confidential treatment will be accorded such Confidential Information.
(d) If an award by a court or arbitration panel declares that any term
or provision of this Section 5 is excessive in duration or scope or is
unreasonable or unenforceable, the parties agree that the court or arbitration
panel making such determination shall have the power to reduce the scope,
duration or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified.
(e) In the event of a breach or threatened breach by the Consultant of
the provisions of this Section 5, the Consultant acknowledges that CA will
suffer irreparable injury and may not have an adequate remedy at law and
therefore may be entitled to a temporary restraining order or a preliminary or
permanent injunction restraining the Consultant from such breach without the
requirement of posting security or proving actual damages as well as an
equitable accounting of all profits or benefits arising out of such violation.
In addition, in the event of a breach at any time by the Consultant of the
provisions of this Section 5, the Consultant agrees as liquidated damages
hereunder to repay the full amount of the non-compete payments made pursuant to
Section 5(f). Nothing contained in this Section 5 or elsewhere in this
Agreement shall be construed as prohibiting CA from pursuing any other remedies
available at law or equity for such breach or threatened breach by the
Consultant.
(f) In consideration of the Consultant's covenants under this Section
5, CA shall pay the Consultant the following non-compete payments: (i) $400,000
payable within thirty (30) days from the Effective Date; and (ii) $100,000
payable within 30 days of the first anniversary of the Effective Date.
(g) By executing this Agreement, Consultant assigns and transfers to
Employer all his right, title, and interest in and to all intellectual property
created, developed, conceived, or reduced to practice while employed as a
Consultant or employee of Employer arising in connection with the Services.
While he is employed by Employer and when he ceases to be employed by Employer,
Consultant shall fully and promptly disclose in writing to Employer, and hold in
trust for the sole right and benefit of Employer, all ideas, plans, designs,
methods, techniques, discoveries, inventions, developments, improvements, trade
secrets, computer programs and software, and other proprietary data, records,
and information that Consultant solely or jointly develops or reduces to
practice while employed by, and arising in connection with the Services to,
Employer (collectively "Intellectual Property"), whether or not patentable or
capable
5
<PAGE>
of copyright or trademark registration, and whether or not created, conceived,
developed, or reduced to practice at the request of Employer or during normal
working hours. While employed by Employer and at all times thereafter,
Consultant shall do all things, and execute all documents (including
applications for patents, copyrights, and trademarks, and for renewals,
extensions, and divisions thereof), that are requested and reasonably required
by Employer to create, enforce, or evidence Employer's rights to any
Intellectual Property.
6. Cooperation. (a) The Consultant agrees to cooperate with Employer at
all times (including following termination of the Consulting Period for any
reason) by making himself reasonably available to testify on behalf of Employer,
in any action, suit or proceeding, whether civil, criminal, administrative, or
investigative and to assist Employer in any such action, suit, or proceeding by
providing information and meeting and consulting with Employer or
representatives or counsel to Employer, as reasonably requested by such
representatives or counsel. The Consultant shall be reimbursed by CA for any
expenses (including, but not limited to, legal fees) reasonably incurred by the
Consultant in connection with his compliance with the foregoing covenant.
(b) Consultant shall fully cooperate with CA and Platinum in
connection with filings under the Hart-Scott-Rodino Antitrust Improvements Act
of 1978 and in connection with resolving any investigation or other inquiry of
any governmental entity under the antitrust laws.
7. Conditions to Effectiveness. The Effective Date of this Agreement
(the "Effective Date") shall be the date that the merger of CA and a wholly-
owned subsidiary of CA, becomes effective pursuant to the Merger Agreement. In
the event the Merger Agreement terminates, this Agreement shall terminate.
8. Duties on Termination. At CA's request at any time or upon
termination of the Consulting Period for any reason, the Consultant agrees to
deliver promptly to CA all notebooks, documents, memoranda, reports, files,
samples, books, correspondence, lists, computer tapes or disks, or other written
or graphic records, and the like (and all copies thereof), from Employer's
business, which are or have been in his possession or under his control.
9. Severability. In the event that any one or more of the provisions of
this Agreement shall be or become invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
of this Agreement shall not be affected thereby.
10. Notices. All notices and other communications under this Agreement
shall be in writing and shall be given by first-class mail, certified or
registered with return receipt requested, by reputable overnight carrier or hand
delivery acknowledged in writing by the recipient personally, and shall be
deemed to have been duly given three days after mailing or immediately upon duly
acknowledged hand delivery to the respective persons named below:
6
<PAGE>
If to CA: Computer Associates International, Inc.
One Computer Associates Plaza
Islandia, New York 11788-7000
Attention: Steven M. Woghin
Senior Vice President and General Counsel
Fax: 516-342-4866
If to the Consultant: Larry S. Freedman
Either party may change such party's address for notices by notice duly given
pursuant hereto.
11. Governing Law. This agreement and the legal relations thus created
between the parties hereto shall be governed by and construed under and in
accordance with the internal laws of the State of New York without reference to
the principles of conflicts of laws.
12. Entire Agreement. Except as specifically set forth herein, this
Agreement represents the entire agreement between the parties hereto with
respect to the subject matter hereof, and supersedes all prior agreements,
arrangements, representations and understandings between the parties or their
predecessors and/or affiliates relating to Consultant's employment, severance
benefits, termination payments, and the like. The Consultant acknowledges and
agrees that neither CA nor anyone acting on its behalf has made, and is not
making, and in executing this Agreement, the Consultant has not relied upon, any
representations, promises or inducements except to the extent the same is
expressly set forth in this Agreement.
13. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
14. Assignment of Rights by the Consultant. The Consultant may not assign
any rights hereunder without the prior written consent of CA. Any such
assignment in the absence of such written consent shall be void. CA may assign
this Agreement to any successor to CA or a substantial part of CA's business or
assets provided that any such assignment shall not expand Consultant's
obligations hereunder.
15. Amendments; Waivers. (a) This Agreement may not be modified, amended,
altered or supplemented except upon the written agreement executed by the
parties hereto.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
7
<PAGE>
16. Mutual Release. Upon the Effective Date, the Consultant is hereby
released from and CA waives, any and all liability, claims, damages, causes of
action, judgments (including any of the foregoing with respect to costs,
penalties, losses and expenses) which CA has or may have against the Consultant
solely in connection with expenses incurred or non-monetary CA resources used,
by the Consultant in the performance of his ordinary course duties as an officer
and/or employee of CA, provided that Consultant is not released from any
liability pursuant to this Agreement. Upon the Effective Date, CA is hereby
released from, and the Consultant waives any and all liability, claims, damages,
causes of action, judgments (including any of the foregoing with respect to
costs, penalties, losses and expenses) the Consultant incurred, or non-monetary
CA resources used, in the performance of his ordinary course duties as an
officer and/or employee of CA, provided that CA is not released from any
liability pursuant to this Agreement, any option agreements or any other written
agreement entered into by the Consultant in connection with the Merger described
in the Merger Agreement. For purposes of this Section 16, the term "CA" shall
be construed to include CA, Platinum, its and their subsidiaries, and its and
their predecessor or successor entities and assigns.
CA has caused this Agreement to be executed and delivered by its duly
authorized officer and the Consultant has executed and delivered this Agreement
as of the date set forth above.
/s/ Larry S. Freedman
--------------------------------------
Larry S. Freedman
Consultant
Computer Associates International, Inc.
By: /s/ Charles P. McWade
-----------------------------------
Name: Charles P. McWade
Title: Senior Vice President
8
<PAGE>
Schedule A
Description of Consulting Services
- ----------------------------------
Transition Services
Integration Services
Customer Relations and Retention
Employee Relations and Retention
Strategic Planning
<PAGE>
EXHIBIT 10.17
BUSINESS OPPORTUNITIES AGREEMENT
This BUSINESS OPPORTUNITIES AGREEMENT (this "Agreement") is made as of
December 7, 1999 by and among divine interVentures, inc., a Delaware corporation
(the "Corporation") and Dell USA L.P., Microsoft Corporation, CBW/SK divine
Investments, Frontenac VII Limited Partnership, Frontenac Masters VII Limited
Partnership, First Chicago Investment Corporation, Cross Creek IX, LLC and
Mesirow Capital Partners VII (together, the "Purchasers").
This Agreement is made in connection with the investment in the Corporation
by each of the Purchasers pursuant to a Purchase Agreement dated as of the date
hereof (the "Purchase Agreement").
For good and valuable consideration, the Purchasers agree with the
Corporation as follows:
1. Business Opportunities.
(a) The Purchasers and the Corporation recognize that the Purchasers,
their Affiliates (as defined in the Purchase Agreement) and assigns, and the
directors designated for appointment to the Board of Directors of the
Corporation or any committee thereof by the Purchasers (i) have participated,
directly or indirectly, and will continue to participate in investments in
corporations, partnerships, joint ventures, limited liability companies and
other entities and other similar transactions, (ii) may acquire, hold and
dispose of investments or other interests in, participate with, assist and
maintain positions on the Board of Directors or a committee thereof or as
officers or employees of other such entities, and (iii) may originate, develop
or receive business opportunities for Purchasers and such other entities. Such
directors may be directors, officers or employees of the Purchasers or their
respective Affiliates, or directors, officers, employees or advisors of entities
in which the Purchasers or their respective Affiliates have invested or may
invest (collectively, the "Positions"). In such Positions, such directors
elected or appointed by the Purchasers may encounter business opportunities that
the Corporation may desire to pursue. The Corporation recognizes that such
opportunities may include, but shall not be limited to, identifying, pursuing
and investing in entities, engaging investment banking firms or underwriters for
access to public and private securities markets, and obtaining investment funds
from institutional and private investors or others.
(b) Therefore, the Purchasers and the Corporation agree that the
Purchasers and the directors elected or appointed by the Purchasers shall have
no obligation to the Corporation, the other stockholders of the Corporation or
any other person or entity to present any such business opportunity to the
Corporation before presenting such opportunity to any other entities (each an
"Other Entity") and allowing such other entities time to develop such
opportunity, other than opportunities that are presented to him or her solely
in, and as a direct result of, his or her capacity as a director of the
Corporation. Notwithstanding the preceding sentence, if an opportunity is
<PAGE>
separately presented to or, originated, developed or received by, any Other
Entity, including the Purchasers or their respective Affiliates, such Other
Entity shall be free to pursue such opportunity even if such opportunity also
came to the director's attention solely in and as a direct result of, his or her
capacity as a director of the Corporation. This Agreement shall in no way allow
an individual to usurp a business opportunity solely for his or her personal
benefit without first presenting and allowing time to develop such opportunity
to the entities referred to above (including the Corporation).
(c) The Purchasers and the Corporation acknowledge that, in any such
case, to the extent a court might hold that the conduct of such activity is a
breach of a duty of the Corporation, the Purchasers and the Corporation hereby
waive any and all claims and causes of action that the Purchasers or the
Corporation may have for such activities. The Purchasers and the Corporation
agree that the waivers and agreements in this Agreement identify certain types
and categories of activities which do not violate the director's duty of loyalty
to the Corporation, and such types and categories are not manifestly
unreasonable. The waivers and agreements in this Agreement apply equally to
activities conducted in the future and that have been conducted in the past.
2. Miscellaneous.
This Agreement may be signed in any number of counterparts, each of which
when so executed and delivered shall be deemed an original, and such
counterparts together shall constitute one instrument. This Agreement shall be
governed by and construed in accordance with the laws of the State of Delaware.
This Agreement shall terminate as of the date that Purchasers no longer
have the right or voting power to elect or designate any members of the Board of
Directors of the Corporation or any committee thereof.
<PAGE>
IN WITNESS WHEREOF, this Business Opportunities Agreement was executed as
of the date first set forth above.
DIVINE INTERVENTURES, INC.
By: /s/ Michael P. Cullinane
---------------------------
Michael P. Cullinane
Executive Vice President
(SIGNATURE PAGE TO BUSINESS OPPORTUNITIES AGREEMENT)
<PAGE>
FRONTENAC VII LIMITED PARTNERSHIP
By: Frontenac Company VII, L.L.C.
Its: General Partner
By: /s/ Jeremy Silverman
--------------------------
Its: Member
--------------------------
FRONTENAC MASTERS VII LIMITED PARTNERSHIP
By: Frontenac Company VII, L.L.C.
Its: General Partner
By: /s/ Jeremy Silverman
--------------------------
Its: Member
--------------------------
(SIGNATURE PAGE TO BUSINESS OPPORTUNITIES AGREEMENT)
<PAGE>
FIRST CHICAGO INVESTMENT CORPORATION
By: /s/ Eric C. Larson
-----------------------
Its: Attorney-in-Fact
-----------------------
CROSS CREEK PARTNERS X, LLC
By: /c/ Eric C. Larson
-------------------------
Its: General Partner
-------------------------
(SIGNATURE PAGE TO BUSINESS OPPORTUNITIES AGREEMENT)
<PAGE>
DELL USA L.P.
By: Dell Gen. P. Corp.
Its: General Partner
By: /s/ Alex C. Smith
-----------------------------------------
Name: Alex C. Smith
---------------------------------------
Title: VP, Business Development
--------------------------------------
(SIGNATURE PAGE TO BUSINESS OPPORTUNITIES AGREEMENT)
<PAGE>
CBW/SK DIVINE INVESTMENTS,
a New York general partnership
By: /s/ Sanjay Kumar
---------------------------------------
Sanjay Kumar, a general partner
(SIGNATURE PAGE TO BUSINESS OPPORTUNITIES AGREEMENT)
<PAGE>
MICROSOFT CORPORATION
By: /s/ Amar Nehru
---------------------------------------
Its: General Manager, Corporate Development
--------------------------------------
(SIGNATURE PAGE TO BUSINESS OPPORTUNITIES AGREEMENT)
<PAGE>
MESIROW CAPITAL PARTNERS VII,
an Illinois Limited Partnership
By: Mesirow Financial Services, Inc.
Its: General Partner
By: /s/ Daniel P. Howell
-----------------------------------
Daniel P. Howell
Vice President
(SIGNATURE PAGE TO BUSINESS OPPORTUNITIES AGREEMENT)
<PAGE>
Exhibit 10.18
BIG SHOULDERS INTERTECH FUND, L.P.
LIMITED PARTNERSHIP AGREEMENT
DATED AS OF FEBRUARY 10, 2000
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
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Page
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<S> <C>
ARTICLE I
Definitions................................................................1
ARTICLE II
General Provisions.........................................................6
2.1 Formation of Limited Partnership......................................6
2.2 Filing of Certificates................................................6
2.3 Name of Partnership...................................................6
2.4 Principal Place of Business of General Partner; Agent for Process.....6
2.5 Term of Partnership...................................................7
2.6 Admission of Limited Partners.........................................7
2.7 Purposes..............................................................8
2.8 Partners' Names and Addresses.........................................8
2.9 Title to Partnership Property.........................................8
ARTICLE III
Capital Contributions......................................................9
3.1 Definition............................................................9
3.2 Capital Commitments...................................................9
3.3 Timing of Capital Contributions.......................................9
3.4 Interest and Return of Capital Contributions.........................10
3.5 Limitations on Additional Capital Contributions Due to ERISA.........10
3.6 Default by Limited Partners..........................................10
ARTICLE IV
Allocation of Net Income and Net Losses...................................12
4.1 Definition of Net Income and Net Losses..............................12
4.2 Allocation of Net Income and Net Losses..............................12
4.3 Substantial Economic Effect..........................................13
4.4 Other Allocation Provisions..........................................13
4.5 Withholding..........................................................13
4.6 No Interest on Capital Accounts......................................14
ARTICLE V
Distributions.............................................................14
5.1 General..............................................................14
5.2 Tax Distributions....................................................14
5.3 Discretionary Distributions..........................................15
5.4 Reinvestment.........................................................15
5.5 Distributions Upon Liquidation.......................................16
5.6 Giveback Obligation..................................................16
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE VI
Management 17
6.1 Management of Partnership............................................17
6.2 Authority of General Partner.........................................17
6.3 Limitation on Authority of General Partner...........................18
6.4 Partnership Contracts................................................18
6.5 Expenses.............................................................19
6.6 Management Fee.......................................................19
6.7 Other Activities and Competition.....................................20
6.8 Liability of General Partner.........................................20
6.9 Services to Portfolio Companies......................................21
6.10 Indemnification of General Partner...................................21
6.11 Investment Opportunities.............................................21
6.12 Investments Involving Affiliates.....................................22
6.13 Advisory Board.......................................................23
6.14 ERISA Matters........................................................24
6.15 Unrelated Business Taxable Income....................................24
ARTICLE VII
Rights and Obligations of Limited Partners................................24
7.1 Limitations on Limited Partners......................................24
7.2 Diversification......................................................24
7.3 Co-Investment Rights.................................................24
7.4 Removal of General Partner...........................................25
7.5 Deficit Capital Accounts at Liquidation..............................25
ARTICLE VIII
Assignability of Interest; Withdrawal.....................................26
8.1 Assignment of General Partner's Interest.............................26
8.2 Assignment of Limited Partner's Interest.............................26
8.3 Substitute Limited Partner...........................................26
8.4 Effective Date.......................................................27
8.5 Amendment of Agreement...............................................27
8.6 Withdrawal by Limited Partner........................................27
8.7 Annual Meeting.......................................................29
ARTICLE IX
Investments...............................................................29
9.1 Liquid Investments...................................................29
9.2 Investment Intent of Limited Partners................................29
ARTICLE X
Dissolution and Termination................................................29
10.1 Extension of Partnership Term........................................29
10.2 Events of Dissolution................................................30
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.3 Distributions Upon Liquidation.......................................31
10.4 Election to Carry on Activities......................................31
ARTICLE XI
Books, Records and Bank Accounts...........................................31
11.1 Books and Records....................................................31
11.2 Accounting Basis and Accounting Year; Fiscal Year....................31
11.3 Reports; Annual Certificate..........................................31
11.4 Valuation of Partnership Assets......................................32
11.5 Depository Accounts..................................................33
11.6 Tax Elections........................................................33
ARTICLE XII
Amendments.................................................................33
12.1 Amendments With Consent of the Partners..............................33
12.2 Amendments Without Consent of the Partners...........................34
ARTICLE XIII
Miscellaneous..............................................................34
13.1 Notices..............................................................34
13.2 Voting; Consents.....................................................34
13.3 Successors and Assigns...............................................35
13.4 Partner Duties.......................................................35
13.5 ERISA Representations and Warranties.................................35
13.6 Partition............................................................35
13.7 No Waiver............................................................35
13.8 Captions.............................................................36
13.9 Counterparts.........................................................36
13.10 Governing Law........................................................36
13.11 Gender and Number....................................................36
13.12 No Third Party Beneficiaries.........................................36
13.13 Severability.........................................................36
13.14 Entire Agreement.....................................................36
</TABLE>
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LIMITED PARTNERSHIP AGREEMENT
OF
BIG SHOULDERS INTERTECH FUND, L.P.
----------------------------------
THIS LIMITED PARTNERSHIP AGREEMENT is made and entered into as of February
10, 2000, by and among Big Shoulders Management, L.L.C., a Delaware limited
liability company, as general partner (the "General Partner"), and the persons
listed on Schedule 1 hereto as limited partners, as they may change from time to
time in accordance with the terms hereof (collectively, the "Limited Partners").
WITNESSETH:
WHEREAS, the parties hereto wish to form a limited partnership to be
governed by the Delaware Revised Uniform Limited Partnership Act, as amended
from time to time (the "Act"), for the purposes and upon the terms and
conditions herein set forth;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
1.1 "Accountants" means KPMG Peat Marwick or such other certified public
accountants of national standing as may be selected by the General Partner from
time to time.
1.2 "Act" is defined in the recital hereof.
1.3 "Adjusted Capital Contributions" means, with respect to each Partner,
such Partner's Capital Contributions reduced by any distributions previously
made to that Partner pursuant to Section 5.3.
1.4 "Advisory Board" is defined in Section 6.12 hereof.
1.5 "Affiliate" means, with respect to a specified Person, (i) any Person
directly or indirectly controlling, controlled by, or under common control with
the specified Person, or (ii) any officer, director, general partner or managing
member of the specified Person or any Person directly or indirectly controlling,
controlled by, or under common control with such officer, director, general
partner or managing member; provided, that in no event shall any specified
Person be deemed to be an Affiliate solely by reason of any of Andrew J.
Filipowski, Tom Thornton, Michael P. Cullinane, Paul L. Humenansky or Scott
Hartkopf acting as a director or otherwise in a fiduciary capacity with respect
to such specified Person.
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1.6 "Agreement" means this Agreement of Limited Partnership, as amended
from time to time in accordance with the terms hereof.
1.7 "Annual Meeting" is defined in Section 8.8 hereof.
1.8 "Bankruptcy" means, in the case of a Partner, when (a) such Partner
shall (i) become insolvent or generally fail to pay, or admit in writing its
inability to pay, its debts generally as they become due, (ii) commence a case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, (iii) make a general assignment for the benefit of its
creditors, (iv) consent to or acquiesce in the appointment of a receiver,
trustee, sequestrator or other custodian for itself or any substantial part of
its property, (v) consent to or acquiesce in the relief sought in an involuntary
case under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or (vi) take any action in furtherance of any of the
aforesaid purposes; or (b) a court of competent jurisdiction shall enter an
order, decree or order for relief in respect of such Partner in an involuntary
case under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, appointing without the consent of such Partner a receiver,
trustee, sequestrator or other custodian for such Partner or any substantial
part of its property, or approving commencement of an involuntary case filed
against such Partner under any applicable law now or hereafter in effect seeking
the winding up or liquidation of its affairs, and such order, decree or order
for relief shall not be vacated or set aside or stayed within sixty (60) days
from the date of entry thereof.
1.9 "Bridge Financing" means any investment by the Partnership in debt
securities issued by companies of the kind and nature described in Section 2.7
that is intended at the time of such investment by the Partnership to be repaid
or otherwise disposed of within twelve (12) months of such investment.
1.10 "Capital Account" means, with respect to each Partner, the account
established and maintained for the Partner on the books of the Partnership.
Each Partner's Capital Account will initially equal the cash contributed by such
Partner to the Partnership, and throughout the term of the Partnership will be
(i) increased by the amount of (A) income and gains allocated to such Partner
pursuant to Article IV, and (B) any cash subsequently contributed by such
Partner to the Partnership, and (ii) decreased by the amount of (A) losses and
deductions allocated to such Partner pursuant to Article IV, and (B) the amount
of distributions in cash and the value of distributions of property (net of
liabilities secured by the property that the Partner is considered to assume or
take subject to) distributed to such Partner.
1.11 "Capital Commitment" is defined in Section 3.2 hereof.
1.12 "Capital Contribution" is defined in Section 3.1 hereof.
1.13 "Capital Deficiency" is defined in Section 5.6 hereof.
1.14 "Carried Interest Distributions" is defined in Section 5.6 hereof.
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1.15 "Certificate" means the Certificate of Limited Partnership of Big
Shoulders interTech Fund, L.P. filed in the Office of the Secretary of State of
Delaware, as amended from time to time.
1.16 "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
1.17 "Co-Investment" is defined in Section 7.3 hereof.
1.18 "Commitment Period" means the period commencing with the First Closing
and ending on the fourth anniversary of the date of the Final Closing.
1.19 "Default Interest" in defined in Section 3.6(d) hereof.
1.20 "Default Notice" is defined in Section 3.6(a) hereof.
1.21 "Defaulting Limited Partner" is defined in Section 3.6(a) hereof.
1.22 "Delinquent Payment" is defined in Section 3.6(a) hereof.
1.23 "Designated Securities" is defined in Section 8.6(c) hereof.
1.24 "Dissolution Date" is defined in Section 2.5 hereof.
1.25 "Diversification Limit" is defined in Section 7.2 hereof.
1.26 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations thereunder and judicial rulings and
interpretations thereof.
1.27 "ERISA Partner" means any Limited Partner which (i) is an employee
benefit plan subject to Title I of ERISA or a plan subject to Section 4975 of
the Code, or (ii) is a nominee for, or is using or holding the plan assets of,
or is a trust established pursuant to, one or more such employee benefit plans
or other plans.
1.28 "Estimated Value of the Fund" is defined in Section 11.4 hereof.
1.29 "Fee Amount" is defined in Section 2.6(c) hereof.
1.30 "Final Closing" means the last date on which additional Limited
Partners are admitted pursuant to Section 2.6 hereof.
1.31 "First Closing" is defined in Section 2.6(a) hereof.
1.32 "GAAP" is defined in Section 11.2 hereof.
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1.33 "General Partner" means Big Shoulders Management, L.L.C., and any
successor elected pursuant to Section 7.3 hereof.
1.34 "Identified" means an investment in a Security for which a letter of
intent, term sheet, memorandum of understanding or similar instrument has been
entered into by or on behalf of the Partnership.
1.35 "Initial Limited Partner" means a person who is admitted to the
Partnership to facilitate the filing of the Certificate and the formation of the
Partnership prior to the First Closing.
1.36 "Interest" means, when used in reference to an interest in the
Partnership, the entire ownership interest of a Partner in the Partnership at
any particular time, including without limitation his or its interest in the
capital, profits, losses and distributions of the Partnership and any rights,
powers or obligations associated with such interest.
1.37 "Interest Amount" is defined in Section 2.6(b) hereof.
1.38 "Limited Partner" means any Person who is a limited partner of the
Partnership at the time of reference thereto, in such Person's capacity as a
limited partner of the Partnership.
1.39 "Liquid Investments" is defined in Section 9.1 hereof.
1.40 "Majority-in-Interest of the Nondefaulting Limited Partners" means
Nondefaulting Limited Partners whose aggregate Participation Percentages exceed
50% of all Nondefaulting Limited Partners' Participation Percentages.
1.41 "Make-Up Amount" is defined in Section 2.6(b) hereof.
1.42 "Management Expenses" is defined in Section 6.5(b) hereof.
1.43 "Management Fee" means the annual management fee payable by the
Partnership to the General Partner pursuant to Section 6.6 hereof.
1.44 "Management Fee Multiplier" means, for the period beginning on the
sixth anniversary of the Final Closing and ending on the seventh anniversary of
the Final Closing, ninety percent (90%), and for each annual period ending on
each succeeding anniversary until the Dissolution Date, the applicable
percentage in effect for the prior annual period, less ten percent (10%).
1.45 "Net Cash Flow" means, with respect to any applicable period, the
gross receipts of the Partnership (other than Short-Term Investment Income),
including cash proceeds received by the Partnership from the sale or exchange of
Securities or the fair market value of distributions of Securities in-kind, less
(i) Partnership Expenses actually paid during such period, (ii) payment of, or
provision for, all debts and obligations to be satisfied as the result of, or in
connection with,
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<PAGE>
such sale or exchange, (iii) payment of all costs and expenses
incurred in connection with the receipt or collection of such proceeds, and (iv)
the setting aside of any reserves from such proceeds.
1.46 "Net Income" and "Net Losses" are defined in Section 4.1 hereof.
1.47 "Nondefaulting Limited Partner" is defined in Section 3.7(a) hereof.
1.48 "Organizational Expenses" is defined in Section 6.2(a) hereof.
1.49 "Participation Percentage" means, with respect to any Partner at any
time, the ratio of (i) the sum of the aggregate Capital Contributions made by
such Partner to (ii) the sum of the aggregate Capital Contributions made by all
Partners.
1.50 "Partner" means the General Partner or any Limited Partner.
1.51 "Partnership" means the limited partnership formed pursuant to the
Certificate and this Agreement.
1.52 "Partnership Expenses" is defined in Section 6.5(a) hereof.
1.53 "Person" means any individual, corporation, partnership, limited
liability company, trust or other entity.
1.54 "Plan Asset Regulations" means the regulations concerning the
definition of "Plan Assets" under ERISA adopted by the U.S. Department of Labor
and codified in 29 C.F.R. 2510.3-101.
1.55 "Portfolio Company" means an issuer of Securities in which the
Partnership has an interest or owns Securities.
1.56 "Prime Rate" means the prime rate of interest announced from time to
time by The Northern Trust Company or its successor.
1.57 "Regulated Limited Partner" is defined in Section 8.6(b) hereof.
1.58 "Security" and "Securities" are defined in Section 2.7 hereof.
1.59 "Short-Term Investment Income" means, with respect to any applicable
period, the gross receipts of the Partnership from cash equivalents and short-
term investments, including without limitation, income earned on Liquid
Investments and Bridge Financings, less Partnership Expenses actually paid
during such period.
1.60 "Subsequent Closing" is defined in Section 2.6(a) hereof.
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1.61 "Substitute Limited Partner" means a Person admitted pursuant to
Section 8.3 hereof as the successor to all of the rights of a Limited Partner
with respect to all or any part of such Limited Partner's interest in the
Partnership.
1.62 "Target Investment" means an investment which, if made by the
Partnership, would be made in a start-up or early-stage company located in
Illinois, would require an initial investment of $2,000,000 or less, would not
violate the Diversification Limit, would not cause the assets of the Partnership
to be treated as "plan assets" under ERISA, would not require a capital
investment in excess of the remaining Capital Commitments of the Partners and
would be in the best interests of the Partnership as determined by the General
Partner in its reasonable discretion.
1.63 "Total Cost" means, with respect to any Security, the difference
between (A) the sum of (i) the total purchase price paid for such Security or
the capital invested in such Security by the Partnership and (ii) all out-of-
pocket costs and expenses incurred by the Partnership in connection with the
purchase of such Security, and (B) any realized losses with respect to such
Security.
1.64 "Two-Thirds-in-Interest of the Nondefaulting Limited Partners" means
Nondefaulting Limited Partners whose aggregate Participation Percentages are
equal to or exceed 66 2/3% of all of the Nondefaulting Limited Partners'
Participation Percentages.
1.65 "UBTI" means "unrelated business taxable income" as defined in
Sections 511 through 514 of the Code.
1.66 "VCOC" means a "venture capital operating company" as defined in
Section 2510.3-101(d) of the Plan Asset Regulations.
ARTICLE II
GENERAL PROVISIONS
2.1 Formation of Limited Partnership. The parties to this Agreement
hereby form a limited partnership under and pursuant to the Act and the rights
and liabilities of the Partners shall be as provided in the Act, except as
herein otherwise expressly provided.
2.2 Filing of Certificates. The General Partner shall file the
Certificate and all such certificates, notices, statements or other instruments
required by law for the formation and operation of a Delaware limited
partnership.
2.3 Name of Partnership. The name of the Partnership shall be "Big
Shoulders interTech Fund, L.P."
2.4 Principal Place of Business of General Partner; Agent for Process.
The principal place of business of the General Partner shall be 4225 Naperville
Road, Suite 400, Lisle, Illinois
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60532, or such other place as the General Partner shall determine. The agent to
accept service of process for the Partnership shall be The Corporation Trust
Company and its registered office in Delaware is located at Corporation Trust
Center, 1209 Orange Street, Wilmington, Delaware 19801.
2.5 Term of Partnership. The term of the Partnership shall commence on
the date the Certificate is filed in the office of the Secretary of State of
Delaware in accordance with the Act, and shall continue until the date, which is
ten (10) years from the date of the last Subsequent Closing (or the date of the
First Closing if there is no Subsequent Closing) ("Dissolution Date"), unless
extended pursuant to Section 10.1 hereof, or sooner dissolved as provided in
Section 10.2 hereof or by operation of law.
2.6 Admission of Limited Partners.
(a) The Partnership shall commence operations at the date that Limited
Partners other than the Initial Limited Partner are first admitted to the
Partnership (the "First Closing"). The General Partner may admit additional
Limited Partners at one or more subsequent closings (the "Subsequent Closings"),
each of which shall occur no later than that date which is nine (9) months after
the date of the First Closing (the "Offering Period"). No additional Limited
Partners shall thereafter be admitted to the Partnership, except Persons who
shall be admitted as Substitute Limited Partners pursuant to Section 8.3 hereof.
(b) Subject to the provisions of this Agreement, during the Offering
Period, the General Partner is authorized, but not obligated, to offer
additional Interests and admit other Persons to the Partnership as additional
Limited Partners; provided, that in no event shall the General Partner accept
subscriptions for Interests in excess of $100,000,000, in the aggregate. In the
event that an additional Limited Partner is admitted to the Partnership at a
Subsequent Closing, such additional Limited Partner shall contribute to the
Partnership an amount equal to its pro rata portion (based upon the ratio of its
Capital Commitment to the aggregate amount of all Partners' Capital Commitments,
including its own) of an amount equal to (i) all Capital Contributions made as
of the date of admission less the sum of (a) all distributions made to the
Limited Partners under Section 5.3 hereof and (b) all Management Fees paid prior
to the date of admission (the amount described in this clause (i) being herein
called the "Make-Up Amount"), plus (ii) interest on the Make-Up Amount accruing
from the First Closing or Subsequent Closing, as the case may be, at a rate
equal to the Prime Rate (the amount described in this clause (ii) being herein
called the "Interest Amount"). The Make-Up Amount contributed by such additional
Limited Partner may (i) be distributed among the other Partners, pro rata, based
upon their Participation Percentages immediately prior to the admission of such
additional Limited Partner, or (ii) may be retained by the Partnership and
offset against future Capital Contributions required of such Partners until the
ratio of each additional Limited Partner's Capital Contributions to its Capital
Commitment is the same as such ratio for all other Partners. If distributed,
each Partner's pro rata portion of the distribution of the Make-Up Amount shall
reduce such Partner's total Capital Contribution to date and increase its
unfunded Capital Commitment to date. The Interest Amount shall not be deemed to
be a Capital Contribution by the additional Limited Partner and shall be paid
directly to the Partners pro rata, based upon their Participation Percentages
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immediately prior to the admission of such additional Limited Partner. The Fee
Amount (contributed by payment to the General Partner pursuant to Section 2.6(c)
below) and the Make-Up Amount shall be deemed contributed to the Partnership as
of the date of admission of such additional Limited Partner. An additional
Limited Partner shall not be deemed to have made Capital Contributions on
account of payment of the Interest Amount to the existing Limited Partners, but
each Limited Partner shall be deemed to have a received a return as of the
admission date for such additional Limited Partner equal to the portion of the
Interest Amount received by such Limited Partner.
(c) In addition to the Make-Up Amount payable to the Partnership, an
additional Limited Partner shall pay directly to the General Partner as a
contribution to the capital of the Partnership an amount equal to (i) the
Management Fee that would have been paid to date assuming the additional Limited
Partner had been admitted at the First Closing, minus the Management Fee that
actually had been paid to date (the "Fee Amount"), plus (ii) interest accrued on
the Fee Amount from the date of the First Closing through the date of admission
at a rate equal to the Prime Rate. Any accrued interest payable on the Fee
Amount shall not be deemed to be a Capital Contribution by such additional
Limited Partner.
2.7 Purposes. The Partnership is organized for the purpose of generating
significant returns for its Partners by purchasing, holding, selling and
investing in equity securities, other securities having equity-like
characteristics or debt securities issued by start-up and early-stage companies
or other entities (referred to herein as a "Security" or "Securities"), and
engaging in such other activities incidental or ancillary thereto as the General
Partner deems necessary or advisable, including, but not limited to, investing
in Liquid Investments for the purpose set forth in Section 9.1, making Bridge
Financings, and managing and supervising investments in Securities and Bridge
Financings. It is understood and agreed that in furtherance of its objectives,
the Partnership generally will invest in start-up and early-stage companies
located in Chicago and throughout Illinois and generally will make initial
investments of between $250,000 and $2,000,000 in each particular Security, but
may from time to time make investments in companies located outside of Illinois
or make larger or smaller investments as determined by the General Partner in
its sole discretion. The primary industries in which the Partnership will
invest are information technology, software services, business-to-business and
business-to-consumer e-commerce and interactive marketing services.
2.8 Partners' Names and Addresses. The names and addresses of the
Partners are set forth on Schedule 1 hereto. Any Limited Partner may change its
address upon written notice to the General Partner and the General Partner may
change its address upon written notice to all Limited Partners.
2.9 Title to Partnership Property. All property owned by the Partnership
shall be deemed to be owned by the Partnership as an entity, and no Partner,
individually, shall have any ownership interest in any such property. Title to
Partnership property may be held in street name or another sort of nominee
arrangement if the General Partner determines that such arrangement is in the
Partnership's best interest.
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ARTICLE III
CAPITAL CONTRIBUTIONS
3.1 Definition. The "Capital Contribution" of each Partner shall mean the
total amount of cash contributed to the Partnership by such Partner.
3.2 Capital Commitments. Each Partner hereby commits to make
contributions to the capital of the Partnership in the total amount set forth
opposite its name on Schedule 1 hereto under the heading "Capital Commitments"
(the "Capital Commitments"). The minimum Capital Commitment of each Partner
which is a corporation or other entity shall be $1,000,000 and the minimum
Capital Commitment of each Partner which is an individual shall be $500,000;
provided, however, that the General Partner may, in either case, accept
subscriptions for lesser amounts, in its sole discretion. The General Partner
hereby commits to contribute an amount equal to at least 1% of the aggregate
amount of all Partners' Capital Commitments. The General Partner may commit to
contribute additional amounts as a Limited Partner in its discretion.
3.3 Timing of Capital Contributions.
(a) Subject to Section 6.14, as and when at any time the General
Partner determines that capital is required to invest in Securities, provide
working capital, establish reasonable reserves or pay expenses, costs, losses or
liabilities of the Partnership, including without limitation, payment of the
Management Fee, the Partners shall contribute cash to the capital of the
Partnership. All Capital Contributions shall be made within ten (10) days after
notice from the General Partner of the amounts to be contributed by each Partner
and of the general purposes to which such contributions will be applied. The
amount of cash required to be contributed by each Partner shall be equal to the
total amount of Capital Contributions called for by the General Partner,
multiplied by a fraction, the numerator of which shall be the amount of such
Partner's Capital Commitment and the denominator of which shall be the aggregate
amount of all Partners' Capital Commitments. Without limitation upon the terms
and provisions hereof, nothing in this Agreement shall operate to increase any
Partner's Capital Commitment, and no Partner shall have any obligation to
contribute any amounts in excess of such Partner's aggregate Capital Commitment
to the Partnership.
(b) Any portion of a Partner's Capital Commitment which has not been
called for by the General Partner by the end of the Commitment Period or is not
required for Identified investments in Securities as of the end of the
Commitment Period shall be released from further commitment to the Partnership;
provided, however, the General Partner may at any time request Capital
Contributions from the Partners to (i) pay expenses or costs, losses or
liabilities of the Partnership, including without limitation, payment of the
Management Fee, (ii) fund reasonable reserves established by the General Partner
to facilitate any additional investments by the Partnership in Securities held
by the Partnership as of the end of the Commitment Period, and (iii) complete
Identified investments in Securities as of the end of the Commitment Period.
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3.4 Interest and Return of Capital Contributions. No Partner shall be
entitled to interest on any Capital Contribution and no Partner shall have the
right to withdraw or to demand the return of all or any part of its Capital
Contribution, except as specifically provided in this Agreement.
3.5 Limitations on Additional Capital Contributions Due to ERISA.
Notwithstanding Section 3.2, if at any time before any Capital Contribution to
the Partnership required by Section 3.3 is due, (i) a Limited Partner shall
obtain and deliver to the General Partner an opinion of counsel reasonably
satisfactory to the General Partner that such Limited Partner is subject to
ERISA and the assets of the Partnership may be deemed to constitute "plan
assets" under ERISA or (ii) the certificate required by Section 6.1(b) is not
provided when due, then at such Limited Partner's request, it shall have no
further obligation to make any additional contribution, the Capital Commitment
of such Limited Partner shall be reduced to an amount equal to its Capital
Contribution, and such Limited Partner shall not, by reason of its failure to
make such additional contribution, be deemed a Defaulting Limited Partner
pursuant to Section 3.6 hereof; provided, that the General Partner subsequently
may (but shall not be obligated to) accept additional Capital Contributions from
such Limited Partner upon receipt of an opinion of counsel reasonably
satisfactory to the General Partner that the legal conditions described in this
Section 3.5 no longer exist.
3.6 Default by Limited Partners.
(a) In the event any Limited Partner fails for any reason to make a
Capital Contribution when due pursuant to Section 3.3 hereof, and fails to make
such contribution within ten (10) days after receiving written notice from the
General Partner that such payment (a "Delinquent Payment") is overdue (a
"Defaulting Limited Partner"), the General Partner may give written notice of
the default (the "Default Notice") to each Limited Partner who has not defaulted
in such Capital Contribution (a "Nondefaulting Limited Partner"), and any
Nondefaulting Limited Partner shall have the right, within ten (10) days from
the expiration of such 10-day period, to fund all or part of the amount of the
Delinquent Payment. Each Nondefaulting Limited Partner shall have the right to
fund its pro rata share (based on the proportion of its Capital Commitment to
the aggregate of all Capital Commitments of all Nondefaulting Limited Partners)
of the Delinquent Payment (each, a "Contributing Partner"). If less than all of
the Delinquent Payment is funded by the Contributing Partners on a pro rata
basis, then the General Partner may offer to and select any Person (which may be
the General Partner or an Affiliate thereof) to contribute the balance of the
Delinquent Payment. Each Contributing Partner or other Person contributing a
portion of the Delinquent Payment agrees to assume the obligations of the
Defaulting Limited Partner to contribute to the Partnership any remaining
portion of the Defaulting Partner's Capital Commitment as and when due pursuant
to Section 3.3 hereof. If all of the Delinquent Payment is funded, the
Defaulting Limited Partner shall no longer be required to make any contributions
to the Partnership on account of its Capital Commitment.
(b) In the event and each time that a Partner becomes a Defaulting
Limited Partner and one or more Contributing Partners elect to make a Defaulting
Limited Partners's Capital Contribution that is otherwise due and constitutes a
Delinquent Payment pursuant to
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Section 3.6(a), the Participation Percentages of each of the of the Contributing
Partners and the Defaulting Limited Partner shall be recalculated in accordance
with the Capital Contributions made by the Contributing Partners or any Person
on account of a Delinquent Payment. In addition, Schedule 1 hereto will be
revised to reflect any reduction in the Defaulting Limited Partner's Capital
Commitment and any increase in the Capital Commitment of the Contributing
Partners on account of their pro rata assumption of the Defaulting Partner's
Capital Commitment.
(c) In addition, and without limitation upon any other rights or
remedies of the Partnership, the General Partner may offer to the Nondefaulting
Limited Partners, by delivery of a Default Notice, the opportunity to purchase
the Defaulting Partner's Interest in the Partnership; provided, that no sale
shall be consummated pursuant to this Section 3.6 if it would result in a non-
exempt prohibited transaction under ERISA or the Code. Within ten (10) days of
receipt of such notice (the "Election Period"), any Nondefaulting Partner may,
by delivery of written notice to the Defaulting Partner and the General Partner,
elect to purchase all, but not less than all, of the Defaulting Partner's
Interest in the Partnership at a price (the "Purchase Price") equal to the
Adjusted Capital Contributions of the Defaulting Partner as of the date of the
Default Notice. If more than one Partner desires to purchase the Defaulting
Partner's Interest, each such Partner (a "purchaser") shall have the right to
purchase its pro-rata portion of such Interest, based upon the purchasers'
relative Participation Percentages immediately prior to such purchase. The
closing of the purchase and sale of the Defaulting Partner's Interest shall take
place on a date designated by the purchasers not later than thirty (30) days
following the date of the Default Notice. At the closing, the Defaulting
Partner shall execute and deliver to the purchasers assignments of interest,
bills of sale, instruments of conveyance, and such other instruments as such
purchasers may reasonably require to convey title to all of the Defaulting
Partner's right, title and interest in and to the Partnership, free and clear of
liens, claims and encumbrances. In the event the Defaulting Partner refuses or
fails to execute and deliver any of the foregoing, the purchasers (or their
respective designees) are hereby irrevocably appointed attorneys-in-fact to
execute and deliver on behalf of the Defaulting Partner any such documents or
instruments. At any closing under this paragraph, the Purchase Price for the
Defaulting Partner's Interest shall be paid entirely in cash at the closing, by
delivery of a cashier's or certified check or by wire transfer. In addition, to
the extent that any monies are owed from a Defaulting Partner to the
Partnership, such amounts may be offset against the Purchase Price payable to
the Defaulting Partner hereunder, provided that the purchasers of the Defaulting
Partner's Interest shall agree to assume the obligations of the Defaulting
Partner to contribute to the Partnership any portion of the Defaulting Partner's
required Capital Contribution together with Default Interest (as defined in
Section 3.3(d)) thereon and to pay to the Partnership any Capital Contributions
when called for by the General Partner in accordance with Sections 3.3 or 5.4.
(d) In addition and without limitation upon any other rights or
remedies of the Partnership, the General Partner may commence legal proceedings
against the Defaulting Limited Partner to collect the unpaid balance of the
Delinquent Payment plus interest accrued at a rate equal to four (4) percentage
points per annum over the Prime Rate ("Default Interest"), from time to time
(but not in excess of the highest rate per annum permitted by law), from the
date the Delinquent Payment was due, plus expenses of collection, including
attorneys' fees.
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(e) During any period in which the Delinquent Payment remains
outstanding, the Defaulting Limited Partner shall have no right to receive
distributions from the Partnership, and such distributions shall be applied
towards satisfaction of such Delinquent Payment. Allocations of Net Income or
Net Losses to a Defaulting Limited Partner shall be made in accordance with
Section 4.2 hereof. Notwithstanding the provisions of this Section 3.6, the
General Partner may, but shall not be obligated to, permit a default to be cured
by a Defaulting Limited Partner on such terms and conditions as it deems
appropriate in its sole discretion.
ARTICLE IV
ALLOCATION OF NET INCOME AND NET LOSSES
4.1 Definition of Net Income and Net Losses. "Net Income" shall mean the
excess of income and gain over expenses of the Partnership for Federal income
tax purposes and "Net Losses" shall mean the excess of expenses and losses over
income and gain of the Partnership for Federal income tax purposes, after taking
into account all income, gain, expenses and losses incurred in connection with
the Partnership's investments in Securities, including, but not limited to,
gains and losses from the sale or other disposition of Securities. Net Income
and Net Losses shall be determined in accordance with the method of accounting
used by the Partnership for federal income tax reporting purposes, consistently
applied.
4.2 Allocation of Net Income and Net Losses. Except as provided in
Section 704 of the Code and regulations promulgated thereunder, Net Income and
Net Losses and each item of income, gain, loss and deduction entering into the
computation thereof, for each fiscal year of the Partnership shall be allocated
to the Partners as follows:
(a) Net Income received from Liquid Investments shall be allocated to
the Partners in accordance with each Partner's Participation Percentage.
(b) All other Net Income and all Net Losses shall be allocated to the
Partners as follows:
(1) Net Income, and a pro rata percentage of each item of gross income
or deduction (capital and/or ordinary) entering into the computation
thereof, shall be allocated in the following order of priority:
(A) First, to the Partners, until an amount equal to the excess
of (i) all Net Losses previously allocated to each Partner
pursuant to Section 4.2(b)(2)(B) over (ii) the total amount of
Net Income previously allocated to the Partners pursuant to this
Section 4.2(b)(1)(A) has been allocated in proportion to each
Partner's share of such excess of (i) over (ii); and
(B) Second (i) 80% to the Partners in accordance with each
Partner's Participation Percentage and (ii) 20% to the General
Partner.
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(2) Net Losses, and a pro rata percentage of each item of gross income
or deduction (capital and/or ordinary) entering into the computation
thereof, shall be allocated in the following order of priority:
(A) First, 80% to the Partners in accordance with each Partner's
Participation Percentage and 20% to the General Partner, until an
amount to the excess of (i) all Net Profits previously allocated
to each Partner pursuant to Section 4.2(b)(1)(B) over (ii) the
total amount of Net Losses previously allocated to the Partners
pursuant to this Section 4.2(b)(2)(A), has been allocated among
the Partners in proportion to each Partner's share of such excess
of (i) over (ii); and
(B) Second, any additional Net Losses shall be allocated among
the Partners in proportion to their Capital Contributions.
4.3 Substantial Economic Effect. It is the intent of the Partners that
the tax allocations of the Partnership will meet the requirements for
"substantial economic effect" of Section 704 of the Code, and the regulations
promulgated thereunder. The tax allocations set forth in this Article IV shall
be interpreted consistently with the foregoing intent, and the tax allocations
shall be amended, if necessary, in order to accomplish this purpose.
4.4 Other Allocation Provisions
(a) For the purpose of adjusting the Capital Accounts of the Partners,
and determining Net Income and Net Losses, if any property is distributed in
kind to any Partner, the difference between its fair market value (as determined
in the reasonable judgement of the General Partner or a liquidator, as the case
may be) and its book value at the time of distribution shall be treated as gain
or loss recognized by the Partnership and allocated pursuant to the provisions
of Section 4.2.
(b) Except to the extent otherwise required by the Code and
regulations, if an Interest in the Partnership or part thereof is transferred in
any fiscal year, the items of income, gain, loss, deduction and credit allocable
to the Interest in the Partnership for such fiscal year shall be apportioned
between the transferor and the transferee in proportion to the number of days in
such fiscal year the Interest in the Partnership is held by each of them, except
that, if they agree between themselves and so notify the General Partner within
thirty days after the transfer, then at their option, (i) all items or (ii)
extraordinary items, including capital gains and losses, may be allocated to the
Person who held the Interest in the Partnership on the date such items were
realized or incurred by the Partnership.
4.5 Withholding.
(a) The Partnership shall comply with withholding requirements under
Federal, state and local law and shall remit amounts withheld to and file
required forms with the applicable jurisdictions. To the extent the Partnership
is required to withhold (including for the Illinois
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replacement tax) and pay over any amounts to any authority with respect to
distributions or allocations to any Partner, the amount withheld shall be
treated as a distribution in the amount of the withholding to that Partner. In
the event of any claimed over-withholding, the Partners shall be limited to an
action against the applicable jurisdiction. If the amount withheld was not
withheld from actual distributions, the Partnership may, at its option, (i)
require the Partner to reimburse the Partnership for such withholding, or (ii)
reduce any subsequent distributions by the amount of such withholding. Each
Partner agrees to furnish the Partnership with any representations and forms as
shall reasonably be requested by the Partnership to assist it in determining the
extent of, and in fulfilling, its withholding obligations.
(b) To the extent the Partnership has withheld any amounts with
respect to any Partner, if distributions to the Partner are not reduced by the
amounts withheld in the year of withholding or the first 90 days of the next
succeeding year and if the Partner has not reimbursed the Partnership for such
withholding no later than 90 days following the year of withholding, the
Partnership shall make distributions to all Partners pursuant to, at the
election of the General Partner, Sections 5.2 or 5.3 in an amount sufficient to
enable the Partnership to reduce distributions to the Partner with respect to
which the Partnership has withheld any amounts by the amount withheld. For
purpose of the preceding sentence, any amounts withheld within the first 90 days
of a taxable year shall be deemed withheld in the preceding year.
4.6 No Interest on Capital Accounts. No Partner shall receive interest on
the amount credited to such Partner's Capital Account.
ARTICLE V
Distributions
5.1 General. Except as otherwise expressly set forth herein, all
distributions of cash and of property other than cash shall be made in such
manner, at such time and in such amounts as are determined in the sole
discretion of the General Partner; provided, that no distribution will be made
in kind if it would result in a non-exempt prohibited transaction under ERISA or
the Code. Distributions of Net Cash Flow shall be accounted for and made
separately with respect to each Security. In the event that the General Partner
elects, in its sole discretion, to reinvest any Net Cash Flow received by the
Partnership, the Capital Commitments of the Partners shall be reduced by an
amount equal to the total amount of proceeds which are so reinvested. The amount
of each Partner's Capital Commitment shall be reduced by its proportionate share
(based upon the ratio which such Partner's Capital Commitment bears to the total
Capital Commitments of all Partners) of the total amount of proceeds which are
so reinvested. Any amount of Net Cash Flow that otherwise would be distributable
to the Partners but is retained and reinvested by the Partnership shall be
treated as a distribution of such amount to the Partners and a recontribution of
capital by the Partners to the Partnership.
5.2 Tax Distributions. At the discretion of the General Partner, each
Partner may be paid in cash within ninety (90) days after the end of each fiscal
year during the term of the Partnership an amount equal to the excess if any of
(a) the aggregate state and Federal income tax
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liability such Partner would have incurred as a result of such Partner's
ownership of an interest in the Partnership for all prior fiscal years (treated
as if there were one taxable period), calculated as if (i) such Partner were
subject to the highest marginal Federal and Illinois income tax rates for such
years applicable to any individual, and (ii) allocations from the Partnership
were the sole source of income and loss for such Partner, over (b) all prior
cash distributions made pursuant to this Section 5.2, Section 5.3 or Section 5.5
(a "Tax Distribution"). Tax Distributions shall be treated as advance
distributions of amounts otherwise distributable to such Partners, and shall not
alter or increase the total amounts to be distributed to the Partners over the
life of the Partnership. If, at the time of liquidation of the Partnership, as a
result of this Section 5.2, any Partner has received distributions over the life
of the Partnership in excess of the amount that such Partner would have
otherwise received under Section 5.3 or 5.5, then such Partner shall promptly
contribute such excess amount to the Partnership to be distributed in accordance
with Section 5.5.
5.3 Discretionary Distributions.
(a) Distributions of Short-Term Investment Income shall be made to the
Partners in accordance with each Partner's Participation Percentage.
(b) As and when at any time the General Partner determines to
distribute Net Cash Flow with respect to any particular Security, any and all
distributions of such Net Cash Flow for any period shall be made to the Partners
as follows:
(i) First, 100% to the Partners in accordance with each Partner's
Participation Percentage, until the Partners have received cumulative
distributions pursuant to this Section 5.3(b)(i) equal to the sum of
(A) any Capital Contributions used to pay any Organizational Expenses
or any Partnership Expenses, (B) the aggregate amount of permanent
write-downs, if any, by the General Partner with respect to any
Securities held by the Partnership as of the end of such period, as
determined in the sole discretion of the General Partner, and (C) the
Total Cost of the Security which is currently being sold or exchanged;
and
(ii) Thereafter, (A) 80% to the Partners in accordance with each
Partner's Participation Percentage and (B) 20% to the General Partner.
5.4 Reinvestment. During the Commitment Period, any net proceeds received
by the Partnership from any Security (including funds returned to the
Partnership in connection with the refinancing of any Security or a Bridge
Financing) shall be distributed to the Partners in accordance with the
provisions of Section 5.3 hereof, subject to any reasonable reserves which the
General Partner may establish; provided, however, that (i) the General Partner
may, in its sole discretion, recall such proceeds distributed to the Partners
for the purpose of reinvestment for the same purposes, during the same periods,
and subject to the same limitations as are set forth in Section 3.2, but solely
to the extent such distributions represent a return of Capital Contributions to
the Partners for purposes of this Section 5.4 and (ii) in no event shall the
General Partner recall, in the aggregate, proceeds in excess of an amount equal
to the total Capital Commitments of the Partners. If and when the General
Partner makes a distribution which includes any amounts
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which may be recalled for reinvestment pursuant to this Section 5.4, the General
Partner shall notify, from time to time, each Limited Partner as to the
aggregate amount which has been distributed to such Limited Partner which may be
recalled for investment. Net proceeds shall be considered a return of Capital
Contributions to the extent of the Capital Contributions that were applied to
the acquisition of the particular Security from which such proceeds are derived,
and shall be considered to be distributed to Partners prior to the distribution
of profits from such Security. Notwithstanding anything herein to the contrary,
in no event shall the aggregate amount of unreturned Capital Contributions made
by the Partners pursuant to Section 3.3 and capital recontributed under this
Section 5.4 exceed the total Capital Commitments of the Partners. After the
Commitment Period, any net proceeds received by the Partnership from any
Security will be distributed to the Partners in accordance with the provisions
of Sections 5.3 and 5.5 hereof, subject to the payment of any Partnership
expenses and any reasonable reserves which the General Partner may establish.
5.5 Distributions Upon Liquidation.
(a) To effect the dissolution and liquidation of the Partnership
pursuant to Section 10.2 hereof, the General Partner, in accordance with the
provisions of Section 5.5(b) below, shall distribute all assets of the
Partnership to the Partners in cash or in kind. Distribution of assets in kind
shall be made in accordance with their fair market value as determined pursuant
to Section 11.4 hereof.
(b) The net proceeds resulting from the liquidation of the Partnership
pursuant to a dissolution of the Partnership shall be distributed and applied in
the following order of priority:
(i) to the payment of the expenses of liquidation and the debts
and liabilities of the Partnership;
(ii) to the setting up of any reserves that the General Partner
determines are reasonably necessary for any contingent or unforeseen
liabilities or obligations of the Partnership (which shall be distributed
in accordance with (iii) below if and when the General Partner determines
in its sole discretion that such reserves are no longer required); and
(iii) to and among the Partners in accordance with Section 5.3.
5.6 Giveback Obligation. If the aggregate distributions made to the
General Partner under Section 5.3(b)(ii)(B) (collectively, the "Carried Interest
Distributions") over the term of the Partnership through liquidation exceed
twenty percent (20%) of the cumulative amounts distributed to the Partners
pursuant to Section 5.3(b)(ii) during its term, then the General Partner shall
pay or contribute to the Partnership an amount equal to such excess Carried
Interest Distributions, net of the difference, if any, between (x) the General
Partner's Federal, state, and local income tax liability on the excess Carried
Interest Distributions determined as if the General Partner and its beneficial
owner did not engage in any activities other than ownership and
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management of the Partnership and (y) any Federal, state, and local tax benefit
the General Partner actually receives as a result of making such payment or
contribution.
ARTICLE VI
MANAGEMENT
6.1 Management of Partnership.
(a) The management and control of the activities and affairs of the
Partnership shall be vested solely in the General Partner.
(b) The General Partner shall use its best efforts to manage the
activities and affairs of the Partnership so that the assets of the Partnership
will not be considered "plan assets" within the meaning of the Plan Asset
Regulations. If participation in the Partnership by ERISA Partners is
"significant" within the meaning of the Plan Asset Regulations, then the General
Partner shall provide to each ERISA Partner, on an annual basis, written
confirmation certifying as to the Partnership's status as a VCOC within thirty
(30) days following the expiration of the Partnership's most recent "annual
valuation period" within the meaning of the Plan Asset Regulations.
6.2 Authority of General Partner. Subject to the terms and provisions of
this Agreement, the General Partner shall have exclusive management and control
of the affairs of the Partnership and shall have the power and authority to do
all things necessary or proper to carry out the purposes of the Partnership.
Without limiting the generality of the authority of the General Partner, and
subject to the terms and provisions of this Agreement, the General Partner shall
have full power and authority, at the expense of the Partnership:
(a) to pay or reimburse parties (including the General Partner and any
of its Affiliates) for all expenses relating to the organization and formation
of the Partnership and the placement of Limited Partner interests in the
Partnership, including attorneys' and accountants' fees, printing, telephone and
telex, consulting services, postage, secretarial expenses, travel, entertainment
and other out-of-pocket expenses (collectively, "Organizational Expenses"), up
to $250,000, in the aggregate;
(b) to pay or reimburse parties (including the General Partner and its
Affiliates) for all Partnership Expenses;
(c) to pay the reasonable costs and expenses of meetings of the
Partners, including the Annual Meeting;
(d) to engage such agents, attorneys, accountants, custodians and
financial advisors and other agents and consultants as are necessary or
advisable for the affairs of the Partnership;
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(e) to receive, buy, acquire, invest in, sell, exchange, trade and
otherwise deal with Securities, Bridge Financings or other property of the
Partnership;
(f) to open, conduct and close cash accounts with brokers on behalf of
the Partnership and to pay the customary fees and charges applicable to
transactions in all such accounts;
(g) to open, maintain and close bank, money market, custodial and
other types of accounts for the Partnership and to draw checks and other orders
for the payment of money;
(h) to file, on behalf of the Partnership, all required local, state
and federal tax returns and other documents relating to the Partnership and to
act as "tax matters partner" for the Partnership;
(i) to cause the Partnership to purchase or bear the reasonable cost
of any insurance covering the potential liabilities of the Partnership, the
General Partner and its members and employees, as well as the potential
liabilities of any person serving at the request of the General Partner as a
director of a corporation or an official of another entity in which the
Partnership has an investment;
(j) to commence or defend litigation that pertains to the Partnership,
one or more Partners or Partnership property;
(k) to enter into, make and perform such contracts, agreements and
other undertakings, and to do such other acts as are necessary or advisable for,
or as may be incidental to, the conduct of the business of the Partnership,
including, without in any manner limiting the generality of the foregoing,
contracts, agreements, undertakings and transactions with any Partner or with
any other person, firm or corporation having any business, financial or other
relationship with any Partner;
(l) to file amendments to the Certificate; and
(m) to admit as Limited Partners additional Persons in accordance with
the provisions of this Agreement.
6.3 Limitation on Authority of General Partner. The General Partner,
without the prior written consent or ratification of all Partners, shall have no
authority to:
(a) do any act which would contravene this Agreement; or
(b) admit a Person as a General Partner of the Partnership.
6.4 Partnership Contracts. All contracts undertaken by the Partnership
shall be executed by the General Partner and in such contracts the Partnership
shall be identified as a limited partnership. The Partners shall promptly
execute (with acknowledgment, if required) at
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the request of the General Partner, any and all instruments necessary or
appropriate to ratify or confirm the authority of the General Partner hereunder.
6.5 Expenses.
(a) The Partnership shall bear all Organizational Expenses up to
$250,000 in the aggregate; the General Partner shall pay all Organizational
Expenses in excess of $250,000 and any placement agent or brokers fees incurred
in connection with the sale of Interests in the Partnership. The Partnership
shall also bear all costs and expenses incurred in the Partnership activities or
associated with investigating, evaluating, negotiating, monitoring and disposing
of investments in Securities by the Partnership, including without limitation,
the Management Fee, expenses incurred in connection with proposed investments
which are not consummated, expenses relating to the portfolio of Securities
(such as brokerage, registration of securities, finder's and other fees),
premiums for insurance protecting the Partnership, the General Partner and their
respective members, principals, employees and agents from liabilities to third
parties in connection with Partnership affairs, legal and all outside accounting
expenses, consulting expenses, auditing expenses, other out-of-pocket expenses
related to investments in Securities and any extraordinary expenses of the
Partnership (such as litigation expenses) (collectively, "Partnership
Expenses").
(b) The General Partner shall bear all normal operating expenses
incurred in connection with the management of the Partnership. Such normal
operating expenses to be borne by the General Partner shall consist of
expenditures on account of salaries, wages and other expenses of the General
Partner's members and employees, rent payable for space used by the General
Partner, telephone and other communication costs unrelated to the investment
activities of the Partnership, office equipment or services, maintenance of the
books and records of the Partnership, preparation of reports to the Limited
Partners and other administrative expenses of the Partnership (collectively,
"Management Expenses").
6.6 Management Fee.
(a) The Partnership shall pay to the General Partner in cash during
the term of the Partnership, as payment for services rendered as General
Partner, an annual asset management fee (the "Management Fee") as follows:
(i) for the period beginning on the date of the First Closing and
ending on the sixth anniversary of the Final Closing, an amount equal to
two percent (2%) of the total Capital Commitments of the Partners; and
(ii) thereafter, an amount equal to the product of (x) the total
Management Fee paid during the sixth year of the Partnership and (y) the
Management Fee Multiplier in effect at such time.
The Management Fee shall be paid on the first day of each calendar quarter in
advance for such quarter. If and to the extent that any member or employee of
the General Partner receives any transaction fees, closing fees, break-up fees,
monitoring fees, directors' fees or other similar fees
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in connection with investments in Securities or is reimbursed for any expenses
by any Portfolio Company in connection with investments in Securities, the
Management Fee payable hereunder shall be reduced, dollar-for-dollar, by the
amount of such fees or reimbursements, as the case may be.
(b) The Management Fee payable to the General Partner shall not be
considered a distribution of profits or return of capital to the General Partner
for the purpose of any provision of this Agreement, but shall be considered a
deduction from Partnership income or an increase in Partnership losses in
determining Net Income or Net Losses, or items of income or expense, pursuant to
Article IV hereof.
6.7 Other Activities and Competition.
(a) The General Partner and the members, officers and employees
thereof shall devote such time and effort to the activities of the Partnership
as the General Partner deems necessary or appropriate to manage responsibly the
affairs of the Partnership.
(b) Subject to Section 6.7(a) and except as specifically provided in
this Agreement, it is understood and agreed that: (i) the General Partner shall
not be required to manage the Partnership as its sole and exclusive function,
and the General Partner, its Affiliates and the respective agents, officers,
directors and employees thereof may engage in or possess any interests in
business ventures and may engage in other activities of every kind and
description independently or with others in addition to those relating to the
Partnership, including the rendering of advice or services of any kind to other
investors and the making or management of other investments or other investment
partnerships, whether or not any such activities may conflict with any interest
of the Partnership or any of the Partners or be competitive with the business of
the Partnership; (ii) neither the General Partner nor any of its Affiliates
shall have any obligation or responsibility to refer any such investments or
other activities to the Partnership or any Partner; and (iii) the General
Partner, its Affiliates and any agent, officer, director or employee thereof may
act as a director of any corporation, trustee of any trust, partner of any
partnership or administrative officer of any business entity, and may receive
compensation for service as a director, employee, advisor, consultant or manager
with respect to, and participate in profits derived from, investments in or of
any such corporation, trust, partnership or other business entity. Each Limited
Partner authorizes, consents to and approves of such present and future
activities by such Persons; and neither the Partnership nor any Partner shall
have any right by virtue of this Agreement or the partnership relationship
created hereby in or to other ventures or activities of the General Partner or
its Affiliates or of their respective agents, officers, directors or employees
or to the income or proceeds derived therefrom.
6.8 Liability of General Partner. The General Partner will not be liable
to any Limited Partner or the Partnership for any act or omission taken or
omitted as General Partner with respect to the Partnership which is not in
violation of the provisions of this Agreement, or for any act or omission taken
or omitted by any member, shareholder, director, officer, affiliate, employee or
agent of the General Partner, except in the case of the General Partner's (or
such other person's) own willful, wanton or intentional misconduct, malfeasance
or gross negligence.
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6.9 Services to Portfolio Companies. The General Partner or its
Affiliates may provide to the Partnership or its Portfolio Companies various
services from time to time, including, but not limited to, marketing and public
relations services, strategic e-commerce consulting services, and investment,
financial and legal services, and may charge the Partnership or its Portfolio
Companies therefor, provided that the General Partner and its Affiliates can
provide such services at no greater cost than would be the case if unaffiliated
third parties were to provide such services, as determined by the General
Partner in its sole discretion.
6.10 Indemnification of General Partner. The Partnership shall indemnify
the General Partner and its Affiliates, as well as each of their respective
directors, officers, partners, members, shareholders, employees and agents
(each, an "Indemnified Party"), to the fullest extent permitted by law, from and
against any loss, cost, expense (including attorneys' fees), damage, judgment
and/or liability suffered or sustained by them in connection with any action,
suit or proceeding (including any proceeding before any administrative or
legislative body or agency) to which such Indemnified Party may be made a party
or otherwise involved by reason of any acts, omissions or alleged acts or
omissions arising out of their activities on behalf of the Partnership;
provided, however, that an Indemnified Party shall not be so indemnified with
respect to any matter as to which such Indemnified Party shall not have acted in
good faith in what the Indemnified Party reasonably believed was consistent with
the duties of such Indemnified Party as set forth herein. An Indemnified Party
shall be entitled to indemnification pursuant to this Section 6.10, only to the
extent that such Indemnified Party does not have the right to and in fact does
not recover amounts with respect to the claim upon which the demand for
indemnification is based from third parties whether due to indemnification by
such third parties, insurance or otherwise, provided, that the amount an
Indemnified Party is entitled to recover from the Partnership pursuant to
indemnification hereunder shall include all expenses, including reasonable
attorneys' fees, of collecting such amounts from such third parties. The right
of indemnification granted by this Section 6.10 shall be in addition to any
rights to which an Indemnified Party may otherwise be entitled and shall inure
to the benefit of the successors, assigns, executors or administrators of such
Indemnified Party. The Partnership shall pay the expenses incurred by an
Indemnified Party in defending an action, suit or proceeding in advance of the
final disposition of such action, suit or proceeding, upon receipt of an
undertaking by or on behalf of such Indemnified Party to repay such amount if
there shall be an adjudication or determination that it is not entitled to
indemnification as provided herein. The right of indemnity or reimbursement
granted in this Section 6.10 may not be satisfied except out of the assets of
the Partnership, and no Partner shall be personally liable with respect to any
such claim for indemnity or reimbursement in excess of its Capital Commitment.
6.11 Investment Opportunities. The Partners expressly acknowledge and
agree that the General Partner shall not be required to cause the Partnership to
invest in any specific Target Investment and that the General Partner and its
Affiliates may allocate Target Investments at any time to one or more Affiliates
of the General Partner rather than to the Partnership. In such event, the
General Partner shall deliver written notice to the Advisory Board at least ten
(10) days prior to the consummation of a Target Investment by an Affiliate of
the General Partner other than the Partnership; provided, however, that in no
event shall the General Partner be required to obtain the approval or consent of
any of the Limited Partners or the Advisory Board prior to
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consummating such investment. Notwithstanding the foregoing to the contrary, the
General Partner shall not be required to deliver such prior written notice with
respect to (i) any follow-on investment relating to any existing investments
made by the General Partner or any of its Affiliates prior to the date of this
Agreement, (ii) any investments which are the subject of a contract or letter of
intent that is in existence as of the date of this Agreement and any follow-on
investments thereto, or (iii) any investment in publicly traded securities which
represent less than five percent (5%) of the total outstanding capital stock of
such issuer.
6.12 Investments Involving Affiliates. The Partners expressly acknowledge
that it is possible that the Partnership may invest in issuers of Securities in
which the General Partner or its Affiliates has or may obtain a direct or
indirect interest. With respect to such investments, the following policies
shall apply:
(a) Without the prior written approval of the Advisory Board, the
General Partner shall not cause the Partnership to invest in issuers of
Securities in which the General Partner or any of its Affiliates has an interest
at the time of such investment.
(b) The General Partner may cause or permit (i) any Affiliate of the
General Partner (other than the Partnership) to invest in Portfolio Companies or
(ii) any entity in which an Affiliate of the General Partner (other than the
Partnership) holds twenty-five percent (25%) or more of the outstanding equity
interests to invest in or acquire fifty percent (50%) or more of the outstanding
equity interests of a Portfolio Company. In either event, the General Partner
shall deliver written notice to the Advisory Board at least ten (10) days prior
to the consummation of such investment; provided, however, that in no event
shall the General Partner be required to obtain the approval or consent of any
of the Limited Partners or the Advisory Board prior to the consummation of such
investment.
(c) The General Partner may cause the Partnership to invest jointly
with Affiliates of the General Partner in issuers of Securities in which none of
the Partnership, the General Partner or any Affiliates of the General Partner
has an interest at the time of such investment; provided, that such joint
investments shall be made on a pari passu basis and on substantially similar
economic terms. In the event that the terms of any such joint investment are
not on a pari passu basis and substantially similar economic terms, such joint
investment shall be approved in writing by the Advisory Board; provided, that no
approval shall be required for any such joint investment made by the Partnership
on the same terms and conditions as any unaffiliated third party participating
in such joint investment. The amounts to be invested by the Partnership and any
Affiliates of the General Partner with respect to such joint investments shall
be determined by the General Partner in its sole discretion.
(d) In considering whether to approve or disapprove any request by the
General Partner for any investment requiring the approval of the Advisory Board
under this Section 6.12, the Advisory Board shall address, without limitation,
any relative valuation issues that may arise as a result of such investments.
In connection therewith, the Partners acknowledge that the terms of any such
investment may not have been determined through arms'-length negotiations and
that, in connection with any such investments, neither the General Partner nor
the Advisory Board shall
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be required to obtain fairness opinions, appraisals, independent consultant
reports or the consent of the Limited Partners in recommending (in the case of
the General Partner) or in approving (in the case of the Advisory Board) any
such investment. However, any request for approval of any such investment by the
Advisory Board shall be submitted by the General Partner in a writing which
shall set forth in reasonable detail (i) the General Partner's reasons for
desiring that the Partnership make such investment, (ii) the General Partner's
relative valuation analysis with respect to such investment, and (iii) the
benefits which the General Partner or its Affiliates are likely to receive as a
result of such investment other than by virtue of their Interests in the
Partnership.
6.13 Advisory Board.
(a) The General Partner shall cause an advisory board (the "Advisory
Board") of the Partnership to be formed for the purpose of reviewing and
approving those certain matters and determinations with respect to the
management of the Partnership set forth in this Agreement. The Advisory Board
shall consist of at least five (5) members, each of whom shall be appointed by
certain Limited Partners granted the right to appoint a member of the Advisory
Board by the General Partner and at least one (1) of which shall be the
representative of an ERISA Partner. After the initial appointment of the
Advisory Board, members of the Advisory Board shall serve on the Advisory Board
for such periods as may be determined by the Limited Partner which appointed
such member. Unless otherwise expressly provided herein, all decisions and
actions of the Advisory Board shall require the affirmative written vote of a
majority of all of the members, with each member entitled to one vote in all
matters. In lieu of holding a meeting, the members of the Advisory Board may
vote or otherwise take action by a written instrument indicating the unanimous
consent of the members. Each member of the Advisory Board may authorize another
Person or Persons to act and vote on its behalf by proxy. The members of the
Advisory Board may participate in any meeting of the Advisory Board by means of
conference telephone or similar communications equipment, as long as all Persons
participating in the meeting can speak with and hear each other, and
participation by a member of the Advisory Board pursuant to the method described
above shall constitute presence in person at such meeting.
(b) No member of the Advisory Board shall be entitled to receive any
fees or other compensation for serving as a member of the Advisory Board. The
Partnership shall reimburse each member of the Advisory Board for such member's
out-of-pocket expenses incurred in connection with such member's service on the
Advisory Board, including without limitation, all reasonable expenses for
airfare, lodging, meals and other travel expenses incurred in attending meetings
of the Advisory Board.
(c) The Partnership shall defend, indemnify and hold harmless each
member of the Advisory Board, the Partner which appointed such member, the
employer of such member, and all affiliates of such member, Partner or employer
(each, an "Indemnitee") from and against any and all liabilities, demands,
claims, actions or causes of action, losses or expenses (including reasonable
attorneys' fees, expenses and costs of investigation) sustained or incurred by
any such Indemnitee by reason of the fact that such Indemnitee is or was a
member of the Advisory Board, or by reason of action taken or omitted to be
taken by such Indemnitee in any such capacity,
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provided that such Indemnitee acted in good faith and in a manner the Indemnitee
reasonably believed to be in or not opposed to the best interests of the
Partnership.
6.14 ERISA Matters. The General Partner shall use its best efforts to
operate the Partnership and conduct its business and affairs so that the
Partnership will qualify as a VCOC; provided, that participation in the
Partnership by ERISA Partners is "significant" within the meaning of the Plan
Asset Regulations. If participation in the Partnership by ERISA Partners is
significant within the meaning of the Plan Asset Regulations, the General
Partner shall not call for the first Capital Contribution of the Partners
without an opinion of counsel delivered to the Partnership and each Partner to
the effect that concurrent with the contribution of the first Capital
Contributions the Partnership will qualify as a VCOC. The General Partner shall
not call for any Capital Contribution to the Partnership (i) for payment prior
to the first date on which the Partnership makes an investment that is not a
short-term investment of funds, or (ii) for purposes of making any investment
(or paying any expenses) which would cause the Partnership to be deemed to hold
"plan assets" for purposes of the Plan Asset Regulations.
6.15 Unrelated Business Taxable Income. Notwithstanding anything to the
contrary in this Agreement, the General Partner shall use its best efforts to
avoid the Partnership's engaging in any transaction that would cause any Partner
or any direct or indirect partner of any Partner that is exempt from federal
income tax to recognize UBTI as a result of its investment in the Partnership.
ARTICLE VII
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
7.1 Limitations on Limited Partners. The Limited Partners shall take no
part in the management or control of the Partnership business, and have no right
or authority to act for the Partnership or to vote on matters other than the
matters set forth in this Agreement or in the Act.
7.2 Diversification. The General Partner shall not, without the prior
consent of the Advisory Board, cause or permit the Partnership to invest in one
or more Securities if, after giving effect to such action, more than fifteen
percent (15%) of the aggregate of all Partners' Capital Commitments of the
Partners would be invested in any single Security or in any group of Securities
issued by a single operating company (the "Diversification Limit").
7.3 Co-Investment Rights. The General Partner may, but shall not be
obligated to, permit one or more (a) Limited Partners (but not necessarily all
Limited Partners) and Affiliates thereof or (b) employees of Portfolio
Companies, to invest in Securities (a "Co-Investment"). The Partners agree that
the General Partner shall have the right to structure Co-Investments in such
manner as it deems appropriate under the circumstances, including the terms of
all agreements relating thereto. Unless otherwise approved by the Advisory
Board, Co-Investments shall be made on a pari passu basis and on economic terms
substantially the same (to the extent practicable) as the terms of the
Partnership's investment in such Securities.
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7.4 Removal of General Partner.
(a) The General Partner may be removed as General Partner for Cause
upon the written notice of a Two-Thirds-in-Interest of the Nondefaulting Limited
Partners. Such written notice shall be delivered to the General Partner and
shall state in reasonable detail the cause for removal and the effective date of
such action, which effective date may be immediately upon delivery of the notice
or thereafter; provided, however, the General Partner shall have 120 days from
receipt of such notice to remedy or otherwise cure such Cause for removal.
"Cause" for the removal of the General Partner shall mean the commission of any
act of gross negligence, fraud, willful, wanton or intentional misconduct or
malfeasance which, in each case, materially and adversely affects the
Partnership.
(b) Subject to the terms of this Section 7.4, the removal of the
General Partner shall not impair any rights of such General Partner attributable
to the period prior to the effective date of such removal. If the General
Partner is removed pursuant to this Section 7.4, and the Partnership is
continued as provided below, the General Partner shall become a Limited Partner
in all respects under the Act as of the date of its removal, and its interest in
the Net Income and Net Losses, and items of income and expense of the
Partnership, shall convert, as of the date of its removal, into a Limited
Partner Interest and the General Partner's share of the most recent Estimated
Value of the Fund shall be treated as its Capital Contribution for purposes of
determining the Limited Partner Interest attributable to the converted interest.
Subject to Section 7.4(d), the General Partner shall be entitled to all of the
rights of the other Limited Partners with respect to its converted interest,
including the right to receive allocations and distributions on the basis of the
Capital Contribution that results from the conversion of its Interest.
(c) Except as otherwise required by law, if the General Partner is
removed pursuant to this Section 7.4, it shall not be liable for any obligations
of the Partnership arising after the effective date of its removal. The
Partnership shall, within fifteen (15) days after the removal of the General
Partner, file an amendment to the Certificate to reflect the removal of the
General Partner as general partner.
(d) In the event of the removal of the General Partner, Two-Thirds-in-
Interest of the Nondefaulting Limited Partners may elect either to (i) appoint a
new General Partner to continue the business of the Partnership in accordance
with the requirements of the Act or (ii) dissolve the Partnership. If a new
General Partner is not elected within ninety (90) days after removal of the
previous General Partner, the Partnership shall be dissolved, wound up and
terminated. The new General Partner shall have such rights to distributions and
allocations of Net Income and Net Losses as may be conveyed to it voluntarily by
any Partner, provided, that there is no dilution to the removed General
Partner's rights to distributions, Net Income or Net Losses.
7.5 Deficit Capital Accounts at Liquidation. No Limited Partner shall
have any obligation upon termination of the Partnership to restore a negative
Capital Account balance.
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ARTICLE VII
ASSIGNABILITY OF INTEREST; WITHDRAWAL
8.1 Assignment of General Partner's Interest. The General Partner shall
not transfer its Interest in the Partnership as General Partner or voluntarily
withdraw as General Partner without the written consent of Two-Thirds-in-
Interest of the Nondefaulting Limited Partners. Notwithstanding the foregoing,
the General Partner or the partners thereof may assign a portion of the right to
receive Partnership distributions to other Persons.
8.2 Assignment of Limited Partner's Interest. A Limited Partner may not
sell, transfer, assign, pledge, subdivide for resale or otherwise dispose of all
or any part of its Interest in the Partnership (whether voluntarily,
involuntarily or by operation of law) without the prior written consent of the
General Partner, the granting or denying of which shall be in the General
Partner's absolute discretion. No assignee of a Limited Partner shall become a
Substitute Limited Partner in the place of its assignor except as provided in
Section 8.3 hereof. The Partnership shall have no obligation to recognize,
furnish information or make distributions to any assignee of a Limited Partner
which does not become a Substitute Limited Partner, and such assignee's rights
shall be only against its assignor.
8.3 Substitute Limited Partner. No assignee of the whole or any part of a
Limited Partner Interest shall be substituted as a Limited Partner without the
prior written consent of the General Partner, the granting or denying of which
consent shall be in the General Partner's absolute discretion. As a condition to
the approval or consent of the General Partner to the admission of an assignee
of a Limited Partner as a Substitute Limited Partner, the General Partner:
(a) shall require such assignee to accept and assume, in form
satisfactory to the General Partner, all the terms and provisions of this
Agreement, and
(b) may require such assignee to:
(i) provide an opinion of counsel, in form and substance
reasonably satisfactory to counsel for the Partnership, that assignment of
the Limited Partner Interest and substitution of the assignee as a Limited
Partner does not result in termination of the Partnership for purposes of
Section 708 or any successor or similar provision of the Code;
(ii) provide an opinion of counsel, in form and substance
reasonably satisfactory to counsel for the Partnership, that neither the
offering nor the assignment of the Limited Partner Interest violates any
registration provision of any Federal or state securities or comparable
laws, subjects the Partnership to registration as an investment company
under the Investment Company Act of 1940, as amended, or requires that the
General Partner or the Partnership register as an investment adviser under
the Investment Advisers Act of 1940, as amended;
(iii) provide an opinion of counsel, in form and substance
reasonably satisfactory to counsel for the Partnership, that assignment of
the Limited Partner Interest
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and substitution of the assignee as a Limited Partner will not cause the
Partnership to be classified as an association taxable as a corporation or
to be treated as a publicly traded partnership as defined in Sections
7704(b) and 469(k)(2) of the Code;
(iv) execute such other documents or instruments as the General
Partner may reasonably require to effect the admission of such assignee as
a Limited Partner; and
(v) pay such reasonable expenses as the Partnership may incur in
connection with such substitution.
8.4 Effective Date. The effective date of a substitution shall be the
date designated by the General Partner in writing to the Substitute Limited
Partner, which shall not be later than the first day of the calendar quarter of
the Partnership next following the date upon which the General Partner has given
its written consent to such substitution.
8.5 Amendment of Agreement. This Agreement shall be amended by the
General Partner, if and when appropriate, to reflect the substitution or
addition of Limited Partners.
8.6 Withdrawal by Limited Partner.
(a) A Limited Partner may not withdraw from the Partnership unless the
General Partner shall have previously consented in writing to such withdrawal,
the granting or denying of which consent shall be in the General Partner's
absolute discretion. A Limited Partner shall be allowed to withdraw as herein
provided only upon written notice requesting such withdrawal.
(b) Notwithstanding Section 8.6(a) above and in addition to the right
of a Limited Partner not to pay a portion of such Limited Partner's Capital
Commitment under certain circumstances pursuant to Section 3.6 above, if any
Limited Partner provides the General Partner with an opinion of counsel
reasonably satisfactory to the General Partner, or the General Partner provides
a Limited Partner with an opinion of counsel reasonably satisfactory to such
Limited Partner, that in such counsel's reasonable opinion, (a) ERISA, the Bank
Holding Company Act of 1956, as amended, or any similar legislation, or any
Federal or state legislation applicable to governmental pension plans, or
regulations thereunder, shall require such Limited Partner (hereinafter
sometimes referred to as a "Regulated Limited Partner") to divest its interest
in the Partnership prior to dissolution of the Partnership, (b) such Limited
Partner's continued investment in the Partnership is contrary to such laws or
regulations, or (c) the assets of the Partnership may be deemed to constitute
"plan assets" within the meaning of the Plan Asset Regulations, the General
Partner shall use reasonable efforts to seek a buyer or buyers (which may be
other Limited Partners) for the remainder of the interest held by such Limited
Partner or shall seek to make such changes in the Partnership or its operation
in accordance with the provisions of this Agreement so as to comply with such
laws or regulations or otherwise eliminate the necessity for such withdrawal;
provided, however, the General Partner shall not make any changes which it
determines not to be in the best interests of the Partnership or a majority in
interest of the Limited Partners, or if the General Partner determines that
changes are not necessary in order
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to comply with such laws or regulations. If no buyer is found for all of such
Limited Partner's interest in the Partnership on terms reasonably satisfactory
to such Limited Partner and the General Partner is unable to eliminate the
necessity for such withdrawal to the reasonable satisfaction of such Limited
Partner and the General Partner within ninety (90) days of the date of such
opinion, upon request of such Limited Partner, the General Partner shall consent
to the immediate withdrawal of such Limited Partner from the Partnership
pursuant to this Section 8.6.
(c) In the event a Limited Partner withdraws from the Partnership
pursuant to this Section 8.6, the Partnership shall pay such withdrawing Limited
Partner an amount equal to such Limited Partner's share of the Estimated Value
of the Fund determined pursuant to Section 11.4 hereof as of the date of such
withdrawal. Such amount shall be paid without interest within a reasonable
period of time, and in the case of a withdrawal pursuant to Section 8.6(b)
hereof, within 120 days of the Partnership's receipt of the opinion of counsel
described therein; provided, however, it shall not be paid during a time that
such payment would cause hardship to the Partnership. The General Partner shall
have absolute discretion to make the distribution in respect of the interest of
a withdrawing Limited Partner in cash or in kind; provided, however, that if the
withdrawing Limited Partner notifies the Partnership in writing that the receipt
by such Limited Partner of a distribution of Securities in kind would result in
a material violation of ERISA by, or imposition of excise taxes on, such Limited
Partner, then the General Partner shall sell such Securities and distribute the
proceeds of such sale to such Limited Partner. Any portion of distributions
made to a withdrawing Limited Partner in kind pursuant to this Section 8.6 shall
be made in proportion to such Limited Partner's percentage interest in each
Security then held by the Partnership; provided, however, that the General
Partner may withhold from distribution any Securities the distribution of which
would, in the General Partner's reasonable discretion, cause hardship to the
issuer of such Securities or to the Partnership. If distribution is to be made
in kind and if such distribution cannot be made in full because of restrictions
on the transfer of Securities or for any other reason, such distribution may, at
the option of the Limited Partner, either (i) be distributed in cash, or (ii) be
delayed until an effective transfer and distribution may be made, and such
Securities shall be designated by the General Partner for transfer in respect of
the withdrawing Limited Partner's interest (the "Designated Securities"). Such
Designated Securities may nevertheless be sold by the General Partner, provided
that the General Partner remit the cash proceeds therefrom to the withdrawing
Limited Partner. The withdrawing Limited Partner shall not share in the income
and losses of the Partnership from the date of its withdrawal and shall have no
further interest in the Partnership or its assets, except that it shall receive
income and dividends paid by the issuer with respect to any Designated
Securities and shall be entitled to the appreciation of or suffer the
depreciation of such Designated Securities and shall be specially allocated an
appropriate amount of the Net Income or Net Losses resulting from the sale by
the Partnership of Designated Securities on its behalf. Schedule 1 hereto shall
be revised to reflect such withdrawal and the withdrawing Limited Partner shall
no longer be considered a Limited Partner for purposes of this Agreement.
(d) No distribution shall be made to a withdrawing Limited Partner
unless all liabilities of the Partnership have been paid (including any reserves
to pay contingent liabilities, as determined by the General Partner in its sole
discretion) or unless the Partnership has assets sufficient to pay such
liabilities. No Limited Partner shall have the right to demand or receive
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property other than cash in return for its Partnership interest, and no Limited
Partner, upon withdrawal, shall have priority over any other Limited Partner as
to either a return of its Capital Contribution or distribution of its share of
Partnership profits.
8.7 Annual Meeting. Once each year, upon at least thirty (30) days' prior
written notice, the General Partner shall conduct a meeting open to all Partners
("Annual Meeting"). At the Annual Meeting, the General Partner will discuss the
performance of the Partnership, the status of any investment opportunities for
the Partnership and performance and prospects of its portfolio securities or
companies.
ARTICLE IX
INVESTMENTS
9.1 Liquid Investments. To the extent that the Partnership from time to
time has funds which are not invested in private debt or equity investments
pursuant to this Agreement, the Partnership shall invest in highly liquid
investments ("Liquid Investments") providing for appropriate safety of
principal, such as commercial paper bearing the highest rating of a nationally
recognized rating agency, money market mutual funds, securities issued by the
United States Government, any instrumentality thereof, or one of the states of
the United States, or a domestic bank with total assets in excess of
$5,000,000,000, to provide liquid investments from which to meet obligations of
the Partnership and to hold funds pending investment or distribution.
9.2 Investment Intent of Limited Partners. Each Limited Partner by
execution of this Agreement warrants to every other Partner and to the
Partnership that such Limited Partner is acquiring its interest in the
Partnership for purposes of investment only, for its own account (or where
applicable in its fiduciary capacity) and not with the view to resell or to
distribute the same or any part thereof, and that no other person has any
interest in such Partnership interest or in the rights of such Limited Partner
hereunder other than as a shareholder in such Limited Partner in the case of a
corporate Limited Partner, partner in a partnership Limited Partner, in which
case the names of and all requested information concerning all such partners
have been disclosed to the General Partner, or as a participant or beneficiary
of an employee benefit plan, trust or other entity with respect to which such
Limited Partner is acting in a fiduciary capacity.
ARTICLE X
DISSOLUTION AND TERMINATION
10.1 Extension of Partnership Term. It is contemplated by the Partners
that the term of the Partnership shall end on the Dissolution Date and that the
Partnership shall be considered to be dissolved on such date without any further
action being required by any of the Partners, unless sooner dissolved pursuant
to Section 10.2 or by operation of law. Notwithstanding the foregoing, the term
of the Partnership may be extended by the General Partner, with the prior
written consent of the Advisory Board, for up to three (3) consecutive times, in
each case for an additional one (1) year period.
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10.2 Events of Dissolution.
(a) The Partnership shall be dissolved upon the earlier to occur of
the following events:
(i) on a date designated by the General Partner and Two-Thirds-
in-Interest of the Nondefaulting Limited Partners;
(ii) the withdrawal in contravention of this Agreement,
dissolution or Bankruptcy of the General Partner, unless the Limited
Partners shall elect to carry on the business pursuant to Section 10.4
hereof;
(iii) the election by Two-Thirds-in-Interest of the
Nondefaulting Limited Partners in the event that Andrew Filipowski is no
longer employed by the General Partner or an Affiliate of the General
Partner, such election to be made within ninety (90) days after written
notice from the General Partner of such event;
(iv) the election by Two-Thirds-in-Interest of the Nondefaulting
Limited Partners to dissolve the Partnership pursuant to Section 7.4(d)
hereof;
(v) the completion of the sale of all or substantially all of the
assets of the Partnership; or
(vi) the date which is ten (10) years from the date of the Final
Closing (or the date of the First Closing if there is no Subsequent
Closing); provided, however, that the General Partner may, in its sole
discretion, extend the date for dissolution of the Partnership under this
paragraph (iv) for up to three (3) additional one (1) year periods.
(b) Dissolution of the Partnership shall be effective on the date on
which the event occurs giving rise to the dissolution, but the Partnership shall
not terminate until the Certificate shall have been canceled and the assets of
the Partnership shall have been liquidated and distributed as provided herein.
Notwithstanding the dissolution of the Partnership, prior to the termination of
the Partnership, as aforesaid, the business of the Partnership and the affairs
of the Partners, as such, shall continue to be governed by this Agreement. Upon
dissolution, the General Partner, or if the General Partner shall have been
removed pursuant to Section 7.4, then a liquidating agent appointed by Two-
Thirds-in-Interest of the Nondefaulting Limited Partners (the General Partner or
such person so designated as liquidating agent hereinafter referred to as the
"Liquidator"), shall commence to wind up the affairs of the Partnership,
liquidate the assets of the Partnership or distribute such assets in kind (in
each case in its sole discretion), apply and distribute such assets or the
proceeds thereof as contemplated by this Agreement, and cause the cancellation
of the Certificate.
(c) The Liquidator shall have all of the rights and powers with
respect to the assets and liabilities of the Partnership in connection with the
liquidation and termination of the Partnership that the General Partner would
have with respect to the assets and liabilities of the
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Partnership during the term of the Partnership, and the Liquidator is hereby
expressly authorized and empowered to execute any and all documents necessary or
desirable to effectuate the liquidation and termination of the Partnership and
the transfer of any assets. The Liquidator shall at all times wind up the
affairs of the Partnership and liquidate the Partnership's assets in a manner in
which the Partnership and its assets will not be deemed to be "plan assets" for
purposes of ERISA and the Plan Asset Regulations.
10.3 Distributions Upon Liquidation. Distributions upon liquidation of
the Partnership shall be made pursuant to Section 5.5 hereof.
10.4 Election to Carry on Activities. Notwithstanding the provisions of
Section 7.4, upon the occurrence of an event described in Section 10.2(a)(ii)
hereof, the Limited Partners may, within ninety (90) days of such event, elect
to carry on the activities of the Partnership with one or more substitute
General Partners by the affirmative vote of Limited Partners required by the
Act. If such an election is made, the General Partner shall receive in cash
within ninety (90) days after such election the value of its Interest in the
Partnership as of the date of such election.
ARTICLE XI
BOOKS, RECORDS AND BANK ACCOUNTS
11.1 Books and Records. The General Partner shall keep accurate books of
account with respect to the operations of the Partnership. Such books shall be
maintained at the principal place of business of the Partnership, or at such
other place as the General Partner shall determine, and all Partners, and their
duly authorized representatives, shall at all reasonable times have access to
such books and the right to make copies thereof.
11.2 Accounting Basis and Accounting Year; Fiscal Year. Such books shall
be kept on the cash, accrual or other basis, as determined by the General
Partner in its sole discretion, in accordance with the accounting methods
followed by the Partnership for Federal income tax purposes and otherwise in
accordance with generally accepted accounting principles ("GAAP") applied in a
consistent manner, reflect all Partnership transactions, be appropriate and
adequate for the Partnership's activities and for the carrying out of all
provisions of this Agreement, and be closed and balanced at the end of each
calendar year. The fiscal year of the Partnership shall be the calendar year.
11.3 Reports; Annual Certificate.
(a) No later than ninety (90) days after the close of each fiscal
year, the General Partner shall cause an audit of the financial statements of
the Partnership as of the end of such year to be made in accordance with GAAP by
the Accountants, and a copy of such financial statements shall be furnished to
each Partner and shall include, as of the end of such year: a statement of the
assets and liabilities of the Partnership; a statement of operations setting
forth the Net Losses or Net Income of the Partnership; and a statement of
changes in the Partnership's net assets. The General Partner shall cause the
Accountants to supply in a timely manner such tax
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information on Form K-1 and all other information necessary to enable each
Partner to prepare its income tax return, and the General Partner shall supply
such other information as each Partner may reasonably request for the purpose of
enabling it to comply with any reporting requirements imposed by any
governmental agency or authority.
(b) No later than forty-five (45) days after the close of each fiscal
quarter, the General Partner shall prepare and furnish to each Partner a
combined unaudited report which includes for the quarter and year to date a
balance sheet, an income statement, a statement of cash flows prepared in
accordance with GAAP, and a transaction report which describes each significant
transaction of the Partnership which has occurred since the end of the preceding
quarter and the remaining Capital Commitments to be contributed to the
Partnership by each of the Partners.
11.4 Valuation of Partnership Assets.
(a) The General Partner shall value the Partnership assets as of the
last day of each calendar quarter and shall, within forty-five (45) days
thereafter, furnish to each Limited Partner a statement showing the cost and
estimated value of each asset, the net worth of the Partnership (the "Estimated
Value of the Fund") and the balance of such Partner's Capital Account and such
Partner's share of the Estimated Value of the Fund as determined pursuant to
Section 11.4(c) below. In addition, the General Partner shall value any
Securities which are to be distributed in kind pursuant to Article V or Section
8.6(c) hereof as of the date of such distribution and shall provide Limited
Partners with a summary statement showing the cost and estimated value of such
Securities.
(b) In determining the value of Partnership assets, no value shall be
placed on the goodwill or the name of the Partnership, or the office records,
files, statistical data or any similar intangible assets of the Partnership not
normally reflected in the Partnership's accounting records, but there shall be
taken into consideration any related items of income earned but not received,
expenses incurred but not yet paid, liabilities fixed or contingent, prepaid
expenses to the extent not otherwise reflected in the books of account, and the
value of options or commitments to purchase Securities pursuant to agreements
entered into on or prior to such date of valuation. Determinations of value of
Securities made pursuant to this Section 11.4 shall be based on all relevant
factors, including, without limitation, type, marketability, restrictions on
disposition, subsequent purchases of the same or similar Securities by other
investors, pending mergers or acquisitions, and current financial position and
operating results; provided, however, the value of a Security which is listed on
a recognized securities exchange or traded pursuant to the National Association
of Securities Dealers Automated Quotation System shall be valued at its most
recent sale price and the value of a Security which is otherwise traded in the
over-the-counter market shall be valued at its most recent bid price discounted,
in both instances, to reflect any restrictions on transfer. Subject to Section
11.4(d) below, the value of each Partnership asset and the Estimated Value of
the Fund determined by the General Partner pursuant to this Section 11.4 shall
be conclusive and binding on all of the Partners and all parties claiming
through or under them.
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(c) Each Partner's share of the Estimated Value of the Fund shall be
the amount such Partner would receive on liquidation of the Partnership under
Section 5.4.
(d) Within sixty (60) days of delivery of the Estimated Value of the
Fund by the General Partner, the Advisory Board may request that the value of
any particular asset of the Partnership and/or the Estimated Value of the Fund
be determined by a qualified, independent appraisal firm selected by the
Advisory Board and reasonably acceptable to the General Partner. In the event
that the Advisory Board and the General Partner cannot agree upon the appraiser,
each shall select an appraiser and such appraisers shall jointly select a third
appraiser. The fees and expenses of all of the appraisers shall be borne by the
Partnership.
11.5 Depository Accounts. The General Partner shall be responsible for
causing one or more accounts to be maintained in one or more banks or other
depositories, which accounts shall be used for the payment of expenditures
incurred by the General Partner in connection with the business of the
Partnership, and in which shall be deposited any and all cash receipts. All such
amounts shall be and remain the property of the Partnership, and shall be
received, held and disbursed by the General Partner for the purposes specified
in this Agreement. There shall not be deposited in any of such accounts any
funds other than funds belonging to the Partnership, and no other funds shall in
any way be commingled with such funds.
11.6 Tax Elections.
(a) The General Partner, in its sole discretion, may make or revoke
an election to adjust the basis of the assets of the Partnership for Federal
income tax purposes in accordance with Section 754 of the Code, in the event of
a distribution of Partnership property as described in Section 734 of the Code
or a transfer by any Partner of its interest in the Partnership as described in
Section 743 of the Code.
(b) The General Partner may also, from time to time, make such other
tax elections as it deems necessary or desirable to carry out the business of
the Partnership or the purposes of this Agreement.
ARTICLE XII
AMENDMENTS
12.1 Amendments With Consent of the Partners. This Agreement shall be
amended only upon the written agreement of the General Partner and
Two-Thirds-in-Interest of the Nondefaulting Limited Partners; provided, however,
that no amendment shall be made to Section 3.3(c), the second sentence of
Section 3.6(c), the first sentence of Section 5.1, Section 3.5, Section 6.1(b),
or Section 8.6 of this Agreement without the prior written agreement of Two-
Thirds-in-Interest of the Nondefaulting Limited Partners that are subject to
ERISA.
12.2 Amendments Without Consent of the Partners. In addition to any
amendments otherwise authorized herein, amendments may be made to this Agreement
from time to time by
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the General Partner, but without the consent of the Limited Partners, (a) to add
to the representations, duties or obligations of the General Partner or
surrender any right or power granted to the General Partner herein, for the
benefit of the Limited Partners; (b) to cure any ambiguity, to correct or
supplement any provisions herein which may be inconsistent with any other
provision herein, or to add other provisions with respect to matters arising
under this Agreement which will not be inconsistent with the provisions of this
Agreement; (c) to delete or add any provision to this Agreement required to be
so deleted or added by any Federal or state agency deemed to be for the benefit
or protection of the Limited Partner; or (d) to better assure, in the opinion of
counsel to the Partnership, that the Partnership will continue to be classified
as a pass-through entity for purposes of Federal income taxes; provided,
however, that no amendment shall be adopted pursuant to this section unless the
adoption thereof (i) is for the benefit of or not adverse to the interests of
the Limited Partners; (ii) is consistent with Article IV; and (iii) does not
adversely affecting the limited liability of the Limited Partners or the status
of the Partnership as a pass-through entity for Federal income tax purposes.
Notwithstanding the foregoing, the Limited Partners hereby specifically consent
to the amendment of this Agreement from time to time in such manner as is
determined by counsel for the Partnership to be necessary or reasonably helpful
to ensure that the allocations of profits, losses and individual items thereof
are given effect for Federal income tax purposes, including any amendments
determined by counsel to be necessary to comply with the treasury regulations
promulgated under Section 704 of the Code.
ARTICLE XII
MISCELLANEOUS
13.1 Notices. Any and all notices, elections or demands permitted or
required to be made under this Agreement shall be in writing, signed by the
Partner giving such notice, election or demand, and shall be delivered
personally, sent by telex or facsimile machine, or sent by registered or
certified mail, return receipt requested, to the Partners at the addresses set
forth in Schedule 1 hereto. The date of personal delivery, the date the telex
or facsimile is sent to the recipient or the date of mailing, as the case may
be, shall be the date of such notice.
13.2 Voting; Consents. Any action requiring the affirmative vote of
Limited Partners under this Agreement, unless otherwise specified herein, may be
taken by vote at a meeting or, in lieu thereof, by written consent of the Non-
Defaulting Limited Partners with the required percentage-in-Interest. Except as
otherwise expressly set forth herein, in the event that the Limited Partners are
required to consent in writing to any action or matter under this Agreement and
a Limited Partner shall fail to deliver such written consent or notice of
refusal to consent to the Partnership or the General Partner within fifteen (15)
Business Days of receipt of a notice requesting such consent, then such Limited
Partner shall be deemed to have consented to such action or matter. Such notice
requesting consent of the Limited Partners shall refer to this Section 13.2 and
state that the failure by a Limited Partner to respond to such request shall be
deemed to be a consent to the action or matter set forth in the notice. For
purposes of this Agreement, in the event and to the extent that the General
Partner holds any Interest as a Limited Partner (other than a converted Interest
pursuant to Section 7.4), such Interest shall be excluded
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<PAGE>
from and not be permitted to vote on or consent to any action or matter coming
before the Limited Partners for their approval or consent.
13.3 Successors and Assigns. Subject to the restrictions on transfer set
forth herein, this Agreement, and each and every provision hereof, shall be
binding upon and shall inure to the benefit of the Partners, their respective
successors, heirs, successors-in-title and assignees, and each and every
successor-in-interest to any Partner, whether such successor acquires such
interest by way of gift, purchase, foreclosure, or by any other method, shall
hold such interest subject to all of the terms and provisions of this Agreement.
13.4 Partner Duties. Pursuant to Section 1101(d) of the Act, the duties
of the Partners to the other Partners and to the Partnership are hereby limited
to those provided expressly in this Agreement, including, but not limited to,
the provisions of Sections 6.7, 6.11, 6.12 and 7.3.
13.5 ERISA Representations and Warranties. Each of the ERISA Partners
represents and warrants for the benefit of the other Partners and the
Partnership that, as of the date of the execution and delivery of this Agreement
and as of the date of admission of such Limited Partner to the Partnership: (i)
such Limited Partner has been informed of and understands the Partnership's
investment objectives, policies and strategies, (ii) such Limited Partner has
considered whether its investment in the Partnership is consistent with the
provisions of ERISA and/or other applicable law and (iii) such Limited Partner
has consulted with its own counsel as to the proposed operation of the
Partnership, and (iv) such Limited Partner has the authority to invest in the
Partnership under applicable law and the governing documents relating to such
Limited Partner.
13.6 Partition. The Partners hereby agree that no Partner or any
successor-in-interest to any Partner shall have the right while this Agreement
remains in effect to have the property of the Partnership partitioned or to file
a complaint or institute any proceeding at law or in equity to have the property
of the Partnership partitioned and each Partner, on behalf of itself, and its
successors, representatives and assigns, hereby waives any such right. It is
the intention of the Partners that during the term of this Agreement the rights
of the Partners and their successors-in-interest, as among themselves, shall be
governed by the terms of this Agreement, and that the right of any Partner or
successor-in-interest to assign, transfer, sell or otherwise dispose of its
interest in the Partnership or any of its assets shall be subject to the
limitations and restrictions of this Agreement.
13.7 No Waiver. The failure of any Partner to insist upon strict
performance of a covenant hereunder or of any obligation hereunder, irrespective
of the length of time for which such failure continues, shall not be a waiver of
such Partner's right to demand strict compliance in the future. No consent or
waiver, express or implied, to or of any breach or default in the performance
of any obligation hereunder shall constitute a consent or waiver to or of any
other breach or default in the performance of the same or any other obligation.
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<PAGE>
13.8 Captions. Titles or captions of articles or sections contained in
this Agreement are inserted only as a matter of convenience and for reference,
and in no way define, limit, extend or describe the scope of this Agreement or
the intent of any provisions hereof.
13.9 Counterparts. This Agreement may be executed in any number of
counterparts, all of which together shall for all purposes constitute one
Agreement, binding on all Partners, notwithstanding that all Partners have not
signed the same counterpart. A Limited Partner may evidence his agreement to be
bound hereby by execution of a subscription agreement for Limited Partner
Interests or another appropriate writing without the necessity of executing a
counterpart hereof.
13.10 Governing Law. This Agreement and the rights and obligations of the
parties hereunder shall be governed by and interpreted, construed and enforced
in accordance with the laws of Delaware (regardless of the choice of law
principles of Delaware or of any other jurisdiction).
13.11 Gender and Number. Wherever from the context it appears appropriate,
each term stated in either the singular or the plural shall include the singular
and the plural, and pronouns stated in either the masculine, the feminine or the
neuter gender shall include the masculine, feminine and neuter.
13.12 No Third Party Beneficiaries. This Agreement is for the sole benefit
of the parties hereto, and no third party shall be a beneficiary of the
Partners' obligations hereunder including, without limitation, their obligations
to contribute capital to the Partnership.
13.13 Severability. If it is determined by a court of competent
jurisdiction that any provision of this Agreement is invalid under applicable
law, the remainder of this Agreement, or the application of such provision to
persons or circumstances other than those to which it is held invalid, shall not
be affected thereby.
13.14 Entire Agreement. This Agreement, together with each Limited
Partner's subscription agreement for Limited Partner Interests, contains the
entire agreement among the parties and supersedes all prior arrangements or
understandings with respect thereto.
[remainder of page intentionally left blank;
signature page follows.]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
GENERAL PARTNER:
Big Shoulders Management, L.L.C.
By: /s/ Larry S. Freedman
-------------------------------
Name: Larry S. Freedman
-----------------------------
Its: Executive Vice President
------------------------------
LIMITED PARTNERS:
TO BE AGREED TO BY EXECUTION OF
COUNTERPART LIMITED PARTNER
SIGNATURE PAGE
<PAGE>
BIG SHOULDERS INTERTECH FUND, L.P.
COUNTERPART LIMITED PARTNER SIGNATURE PAGE
------------------------------------------
The undersigned Limited Partner hereby executes the Limited Partnership
Agreement of Big Shoulders interTech Fund, L.P. dated as of __________, _____,
and hereby authorizes this signature page to be attached to a counterpart of
such document executed by the General Partner of Big Shoulders interTech Fund,
L.P.
Dated as of __________,_______.
Amount of Total Capital Commitment:
$_____________________________________
______________________________________
(Print Name of Limited Partner)
By: ________________________________
Name: ________________________________
Title: _________________________________
<PAGE>
SCHEDULE 1
SCHEDULE OF PARTNERS
--------------------
<TABLE>
<CAPTION>
Participation
Name and Address Capital Commitment Percentage
- ---------------------------------- ------------------ --------------
<S> <C> <C>
General Partner:
Big Shoulders Management, L.L.C. $ 80,000 1%
4225 Naperville Road
Suite 400
Lisle, Illinois 60532
Limited Partners:
divine interVentures, inc. $ 3,920,000 49%
4225 Naperville Road
Suite 400
Lisle, Illinois 60532
Mesirow Partnership Fund I, L.P. $ 4,000,000 50%
350 North Clark Street
Chicago, Illinois 60610
</TABLE>
<PAGE>
Exhibit 10.19
SERIES E REGISTRATION RIGHTS AGREEMENT
--------------------------------------
THIS SERIES E REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made as
of February 3, 2000, by and among divine interVentures, inc., a Delaware
corporation (the "Corporation") and CMGI, Inc., a Delaware corporation (the
"Purchaser").
Pursuant to that Purchase Agreement, dated as of February 3, 2000, by and
between the Purchaser and the Corporation (as amended and modified from time to
time, the "Purchase Agreement"), the other documents and instruments referred to
therein and consummation of the transactions contemplated thereby, Purchaser is
acquiring shares of the Corporation's Series E Senior Participating Convertible
Redeemable Preferred Stock, $0.001 par value per share (the "Series E Preferred
Shares") and shares of the Corporation=s Class A Common Stock. In connection
with the performance of the Purchase Agreement and the other agreements
contemplated thereby and the issuance of the Series E Preferred Shares in the
manner contemplated thereby, the parties have agreed to provide execute and
deliver this Agreement. Except as otherwise indicated herein, capitalized terms
used herein shall have the meanings set forth in Section 1 hereof.
AGREEMENTS
----------
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 hereto hereby agree as follows:
1. Definitions. As used in this Agreement.
"Class A Common Stock" means the Class A Common Stock, $0.001 par value per
share of the Corporation.
"Class B Common Stock" means the Class B Common Stock, $0.001 par value per
share, of the Corporation.
"Commission" means the United States Securities and Exchange Commission or
any successor thereto.
"Common Stock" means, collectively, the Class A Common Stock and the Class
B Common Stock.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any similar federal statute, as the same shall be in effect from time to time.
<PAGE>
"Founders Shares" means at any time (i) any shares of Class A Common Stock
then outstanding which were sold by the Corporation prior to the date hereof at
a purchase price of $0.001 per share, (ii) any shares of Class A Common Stock
then outstanding which were issued upon conversion of shares of Class B Common
Stock which were sold prior to the date hereof at a purchase price of $0.001 per
share, (iii) any shares of Class A Common Stock then issuable upon conversion of
outstanding shares of Class B Common Stock which were sold prior to the date
hereof at a purchase price of $0.001 per share, (iv) any shares of Class A
Common Stock then outstanding which were issued as, or were issued directly or
indirectly upon the conversion or exercise of other securities issued as, a
dividend or other distribution with respect to or in replacement of any shares
referred to in (i), (ii) or (iii); and (v) any shares of Class A Common Stock
then issuable directly or indirectly upon the conversion or exercise of other
securities which were issued as a dividend or other distribution with respect to
or in replacement of any shares referred to in (i), (ii) or (iii); provided that
Founders Shares shall not include any shares which have been disposed of
pursuant to an effective registration statement under the Securities Act or sold
pursuant to Rule 144.
"IPO" means the Corporation's first underwritten public offering of shares
of Common Stock pursuant to an effective registration statement under the
Securities Act.
"Junior Preferred Stock" means, collectively, the Series A Junior
Convertible Preferred Stock, $0.001 par value per share, the Series B
Convertible Preferred Stock, $0.001 par value per share, and the Series C
Convertible Preferred Stock, $0.001 par value per share, of the Corporation.
"Junior Preferred Shares" means at any time (i) any shares of Class A
Common Stock then outstanding which were issued upon conversion of shares of
Junior Preferred Stock or upon conversion of shares of Class B Common Stock
issued upon conversion of Junior Preferred Stock; (ii) any shares of Class A
Common Stock then issuable upon conversion of shares of then outstanding Junior
Preferred Stock or upon conversion of shares of Class B Common Stock issued or
issuable upon conversion of Junior Preferred Stock; (iii) any shares of Class A
Common Stock then outstanding which were issued as, or were issued directly or
indirectly upon the conversion or exercise of other securities issued as, a
dividend or other distribution with respect to or in replacement of any shares
referred to in (i) or (ii); and (iv) any shares of Class A Common Stock then
issuable directly or indirectly upon the conversion or exercise of other
securities which were issued as a dividend or other distribution with respect to
or in replacement of any shares referred to in (i) or (ii); provided, however,
that Junior Preferred Shares shall not include any shares which have been (a)
disposed of pursuant to an effective registration statement under the Securities
Act, (b) sold or otherwise transferred in a transaction in which the
registration rights applicable to such shares have not been assigned, or (c)
sold pursuant to Rule 144.
"Other Registrable Shares" means shares of the Company's outstanding or
issuable Class A Common Stock with respect to which the holder thereof has a
contractual registration right that
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<PAGE>
is pari passu in order of priority to the Purchaser Registrable Shares, whether
such agreement is effective prior to or after the date of this Agreement,
including Series D Preferred Shares but excluding Founders Shares.
"Person" means an individual, corporation, partnership, limited liability
company, limited partnership, syndicate, person (including, without limitation,
a "Person" as defined in Section 13(d)(3) of the Exchange Act), trust,
association or entity or government, political subdivision, agency or
instrumentality of a government.
"Public Offering" means any offering by the Corporation of its equity
securities to the public pursuant to an effective registration statement under
the Securities Act.
"Purchaser Registrable Shares" means at any time (i) any shares of Common
Stock then outstanding which were (x) issued upon conversion of Series E
Preferred Shares originally issued to the Purchaser under the Purchase Agreement
or (y) originally issued to the Purchaser under the Purchase Agreement; (ii) any
shares of Common Stock then issuable upon conversion of then outstanding Series
E Preferred Shares originally issued to the Purchaser; (iii) any shares of
Common Stock then outstanding which were issued as, or were issued directly or
indirectly upon the conversion or exercise of other securities issued as, a
dividend or other distribution with respect or in replacement of any shares
referred to in (i) or (ii); and (iv) any shares of Common Stock then issuable
directly or indirectly upon the conversion or exercise of other securities which
were issued as a dividend or other distribution with respect to or in
replacement of any shares referred to in (i), (ii) or (iii); provided, however,
that Purchaser Registrable Shares shall cease to be Purchaser Registrable Shares
when such Purchaser Registrable Shares have been (a) disposed of pursuant to an
effective registration statement under the Securities Act, (b) sold or otherwise
transferred in a transaction in which the rights under the provisions of this
Agreement have not been properly assigned, or (c) sold pursuant to Rule 144. For
purposes of this Agreement, a Person will be deemed to be a holder of Purchaser
Registrable Shares whenever such Person has the then-existing right to acquire
such Purchaser Registrable Shares (by conversion or otherwise), whether or not
such acquisition actually has been effected. Subject to the foregoing, Purchaser
Registrable Shares shall continue to constitute Purchaser Registrable Shares in
the hands of any permitted transferee of Purchaser.
"Rule 144" means Rule 144 (including Rule 144(k)) of the Commission under
the Securities Act or any similar provision then in force under the Securities
Act.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal statute, as the same shall be in effect from time to time.
"Series D Preferred Shares" shall have the meaning given such term in the
Series D Registration Rights Agreement.
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<PAGE>
"Series D Registration Rights Agreement" means the Series D Registration
Rights Agreement dated as of December 7, 1999 by and among the Corporation and
the original holders of its Series D Senior Participating Convertible
Redeemable Preferred Stock, as such agreement may be amended from time to time
in accordance with its terms.
"Underlying Class A Common Stock" means shares of Common Stock issuable or
issued upon conversion of the Series E Preferred Shares originally issued to
Purchaser.
2. Piggyback Registration.
2.1 Right to Piggyback. After the consummation of an IPO but subject
to Section 9 below, whenever the Corporation proposes to register Common Stock
under the Securities Act (other than pursuant to a registration statement filed
on Form S-8 or Form S-4, or any successor forms, or otherwise filed in
connection with a merger, acquisition, exchange offer or other business
combination transaction or an offering of securities solely to the Corporation's
existing security holders or employees) whether for sale on its own account or
pursuant to a demand for registration by other holders of shares of Common Stock
(a "Piggyback Registration"), the Corporation will give prompt written notice to
all holders of the Purchaser Registrable Shares of its intention to effect such
a Piggyback Registration and will include in such registration all Purchaser
Registrable Shares (subject to, and in accordance with, the priorities set forth
in Sections 2.2 and Section 2.3 below) with respect to which the Corporation has
received written requests for inclusion in such registration within twenty (20)
days after the Corporation's notice. Notwithstanding the foregoing, if a
Piggyback Registration is not an underwritten registration, the Corporation
shall not be required to include any Purchaser Registrable Shares held by any
Person in such Piggyback Registration if such Person at the time of such notice
would be permitted to sell all of the Purchaser Registrable Shares held by such
Person, without registration, pursuant to Rule 144.
2.2 Priority on Non-Demand Registrations. If a Piggyback
Registration is an underwritten registration on behalf of the Corporation that
does not constitute a "demand" registration required pursuant to an agreement
with the Corporation, and the managing underwriters advise the Corporation in
writing that in their opinion the number of shares of Common Stock requested to
be included in such registration exceeds the number which can be marketed (a) at
a price per share reasonably related to the then-current market value per share
of the Common Stock, and (b) without materially and adversely affecting the
entire offering, the Corporation will include in such registration up to the
amount determined advisable by the underwriters:
(i) first, the shares of Common Stock that the Corporation proposes to
sell;
(ii) second, the Purchaser Registrable Shares and the Other Registrable
Shares requested to be included in such registration, pro rata among the holders
of such Purchaser
4
<PAGE>
Registrable Shares and Other Registrable Shares based on the number of shares of
Common Stock requested to be included in such registration by the holders
thereof; and
(iii) third, the Junior Preferred Shares and any other shares of Common
Stock held by stockholders of the Corporation which are not Other Registrable
Shares (including the Founders Shares), requested to be included in such
registration, pro rata among the holders of such Junior Preferred Shares and
other shares on the basis of the number of shares which are owned by such
holders and requested to be included in such registration, or otherwise pursuant
to any contractual registration rights applicable to such shares.
2.3 Priority on Demand Registrations. If a Piggyback Registration
is an underwritten registration pursuant to a demand for registration (other
than a Demand Registration under Section 3 hereof, the priority of which will be
governed by Section 3.4 below) by holders of Other Registrable Shares and the
managing underwriters advise the Corporation in writing that in their opinion
the number of shares of Common Stock requested to be included in such
registration exceeds the number which can be marketed (a) at a price per share
reasonably related to the then-current market value per share of the Common
Stock, and (b) without materially and adversely affecting the entire offering,
the Corporation will include in such registration up to the amount determined
advisable by the underwriters:
(i) first, (A) the shares of Common Stock requested to be included therein
by the holders of Other Registrable Shares on behalf of whom such registration
has been initially requested; and (B) the Purchaser Registrable Shares requested
to be included in such registration by the holders of Purchaser Registrable
Shares hereunder pro rata, among the parties in clauses (A) and (B) based on the
number of shares of Common Stock requested to be included in such registration
by the holders thereof;
(ii) second, any securities that the Corporation proposes to sell; and
(iii) third, the Junior Preferred Shares and any other shares of Common
Stock held by stockholders of the Corporation which are not entitled to be pari
passu with the Purchaser Registrable Shares with respect to such registration
(including the Founders Shares), requested to be included in such registration,
pro rata among the holders of such Junior Preferred Shares and other shares on
the basis of the number of shares which are owned by such holders and requested
to be included in such registration, or otherwise pursuant to any contractual
registration rights applicable to such shares.
Without limiting this Section 2.3 or Section 2.2, (i) no Founders Shares
shall be included in an underwritten registration by the Corporation unless all
of the Purchaser Registrable Shares requested to be included in such
registration pursuant to this Agreement are permitted to be included in such
registration, and (ii) no shares of Common Stock (including Founders Shares)
held by executive officers of the Corporation shall be included in an
underwritten registration if
5
<PAGE>
the managing underwriters advise the Corporation that the inclusion of shares of
Common Stock held by executive officers of the Corporation will adversely affect
the offering.
2.4 Right to Terminate Registration. The Corporation shall have
the right to withdraw any registration initiated by it under this Section 2
prior to the effectiveness of such registration whether or not any holder of its
securities has elected to include securities in such registration.
3. Demand Registrations.
3.1 Requests for Registration. The holders of the outstanding
Purchaser Registrable Shares may request registration under the Securities Act
(a "Demand Registration) of all or any portion of its Purchaser Registrable
Shares on Form S-2 or S-3 or any similar short form registration ("Short-Form
Registrations"), if available, at any time following the twelve-month
anniversary of the consummation by the Corporation of an IPO. Each request for a
Demand Registration shall specify the approximate number of Purchaser
Registrable Shares requested to be registered and the anticipated per share
price range for such offering. Within ten (10) days after receipt of any such
request, the Corporation will give written notice of such requested registration
to all other holders of Purchaser Registrable Shares and, subject to Section 3.4
below, will include in such registration all Purchaser Registrable Shares with
respect to which the Corporation has received written requests for inclusion
therein within fifteen (15) days after the receipt of the Corporation's notice.
3.2 Intentionally Omitted.
3.3 Short-Form Registrations. The holders of at least fifteen percent
(15%) of the Purchaser Registrable Shares will be entitled to request unlimited
Short-Form Registrations in which the Corporation will pay all Registration
Expenses. After the Corporation has become subject to the reporting requirements
of the Exchange Act, the Corporation will use its best efforts to make Short
Form Registrations available for the sale of Purchaser Registrable Shares.
3.4 Priority on Demand Registrations. The Corporation will not
include in any Demand Registration any securities which are not Purchaser
Registrable Shares (except for Other Registrable Shares) without the prior
written consent of the holders of a majority of the Purchaser Registrable
Shares. If a Demand Registration is an underwritten offering and the managing
underwriters advise the Corporation in writing that in their opinion the number
of Purchaser Registrable Shares and, if permitted hereunder, other securities
requested to be included in such offering exceeds the number of Purchaser
Registrable Shares and other securities, if any, which can be sold in an orderly
manner in such offering within a price range acceptable to the holders of a
majority of the Purchaser Registrable Shares initially requesting registration,
the Corporation will include in such registration (i) first, the Purchaser
Registrable Shares and Other Registrable Shares requested to be included in such
registration by the holders thereof, pro rata among such holders on the basis of
the number of shares of Purchaser Registrable Shares and Other Registrable
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<PAGE>
Shares requested to be included in such registration by the holders thereof, and
(ii) second, the other securities requested to be included in such registration
which in the opinion of such underwriters can be sold in an orderly manner
within the price range of such offering.
3.5 Restrictions on Demand Registrations. The Corporation will
not be obligated to effect any Demand Registration within six months after the
effective date of a previous Demand Registration. The Corporation may postpone
for up to ninety (90) days (but not more than once in a six (6) month period)
the filing or the effectiveness of a registration statement for a Demand
Registration if the Corporation's board of directors determines that such Demand
Registration is reasonably likely to have an adverse effect on any proposal or
plan by the Corporation or any of its subsidiaries to engage in any acquisition
of assets (other than in the ordinary course of business) or any merger,
consolidation, tender offer or any other material financing or transaction;
provided that, in such event, the holders of Purchaser Registrable Shares
initially requesting such Demand Registration will be entitled to withdraw such
request.
3.6 Intentionally Omitted.
3.7 Other Registration Rights. The Corporation will not grant to
any Persons the right to request the Corporation to register any equity
securities of the Corporation, or any securities convertible or exchangeable
into or exercisable for such securities, other than rights which are pari passu
or junior in all respects to the rights granted to the holders of Purchaser
Registrable Shares hereunder (including, without limitation, priority in any
registration by the Corporation), without the prior written consent of the
holders of at least a majority of the outstanding Purchaser Registrable Shares.
4. Registration Procedures. Whenever the holders of Purchaser Registrable
Shares have requested that any Purchaser Registrable Shares be registered
pursuant to this Agreement, the Corporation will use its reasonable best efforts
to effect the registration and sale of such Purchaser Registrable Shares in
accordance with the intended method of disposition thereof, and, pursuant
thereto, the Corporation will as expeditiously as reasonably possible:
(a) prepare and file with the Commission a registration statement
with respect to such Purchaser Registrable Shares and thereafter use its
reasonable best efforts to cause such registration statement to become and
remain effective for the period of the distribution contemplated thereby,
determined as hereinafter provided (provided that before filing a registration
statement or prospectus or any amendments or supplements thereto with respect to
a Demand Registration, the Corporation will furnish to the counsel selected by
the holders of a majority of the Purchaser Registrable Shares initiating such
registration statement copies of all such documents proposed to be filed, which
documents will be subject to review of such counsel);
(b) notify each holder of Purchaser Registrable Shares of the
effectiveness of each Registration Statement filed hereunder and prepare and
file with the Com mission such amendments and supplements to such registration
statement and the prospectus used
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<PAGE>
in connection therewith as may be necessary to comply with the Securities Act;
and, with respect to Demand Registrations, as may be necessary to keep such
registration statement effective for a period of either (i) not less than six
months (subject to extension pursuant to Section 8) or, if such registration
statement relates to an underwritten offering, such period as in the opinion of
counsel for the underwriters a prospectus is required by law to be delivered in
connection with sales of Purchaser Registrable Shares by an underwriter or
dealer or (ii) such shorter period as will terminate when all of the securities
covered by such registration statement have been disposed of in accordance with
the intended methods of disposition by the seller or sellers thereof set forth
in such registration statement (but in any event not before the expiration of
any longer period required under the Securities Act), and to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement until such time as all of such
securities have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof set forth in such registration
statement;
(c) furnish to each seller of Purchaser Registrable Shares such number
of copies of such registration statement, each amendment and supplement thereto,
the prospectus(es) included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Purchaser Registrable
Shares owned by such seller;
(d) notify each seller of such Purchaser Registrable Shares, at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, contains
an untrue statement of a material fact or omits any fact necessary to make the
statements therein not misleading in light of the circumstances under which they
were made, and, at the request of any such seller, the Corporation will prepare
a supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Purchaser Registrable Shares, such prospectus will not
contain any untrue statement of a material fact or omit to state any fact
necessary to make the statements therein not misleading in light of the
circumstances under which they were made (and such sellers shall suspend the use
of the prospectus until the requisite changes thereto have been made);
(e) use its reasonable best efforts to cause all such Purchaser
Registrable Shares to be listed on each securities exchange or market on which
the Common Stock is then listed;
(f) use its reasonable best efforts to cause such Purchaser
Registrable Shares to be registered or qualified with or approved by such other
governmental agencies or authorities in such jurisdictions as may be necessary
to consummate the disposition of such Purchaser Registrable Shares;
(g) provide a transfer agent and registrar for all such Purchaser
Registrable Shares not later than the effective date of such registration
statement;
8
<PAGE>
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take such other actions as are reasonably
required in order to expedite or facilitate the disposition of such Purchaser
Registrable Shares;
(i) make available for inspection by any seller of Purchaser
Registrable Shares, any underwriter participating in any disposition pursuant to
such registration statement, and any attorney, accountant or other agent
retained by any such seller or underwriter, all financial and other records,
pertinent corporate documents and properties of the Corporation, and cause the
Corporation's officers, directors, employees and independent accountants to
supply all information reasonably requested by any such seller or underwriter,
attorney, accountant or agent in connection with such registration statement;
(j) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months beginning with the first day of
the Corporation's first full calendar quarter after the effective date of the
registration statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act and Rule 158 thereunder;
(k) advise each seller of such Purchaser Registrable Shares, promptly
after it shall receive notice or obtain knowledge thereof, of the issuance of
any stop order by the Commission suspending the effectiveness of such
registration statement or the initiation or threatening of any proceeding for
such purpose and promptly use its reasonable best efforts to prevent the
issuance of any stop order or to obtain its withdrawal if any such stop order
shall be issued (and, if such stop order shall be issued, such sellers shall
suspend the use of the prospectus until it shall be withdrawn); and
(l) at the request of the managing underwriters in connection with an
underwritten offering, furnish on the date or dates provided for in the
underwriting agreement (i) an opinion of counsel, addressed to the underwriters
and, if permitted by applicable professional standards, to the sellers of
Purchaser Registrable Shares, covering such matters as such underwriters and
sellers may reasonably request, including such matters as are customarily
furnished in connection with an underwritten offering; and (ii) a letter or
letters from the independent certified public accountants of the Corporation
addressed to the underwriters and, if permitted by applicable professional
standards, to the sellers of Purchaser Registrable Shares, covering such matters
as such underwriters or sellers may reasonably request, in which letter(s) such
accountants shall state, without limiting the generality of the foregoing, that
they are independent certified public accountants within the meaning of the
Securities Act and that in their opinion the financial statements and other
financial data of the Corporation included in the registration statement, the
prospectus(es), or any amendment or supplement thereto, comply in all material
respects with the applicable accounting requirements of the Securities Act.
Notwithstanding any provision of this Section 4 to the contrary, the
Corporation shall not be required to amend or supplement a prospectus if such
amendment of supplement would require
9
<PAGE>
the Corporation to disclose a material financing, acquisition or other
transaction then being pursued by the Corporation and the Executive Committee of
the Board of Directors of the Corporation shall determine in good faith that
such disclosure is not in the best interests of the Corporation or would
interfere with such transaction; provided that the Corporation shall give
immediate notice thereof to holders of Purchaser Registrable Shares.
For purposes of Section 4(a) and Section 4(b), the period of distribution
of Purchaser Registrable Shares in a firm commitment underwritten public
offering shall be deemed to extend until each underwriter has completed the
distribution of all securities purchased by it, and the period of distribution
of Purchaser Registrable Shares in any other registration shall be deemed to
extend until the earlier of (i) the sale of all Purchaser Registrable Shares
covered thereby and (ii) the end of the period of distribution for the holders
of its shares of Common Stock on whose behalf the registration has been made.
5. Registration Expenses.
5.1 Corporation's Expenses. All expenses incident to the Corporation's
performance of or compliance with this Agreement, including without limitation
all registration and filing fees, fees and expenses of compliance with
securities or blue sky laws, listing fees, printing expenses, messenger and
delivery expenses, and fees and disbursements of counsel for the Corporation and
all independent certified public accountants, underwriters (excluding discounts
and commissions) and other Persons retained by the Corporation (all such
expenses being herein called "Registration Expenses") shall be borne by the
Corporation.
5.2 Reimbursement. In connection with each Demand Registration, the
Corporation will reimburse the holders of Purchaser Registrable Shares covered
by such registration for the reasonable fees and disbursements of one counsel
chosen by the holders of a majority of the Purchaser Registrable Shares
initially requesting such registration. In connection with each Demand
Registration and each Piggyback Registration, the Corporation shall reimburse
the holders of Purchaser Registrable Shares included in such registration for
the reasonable fees and disbursements of each additional counsel retained by any
holder of Purchaser Registrable Shares for the purpose of rendering any legal
opinion required by the Corporation or the managing underwriter(s) to be
rendered on behalf of such holder in connection with any underwritten Demand
Registration or Piggyback Registration.
5.3 Holder's Expenses. Notwithstanding anything to the contrary
contained herein, each holder of Purchaser Registrable Shares shall bear and pay
all underwriting discounts and commissions and transfer taxes applicable to the
Purchaser Registrable Shares sold for such holder's account.
10
<PAGE>
6. Indemnification.
6.1 By the Corporation. The Corporation agrees to indemnify, to the
extent permitted by law, each holder of Purchaser Registrable Shares, its
managers, officers and directors and each Person who controls such holder
(within the meaning of the Securities Act) against all losses, claims, damages,
liabilities and expenses (including without limitation, attorneys' fees)
("Liabilities") caused by any untrue or alleged untrue statement of material
fact contained in any registration statement, prospectus or preliminary
prospectus, or any amendment thereof or supplement thereto, or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, except insofar as the same are
caused by or contained in any information furnished in writing to the
Corporation by such holder expressly for use therein or by such holder's failure
to deliver a copy of the registration statement or prospectus or any amendments
or supplements thereto after the Corporation has furnished such holder with a
sufficient number of copies of the same. In connection with an underwritten
offering, the Corporation shall indemnify such underwriters, their officers and
directors and each Person who controls such underwriters (within the meaning of
the Securities Act) to the same extent as provided above with respect to the
indemnification of the holders of Purchaser Registrable Shares. The payments
required by this Section 6.1 will be made periodically during the course of the
investigation or defense, as and when bills are received or expenses incurred.
6.2 By Each Holder. In connection with any registration statement in
which a holder of Purchaser Registrable Shares is participating, each such
holder shall furnish to the Corporation in writing such information as the
Corporation reasonably requests for use in connection with any such registration
statement or prospectus and, to the extent permitted by law, shall indemnify the
Corporation, its directors and officers and each Person who controls the
Corporation (within the meaning of the Securities Act) against any Liabilities
resulting from any untrue or alleged untrue statement of material fact contained
in the registration statement, prospectus or preliminary prospectus, or any
amendment thereof or supplement thereto, or any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein not misleading, but only to the extent that such untrue
statement or omission is contained in any information so furnished in writing by
such holder expressly for use in such registration statement or prospectus;
provided that the obligation to indemnify under this Section 6.2 or to
contribute under Section 6.4 below will be several, not joint and several, among
such holders of Purchaser Registrable Shares, and the liability of each such
holder of Purchaser Registrable Shares under this Section 6.2 and under Section
6.4 shall be limited to the net amount received by such holder from the sale of
Purchaser Registrable Shares pursuant to such registration statement.
6.3 Procedure. Any Person entitled to indemnification hereunder shall
(i) give prompt written notice to the indemnifying party of any claim with
respect to which it seeks indemnification (provided that the failure to give
prompt notice shall not impair any Person's right to indemnification hereunder
to the extent such failure has not prejudiced the indemnifying party) and (ii)
unless in such indemnified party's reasonable judgment a conflict of interest
between such indemnified and indemnifying parties may exist with respect to such
claim, permit such
11
<PAGE>
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party will not be subject to any liability for any settlement made
by the indemnified party without its consent (but such consent will not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
6.4 Contribution. To the extent any indemnification by an
indemnifying party provided for in this Section 6 is prohibited or limited by
law, the 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 Liabilities in such proportion as is appropriate to reflect the
relative fault of the indemnifying party and the indemnified party in connection
with the statements or omissions which resulted in such Liabilities, as well as
any other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified party shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of material
fact or omission or alleged omission to state a material fact, has been made by,
or relates to information supplied by, such indemnifying party or indemnified
party, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 6.4 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;
provided that the limits in the final proviso of Section 6.2 shall apply to this
Section 6.4. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
6.5 Other Indemnification Provisions. The indemnification and
contribution provided for under this Agreement will remain in full force and
effect regardless of any investigation made by or on behalf of the indemnified
party or any officer, director or controlling Person of such indemnified party
and will survive the transfer of securities.
7. Compliance with Rule 144. In the event that the Corporation (a)
registers a class of securities under Section 12 of the Exchange Act, (b) issues
an offering circular meeting the requirements of Regulation A under the
Securities Act, or (c) commences to file reports under Section 13 or 15(d) of
the Exchange Act, then at the request of any holder who proposes to sell
securities in compliance with Rule 144 of the Commission, the Corporation will
(i) forthwith furnish to such holder, upon request, a written statement of
compliance with the filing requirements of the Commission as set forth in Rule
144, as such rule may be amended from time to time, and (ii) use its reasonable
best efforts to make available to the public and such holders such information
as will enable the holders to make sales pursuant to Rule 144.
12
<PAGE>
8. Participation in Underwritten Registrations. No Person may participate
in any registration hereunder which is underwritten unless such Person (a)
agrees to sell its shares of Common Stock on the basis provided in any
underwriting arrangements approved by the Corporation or any other Person or
Persons entitled to approve such arrangements, and (b) completes and executes
all questionnaires, powers of attorney, custody agreements, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements. Each Person that is participating in any
registration hereunder agrees that, upon receipt of any notice from the
Corporation of the happening of any event of the kind described in Section 4(d)
above, such Person will forthwith discontinue the disposition of its Purchaser
Registrable Shares pursuant to the registration statement until such Person's
receipt of the copies of a supplemented or amended prospectus as contemplated by
such Section 4(d). In the event the Corporation shall give any such notice, the
applicable time period mentioned in Section 4(b) during which a registration
statement is to remain effective shall be extended by the number of days during
the period from and including the date of the giving of such notice pursuant to
this Section 8 to and including the date when each seller of Purchaser
Registrable Shares covered by such registration statement shall have received
the copies of the supplemented or amended prospectus contemplated by Section
4(d).
9. Intentionally Omitted.
10. Miscellaneous.
10.1 Assignment of Registration Rights. The registration rights of
the Purchaser under this Agreement with respect to any Purchaser Registrable
Shares may be assigned to any Person who acquires such Purchaser Registrable
Shares; provided that (a) the Purchaser shall give the Corporation written
notice at or prior to the time of such assignment stating the name and address
of the assignee and identifying the shares with respect to which the rights
under this Agreement are being assigned; (b) such assignee shall agree in
writing, in form and substance reasonably satisfactory to the Corporation, to be
bound as the Purchaser by the provisions of this Agreement; and (c) immediately
following such assignment the further disposition of such securities by such
assignee is restricted under the Securities Act.
10.2 No Inconsistent Agreements. The Corporation is not a party to
and will not hereafter enter into any agreement with respect to its securities
which is inconsistent with or violates the rights granted to the holders of
Purchaser Registrable Shares in this Agreement.
10.3 Adjustments Affecting Purchaser Registrable Shares. The
Corporation will not take any action, or permit any change to occur, with
respect to its securities which would materially and adversely affect the
ability of the holders of Purchaser Registrable Shares to include such Purchaser
Registrable Shares in a registration undertaken pursuant to this Agreement or
which would adversely affect the marketability of such Purchaser Registrable
Shares in any such registration (including, without limitation, effecting a
stock split or a combination of shares).
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<PAGE>
10.4 Successors and Assigns. Except as otherwise expressly provided
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto will bind and inure to the benefit of the
respective permitted successors and assigns of the parties hereto, whether so
expressed or not.
10.5 Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
10.6 Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience of reference only and do not constitute a
part of, and shall not be utilized in interpreting, this Agreement.
10.7 Notices. Any notices required or permitted to be sent
hereunder shall be delivered personally or mailed, certified mail, return
receipt requested, or delivered by overnight courier service to the following
addresses, or such other address as any party hereto designates by written
notice to the Corporation, and shall be deemed to have been given upon delivery,
if delivered personally, three days after mailing, if mailed, or one business
day after delivery to the courier, if delivered by overnight courier service:
If to the Corporation, to:
divine interVentures, inc.
4225 Naperville Road
Suite 400
Lisle, Illinois 60532
Attention: General Counsel
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661
Attention: Matthew S. Brown, Esq.
If to the Purchasers or other holders of Purchaser Registrable Shares, to
the addresses set forth in the stock records of the Corporation.
10.8 Governing Law. All questions concerning the construction,
validity and interpretation of this Agreement, and the performance of the
obligations imposed by this
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<PAGE>
Agreement, shall be governed by the laws of the State of Delaware applicable to
contracts made and wholly to be performed in that state.
10.9 Amendments and Waivers. The provisions of this Agreement may be
amended upon the written agreement of the Corporation and the holder or holders
of at least a majority of the outstanding Purchaser Registrable Shares. Any
waiver, permit, consent or approval of any kind or character on the part of any
holders of any provision or condition of this Agreement must be made in writing
and shall be effective only to the extent specifically set forth in writing.
10.10 Final Agreement. This Agreement, constitutes the complete and
final agreement of the parties concerning the matters referred to herein and
supersedes all prior agreements and understandings.
10.11 Execution. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and such counterparts together shall constitute one instrument.
10.12 No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction will be used against any
party.
[Remainder of page intentionally left blank
Signature page follows.]
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Series E
Registration Rights Agreement on the date first written above.
DIVINE INTERVENTURES, INC.
By: /s/ Michael P. Cullinane
------------------------------------
Michael P. Cullinane
Executive Vice President
CMGI, INC
By: /s/ William Williams II
------------------------------------
Its: Vice President and General Counsel
-----------------------------------
(SIGNATURE PAGE TO SERIES E REGISTRATION RIGHTS AGREEMENT)
<PAGE>
Exhibit 10.20
PURCHASE AGREEMENT
DATED FEBRUARY 3, 2000
BETWEEN
DIVINE INTERVENTURES, INC.
AND
CMGI, INC.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. Authorization and Closing...............................................1
1A. Authorization of the Series E Preferred Stock
and Class A Common Stock.........................................1
1B. Purchase and Sale of the Series E Preferred Stock
and Class A Common Stock.........................................1
1C. The Closing......................................................2
1D. HSR Condition....................................................2
1E. HSR Filings......................................................2
1F. Termination......................................................3
2. Conditions of the Parties' Obligations at the Initial Closing...........3
2A. Certificate of Designation and Certificate of Incorporation......3
2B. Bylaws...........................................................3
2C. Representations and Warranties; Covenants........................3
2D. Registration Agreement...........................................4
2E. Intentionally Omitted............................................4
2F. Series E Stockholders Agreement..................................4
2G. Opinion of the Company's Counsel.................................4
2H. Officer's Certificate............................................4
2I. Company Resolutions..............................................4
2J. Purchaser Resolutions............................................4
2K. Consents.........................................................5
3. Covenants...............................................................5
3A. Financial Statements and Other Information.......................5
3B. Inspection of Property...........................................7
3C. Equity Issuances.................................................7
3D. Strategic Relationship...........................................9
3E. Exclusivity......................................................9
3F. Compliance with Rule 144.........................................9
3G. Termination.....................................................10
3H Repurchase of Securities........................................10
</TABLE>
1
<PAGE>
<TABLE>
<S> <C> <C>
4. Representations and Warranties of the Company...........................10
4A. Organization, Corporate Power and Licenses.......................10
4B. Capital Stock and Related Matters................................10
4C. Authorization; No Breach.........................................11
4D. Financial Statements.............................................12
4E. Absence of Undisclosed Liabilities...............................12
4F. No Material Adverse Change.......................................12
4G. Litigation, etc..................................................12
4H. Brokerage........................................................13
4I. Governmental Consent, etc........................................13
4J. Compliance with Laws.............................................13
4K. Investment Company...............................................13
4L. Disclosure.......................................................13
4M. Intellectual Property............................................14
4N. Investment Representations.......................................14
5. Definitions.............................................................16
6. Miscellaneous...........................................................19
6A. Expenses.........................................................19
6B. Remedies.........................................................19
6C. Purchaser's Representations......................................19
6D. Consent to Amendments............................................23
6E. Survival of Representations and Warranties.......................23
6F. Successors and Assigns...........................................23
6G. Severability.....................................................24
6H. Counterparts.....................................................24
6I. Descriptive Headings; Interpretation.............................24
6J. Generally Accepted Accounting Principles.........................24
6K. Governing Law....................................................24
6L. Notices..........................................................24
6M. No Strict Construction...........................................24
6N. Company Indemnification..........................................24
6O. Purchase Indemnification.........................................26
6P. Legends..........................................................26
6Q. Lock-up Agreements...............................................28
</TABLE>
2
<PAGE>
DIVINE INTERVENTURES, INC.
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (this "Agreement") is made as of February 3,
2000 between divine interVentures, inc., a Delaware corporation (the "Company"),
and CMGI, Inc., a Delaware corporation (the "Purchaser" ). Except as otherwise
indicated herein, capitalized terms used herein are defined in Section 5 hereof.
WHEREAS, the parties desire to enter into a long-term strategic
relationship as further described herein.
WHEREAS, as part of such strategic relationship, Purchaser desires to
make an investment in the Company, and the Company desires to make an investment
in Purchaser, on the terms and conditions described herein and in the
Transaction Documents.
WHEREAS, such strategic relationship and the agreement entered into by
the parties hereto in connection therewith, is a condition to the execution and
delivery of this Agreement and the issuance to the Purchaser of the Company's
equity securities and the issuance to the Company of the Purchaser's equity
securities.
NOW THEREFORE, in consideration of the mutual promises contained in
this Agreement and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties to this Agreement
hereby agree as follows:
Section 1 Authorization and Closing.
-------------------------
1A. Authorization of the Series E Preferred Stock and Class A
Common Stock The Company shall authorize the issuance and sale to the Purchaser
of an aggregate of 20,000,000 shares of its Series E Senior Participating
Convertible Redeemable Preferred Stock, par value $0.001 per share (the "Series
E Preferred Stock"), having the rights and preferences set forth in the
Certificate of Designation of Series E Senior Participating Convertible
Redeemable Preferred Stock attached as Exhibit A hereto (the "Certificate of
Designation") and an aggregate of that number of shares of Class A Common Stock
described in Section 1B(ii) below. The Series E Preferred Stock is convertible
into shares of the Company's Class A Common Stock, par value $0.001 per share
("Class A Common Stock").
1B. Purchase and Sale of the Series E Preferred Stock and Class A
Common Stock. The Company shall sell to the Purchaser, and subject to the terms
and conditions set forth herein, the Purchaser shall purchase from the Company:
(i) At the Initial Closing, 18,284,327 shares of Series E
Preferred Stock at a purchase price of $1.00 per share, for an aggregate
purchase price of
<PAGE>
$18,284,327, which purchase price shall be paid in immediately available
funds.
(ii) Upon the consummation of a Qualified IPO, that number of
shares of Class A Common Stock such that, immediately after the issuance
thereof, Purchaser shall be the beneficial owner of 4.9% of the Class A
Common Stock of the Company (determined in accordance with Rule 13d-3 of
the Securities Exchange Commission promulgated under the Securities
Exchange Act), for a price per share equal to that stated on the face of
the prospectus in connection with the Qualified IPO as the price per share
to the public of the Company's Class A Common Stock in the Qualified IPO,
which purchase price shall be payable by the issuance of the CMGI Shares.
1C. The Closing. The consummation of the purchase of the Series E
Preferred Stock and the Class A Common Stock hereunder shall take place as
follows:
(i) Subject to Section 1D below and Section 2, the closing of the
purchase and sale of the Series E Preferred Stock to the Purchaser (the
"Initial Closing") shall take place at the offices of Katten Muchin Zavis,
525 West Monroe Street, Chicago, IL 60661 at 10:00 a.m. three (3) business
days after such date as the conditions in Section 1D and Section 2 below
shall have been satisfied. At the Initial Closing, the Company shall
deliver a stock certificate evidencing all of the shares of the Series E
Preferred Stock to be purchased by Purchaser hereunder, registered in
Purchaser's name, upon payment of the aggregate purchase price therefore,
by wire transfer in immediately available funds to an account designated by
the Company to the Purchaser at least two (2) business days prior to the
Initial Closing.
(ii) Subject to Section 1D below, the closing of the purchase and
sale of the Class A Common Stock to the Purchaser (the "Subsequent
Closing") shall take place at the offices of Katten Muchin Zavis, 525 West
Monroe Street, Chicago, IL 60661 at 10:00 a.m. on such time that is the
later of (a) simultaneous with the consummation of the Qualified IPO, or
(b) three (3) business days after such date as the conditions in Section 1D
shall have been satisfied. At the Subsequent Closing, the Company shall
deliver a stock certificate evidencing all of the shares of the Class A
Common Stock to be purchased by Purchaser hereunder, registered in
Purchaser's name, upon the issuance of the CMGI Shares registered in the
Company's name.
1D. HSR Conditions. Notwithstanding anything to the contrary herein,
neither the Initial Closing nor the Subsequent Closing shall occur unless and
until any filings required to be made by the Company and the Purchaser under the
HSR Act shall have been made and the waiting period with respect thereto shall
have expired or been terminated.
1E. HSR Filings. As promptly as practicable after the date of this
Agreement, each of the parties hereto will make any filings required by the HSR
Act to be made by it in order to consummate the transactions contemplated
hereby, and each party hereto will cooperate with the other party hereto in
connection with any such filings required by the HSR Act. Notwithstanding
anything to the contrary contained herein, nothing in this Agreement will
require
2
<PAGE>
any Person, whether pursuant to an order of the Federal Trade Commission or the
United States Department of Justice or otherwise, to dispose of any assets,
lines of business or equity interests, or otherwise take any action that would
materially affect its business, in order to obtain the consent of the Federal
Trade Commission or the United States Department of Justice to the transactions
contemplated by this Agreement. Each of the parties hereto shall promptly
provide the other party (or its counsel) copies of all filings made and any
materials submitted in connection with the HSR Act.
1F. Termination. This Agreement may be terminated at any time prior to
the consummation of the Initial Closing or the Subsequent Closing, as
applicable, under the following described circumstances:
(i) with respect to the Initial Closing and the Subsequent
Closing, upon the mutual written consent of the Company and the Purchaser;
(ii) with respect to the Initial Closing and the Subsequent
Closing, by either of the Company or the Purchaser if the Initial Closing
shall not have been consummated on or before March 10, 2000 or such later
date as the parties may mutually agree, provided that the right to
terminate this Agreement under this subsection 1F(ii) shall not be
available to any party whose willful failure to fulfill any material
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Initial Closing to occur on or before such date; or
(iii) with respect to the Subsequent Closing by either of the
Company or the Purchaser if the Qualified IPO shall not have been
consummated prior to the twelve month anniversary of the Initial Closing.
Section 2 Conditions of the Parties' Obligations at the Initial
Closing. The obligation of the Purchaser to purchase and pay for the Series E
Preferred Stock at the Initial Closing, and for the Company to sell such Series
E Preferred Stock, is subject to the execution and delivery of the parties of
those agreements, and the taking of such other actions, before or simultaneous
with the Initial Closing as follows:
2A. Certificate of Designation and Certificate of Incorporation. The
Company shall deliver evidence that its Certificate of Incorporation, as amended
to include the provisions set forth in the Certificate of Designation (as the
Certificate of Incorporation is in effect at the Signing, the "Amended
Certificate"), have been filed with the Secretary of State of Delaware and are
in full force and effect under the laws of the State of Delaware as of the
Initial Closing.
2B. Bylaws. The Company shall deliver a copy of its amended and
restated bylaws (as in effect as of the Initial Closing, the "Bylaws").
2C. Representations and Warranties; Covenants. The representations and
warranties contained in Section 4 and Section 6 hereof shall be true and correct
at and as of the
3
<PAGE>
Initial Closing as though then made, except to the extent of changes caused by
the transactions expressly contemplated herein, and the Company and the
Purchaser shall have performed in all material respects all of the covenants
required to be performed by them hereunder prior to the Initial Closing.
2D. Registration Agreement. The Company and the Purchaser shall
execute and deliver a registration rights agreement in the form of Exhibit B
hereto (as may be amended, restated and supplemented from time to time in
accordance with its terms, the "Registration Agreement"), and the Registration
Agreement shall be in full force and effect as of the Initial Closing.
2E. Intentionally Omitted.
2F. Series E Stockholders Agreement. The Company and the Purchaser
shall execute and deliver a Series E stockholders agreement in the form of
Exhibit C hereto (as may be amended, restated and supplemented from time to time
in accordance with its terms, the "Series E Stockholders Agreement"), and the
Series E Stockholders Agreement shall be in full force and effect as of the
Initial Closing.
2G. Opinion of the Company's Counsel. Katten Muchin Zavis, counsel
for the Company, shall deliver to the Purchaser an opinion, the form of Exhibit
D hereto, dated as of the Initial Closing.
2H. Officer's Certificate. Each of the Company and the Purchaser
shall deliver to the other an Officer's Certificate, stating that (i) the
conditions described in Sections 2A through 2G (inclusive), 2I through 2K have
been satisfied; (ii) such party has made all filings under all applicable
federal and state securities laws necessary to consummate the transactions
contemplated by this Agreement in compliance with such laws; and (iii) all
corporate and other proceedings required to be taken by such party in connection
with the transactions contemplated hereby to be consummated at or prior to the
Initial Closing have been taken.
2I. Company Resolutions. The Company shall deliver to the Purchaser
at the Initial Closing the resolutions certified by the secretary of the Company
as having been duly adopted by the Board, authorizing the execution, delivery
and performance of this Agreement, the Registration Agreement, the Series E
Stockholders Agreement and each of the other agreements contemplated hereby or
thereby (collectively, the "Transaction Documents") to which the Company is
party, the filing of the Certificate of Designation referred to in Section 2A,
the issuance and sale of the Series E Preferred Stock and Class A Common Stock
hereunder and, the reservation of a sufficient number of shares of Class A
Common Stock for issuance upon conversion of the Series E Preferred Stock
purchased hereunder.
2J. Purchaser Resolutions. The Purchaser shall deliver to the Company
at the Initial Closing the resolutions certified by the secretary of the
Purchaser as having been duly adopted by its Board of Directors, authorizing the
execution, delivery and performance of this Agreement, the Registration
Agreement, the Series E Stockholders Agreement and each
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of the other Transaction Documents to which the Purchaser is a party, and the
issuance and sale of the CMGI Shares hereunder.
2K. Consents. (i) Each of the Company and the Purchaser shall have
obtained and delivered to the other copies of all third party and governmental
consents, approvals and filings required in connection with the consummation of
the transactions hereunder (including, without limitation, all blue sky law
filings; waivers of all preemptive rights and rights of first refusal and all
waivers required under any agreements to which the Company is party), and (ii)
the Company shall have obtained the approval of the Board.
Section 3 Covenants.
3A. Financial Statements and Other Information. After the Initial
Closing, the Company shall deliver to the Purchaser so long as such Person holds
the Underlying Class A Common Stock acquired by such Person at the Initial
Closing:
(i) as soon as available but in any event within forty-five (45)
days after the end of each quarterly accounting period in each fiscal year,
unaudited consolidating and consolidated statements of income and cash
flows of the Company and its Subsidiaries for such quarterly period and for
the period from the beginning of the fiscal year to the end of such quarter
(such statements of income and cash flows shall also include disclosure of
the operating results of the Company disaggregated from the operating
results of the Company's Subsidiaries and Partner Companies), and unaudited
consolidating and consolidated balance sheets of the Company and its
Subsidiaries as of the end of such quarterly period, setting forth in each
case comparisons to the Company's annual budget and to the corresponding
period in the preceding fiscal year, and all such statements shall be
prepared in accordance with GAAP and shall be certified by the chief
financial officer of the Company or an officer holding an equivalent
position;
(ii) accompanying the financial statements referred to in
subsection 3A(i), an Officer's Certificate stating that neither the Company
nor any of its Subsidiaries is in default under any of its other material
agreements or, if any such default exists, specifying the nature and period
of existence thereof and what actions the Company and its Subsidiaries have
taken and propose to take with respect thereto;
(iii) within ninety (90) days after the end of each fiscal year,
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such fiscal year, and consolidating and
consolidated balance sheets of the Company and its Subsidiaries as of the
end of such fiscal year, setting forth in each case comparisons to the
Company's annual budget and to the preceding fiscal year, all prepared in
accordance with GAAP and accompanied by (a) with respect to the
consolidated portions of such statements, an opinion containing no
exceptions or qualifications (except for qualifications regarding specified
contingent liabilities) of an
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independent accounting firm of recognized national standing reasonably
acceptable to the Purchaser and (b) a copy of such firm's annual management
letter to the Board;
(iv) within forty-five (45) days after the end of each fiscal
quarter, unaudited statements of income and cash flows for each of the
Company's Subsidiaries and Partner Companies for such fiscal quarter, and
unaudited balance sheets for each of the Company's Subsidiaries and Partner
Companies as of the end of such fiscal quarter, in the case of the Partner
Companies to the extent available;
(v) promptly upon receipt thereof, any additional reports,
management letters or other detailed information concerning significant
aspects of the Company's operations or financial affairs given to the
Company by its independent accountants (and not otherwise contained in
other materials provided hereunder);
(vi) at least ninety (90) days after the beginning of each fiscal
year, an annual budget prepared on a monthly basis for the Company and its
Subsidiaries for such fiscal year (displaying anticipated statements of
income and cash flows and balance sheets) as approved by a majority of the
Board, and promptly upon preparation thereof any other significant budgets
prepared by the Company and any revisions of such annual or other budgets;
(vii) promptly (but in any event within ten (10) business days)
after the discovery or receipt of notice of any material default under any
material agreement to which the Company or any of its Subsidiaries is a
party or any other material adverse change, event or circumstance affecting
the Company or any Subsidiary (including, without limitation, the filing of
any material litigation against the Company or any Subsidiary or the
existence of any dispute with any Person which involves a reasonable
likelihood of such litigation being commenced), an Officer's Certificate
specifying the nature and period of existence thereof and what actions the
Company and its Subsidiaries have taken and propose to take with respect
thereto;
(viii) within ten (10) days after transmission or occurrence
thereof, copies of all financial statements, proxy statements, reports and
any other general written communications which the Company sends to its
shareholders or the financial community, copies of all registration
statements and all regular, special or periodic reports which it files, or
any of its officers or directors file with respect to the Company, with the
Securities and Exchange Commission or with any securities exchange on which
any of its securities are then listed, and notice of any event which might
have a significant effect on the Company's business prospects or financial
condition or the Purchaser's investment in the Series E Preferred Stock;
(ix) on a quarterly basis, any reports delivered to the Executive
Committee members, as the form of such reports may be agreed upon from time
to time
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between the Company and the Executive Committee, regarding the assets (and
the valuation thereof) and income of the Company; and
(x) with reasonable promptness, such other information and
financial data concerning the Company and its Subsidiaries as any Person
entitled to receive information under this Section 3A may reasonably
request.
Each of the financial statements referred to in subsection 3A(i) and 3A(iii)
shall be true and correct in all material respects as of the dates and for the
periods stated therein, subject in the case of the unaudited financial
statements to changes resulting from normal recurring year-end adjustments,
shall be consistent with the books and records of the Company and shall present
fairly the consolidated financial condition of the Company and its Subsidiaries
as of and for the periods set forth therein.
Except as otherwise required by law or judicial order or decree or by any
governmental agency or authority, the Purchaser shall use its reasonable best
efforts to maintain the confidentiality of all nonpublic information obtained by
it under this Section 3A which is proprietary or confidential in nature;
provided that the Purchaser may disclose such information in connection with the
sale or transfer or proposed sale or transfer of any Underlying Class A Common
Stock, if the transferee or proposed transferee agrees in writing to be bound by
this provision.
For purposes of this Agreement and the Registration Agreement, all holdings of
the Class A Common Stock and Underlying Class A Common Stock by Persons who are
Affiliates of each other shall be aggregated for purposes of meeting any
threshold tests under this Agreement or the Registration Agreement.
3B. Inspection of Property. After the Initial Closing, the Company
shall permit representatives designated by the Purchaser (so long as the
Purchaser holds the shares of Underlying Class A Common Stock acquired by such
Person at the Initial Closing), upon reasonable notice and during normal
business hours and at such other times as such Person may reasonably request, to
(i) visit and inspect any of the properties of the Company and its Subsidiaries,
(ii) examine the corporate and financial records of the Company and its
Subsidiaries and make copies thereof or extracts therefrom, and (iii) discuss
the affairs, finances and accounts of any such corporations with the directors,
officers, key employees and independent accountants of the Company and its
Subsidiaries. The presentation of an executed copy of this Agreement by the
Purchaser or any other permitted holder of Underlying Class A Common Stock to
the Company's independent accountants shall constitute the Company's permission
to its independent accountants to participate in discussions with such Persons.
3C. Equity Issuances.
(i) If after the date hereof the Company authorizes the issuance
or sale of any Equity Securities, the Company shall offer to sell to each
holder of Underlying Class A Common Stock a portion of such stock or
securities equal to the quotient
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determined by dividing (1) the number of shares of Underlying Class A
Common Stock held by such holder by (2) the total number of shares of
Common Stock outstanding on a fully diluted basis. Each holder of
Underlying Class A Common Stock shall be entitled to purchase such stock or
securities at the most favorable price and on the most favorable terms as
such stock or securities are to be offered to any other Persons. The
purchase price for all stock and securities offered to the holders of the
Underlying Common Stock shall be payable in cash; provided that, if other
Persons are to pay for such Equity Securities in whole or in part with
consideration other than cash, then the Board, in its sole discretion,
shall make a determination of the fair market value of such consideration,
and each holder of Underlying Class A Common Stock will be entitled to
purchase the Equity Securities for cash equal to the fair market value of
the aggregate cash and non-cash consideration each of them would otherwise
pay hereunder. Notwithstanding the foregoing, none of the holders of
Underlying Class A Common Stock will be permitted to exercise its rights
under this Section 3C unless it agrees to purchase its proportionate amount
of each class or series of securities offered as a package or unit in the
issuance of the Equity Securities.
(ii) In order to exercise its purchase rights hereunder, a holder
of Underlying Class A Common Stock must, within 30 days after receipt of
written notice from the Company describing in reasonable detail the stock
or securities being offered, the purchase price thereof, the payment terms
and such holder's percentage allotment, deliver a written notice to the
Company describing its election hereunder (including the amount of Equity
Securities it so elects to purchase); provided that funding the purchase of
Equity Securities may be subject to the expiration or termination of any
applicable waiting period under the HSR Act. If all of the stock and
securities offered to the holders of Underlying Class A Common Stock is not
fully subscribed by such holders, the remaining stock and securities shall
be reoffered by the Company to the holders purchasing their full allotment
upon the terms set forth in this Section 3C, except that such holders must
exercise their purchase rights within five days after receipt of such
reoffer.
(iii) Upon the expiration of the offering periods described
above, the Company shall be entitled to sell such stock or securities which
the holders of Underlying Class A Common Stock have not elected to purchase
during the 60 days following such expiration on terms and conditions no
more favorable to the purchasers thereof than those offered to such
holders. Any stock or securities offered or sold by the Company after such
60-day period must be reoffered to the holders of Underlying Class A Common
Stock pursuant to the terms of this Section 3C.
(iv) The Company shall promptly deliver to holders of Underlying
Class A Common Stock certificates evidencing the Equity Securities
purchased by each such party hereunder, upon receipt of payment therefor,
and upon execution of such documents and instruments as shall govern the
issuance of such Equity Securities (which documents and instruments shall
be substantially the same as those governing the issuance of the Equity
Securities to other Persons).
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(v) Notwithstanding anything to the contrary herein, the rights
of the holders of Underlying Class A Common Stock under this Section 3C may
be waived on behalf of all holders of Underlying Class A Common Stock by
the vote of the holders of at least a majority of the outstanding
underlying Class A Common Stock; provided that only Persons not
participating in the relevant financing may be counted towards, and
participate in, such vote.
3D. Strategic Relationship. So long as Purchaser and its Affiliates
hold at least 75% of the Underlying Class A Common Stock and the Class A Common
Stock purchased hereunder, it is the intention of the parties, without creating
any legal obligations, to utilize, demonstrate and promote the products,
services and other offerings of each other's Affiliates to the extent that such
products and services meet the requirements and competitive price/performance
specifications of other such Affiliates, subject to negotiation of acceptable
terms and conditions including intellectual property rights, pricing, timing and
availability, and further subject to existing contractual commitments, and
provided such products, services and other offerings are not competitive with
those of such Affiliates. The Company and Purchaser shall each designate a
corporate officer as an "Executive Coordinator" who shall be responsible for all
overall maters pertaining to this Section 3D. The initial Executive Coordinator
for Purchaser shall be Laura Montgomery. The initial Executive Coordinator for
the Company shall be Scott Hartkopf. The responsibilities of the Executive
Coordinators are as follows:
(i) Administer and coordinate the overall aspects of the
strategic relationship between the parties;
(ii) Arrange meetings, visits and consultations, including at
least one conversation every two weeks, between the parties concerning the
strategic relationship; and
(iii) Review and approve plans for marketing and other programs
to be administered under the strategic relationship. All expenditures
arising under the strategic relationship must be approved by both Executive
Coordinators.
3E. Exclusivity. To induce the Purchaser to enter into the
agreements contained herein and in the Transaction Documents, the Company hereby
agrees that for the shorter of (i) the eighteen (18) months following the
Initial Closing, or (ii) such time as Purchaser and its Affiliates no longer
holds at least 75% of the Underlying Class A Common Stock and Class A Common
Stock purchased hereunder, it will not enter into any strategic arrangement
similar to the transactions contained in this Agreement with any of Idealab!,
Internet Capital Group, Inc., Softbank Corp., or Safeguard Scientifics, Inc.
3F. Compliance with Rule 144. At the request of any holder who
proposes to sell CMGI Shares in compliance with Rule 144 of the Securities and
Exchange Commission, the Purchaser will (i) forthwith furnish to such holder,
upon request, a written statement of compliance with the filing requirements of
the Securities and Exchange Commission as set forth in Rule 144, as such rule
may be amended from time to time, and (ii) use its reasonable best
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efforts to make available to the public and such holders such information as
will enable the holders to make sales pursuant to Rule 144.
3G. Termination. Notwithstanding anything to the contrary herein,
the provision of Section 3A through 3C shall terminate on a Qualified IPO.
3H. Repurchase Right. The parties acknowledge and agree that
Purchaser may wish to maintain its beneficial ownership interest in the Company
at a level lower than five percent (5%) of the total Class A Common Stock of the
Company and therefore agree as follows:
(i) If for any reason, other than as a direct result of purchases
or other direct of indirect voluntary acquisitions of securities of the
Company by Purchaser and its Subsidiaries, Purchaser and its Subsidiaries
beneficially owns or will beneficially own five percent (5%) or more of the
outstanding shares of Class A Common Stock of the Company,
(a) Purchaser will have the right to sell back and the
Company will be obligated to purchase that number of shares of common stock
of the Company at Current Market Value (as defined below) as is necessary
to reduce, or in anticipation of a proposed action by the Company that
would result in increasing Purchaser's beneficial ownership of Class A
Common Stock of the Company above five percent (5%) to maintain Purchaser's
beneficial ownership interest below five percent (5%);
(b) In the event the Company does not have sufficient funds
to permit Purchaser to exercise its rights under Section 3H(i)(b), or is
restricted under applicable corporate law from purchasing sufficient shares
of common stock of the Company, (x) Purchaser will have the right to sell,
and the Company will be obligated to purchase, the maximum number of shares
of common stock of the Company that the Company has funds to purchase
and/or is legally permitted to purchase; (y) the Company will make
reasonable efforts to raise sufficient funds to remove any legal obstacles
so as to enable it to fulfill its obligation pursuant to Section 3H(i)(b)
in the event the Company is unable to repurchase sufficient shares of
common stock of the Company to satisfy its obligation pursuant to Section
3H(i)(b), subject to Section 6Q below, Purchaser will receive an additional
demand registration right which will accelerate and become effective
immediately and the Company will fully reimburse Purchaser for all costs
and expenses in reducing its beneficial ownership below five percent (5%)
and for any difference between the price per share payable pursuant to
Section 3H(i)(b) assuming that the maximum number of shares of common stock
of the Company were purchased at the Current Market Value as of the date on
which Purchaser gave notice of its intent to sell shares of common stock of
the Company pursuant to Section 3H(i)(b) and the net proceeds eventually
received by Purchaser through the sale of shares of common stock of the
Company pursuant to the additional demand registration right.
(ii) "Current Market Value" shall mean the average closing price
as publicly reported for the Nasdaq Stock Market as of 4:15 p.m. Eastern
Time of the common stock of the Company over the last twenty (20) trading
days ending two (2)
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trading days prior to the buy-back date. The following example is inserted
solely for purposes of clarification of the preceding sentence: assume the
date on which Purchaser exercises its right is Tuesday February 1, 2000,
then the specified twenty- (20-) trading day period will end on and include
Friday, January 28, 2000.
(iii) The Company will not enter into any restrictive agreements
or take any other actions that would impose any restrictions on or
otherwise adversely affect Purchaser's right to maintain, at its option, a
beneficial ownership level below five percent (5%) of the total Class A
Common Stock of the Company, including authorizing any class of common
stock other than the Class A Common Stock and Class B Common Stock of the
Company currently authorized.
(iv) For purposes of this Section 3H, beneficial ownership shall
be determined in accordance with Rule 13d-3 of the Securities Exchange
Commission promulgated under the Securities Exchange Act.
Section 4 Representations and Warranties of the Company.
As a material inducement to the Purchaser to enter into this Agreement
and purchase the Series E Preferred Stock and Class A Common Stock hereunder,
the Company hereby represents and warrants that:
4A. Organization, Corporate Power and Licenses. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and is qualified to do business in every jurisdiction
in which its ownership of property or conduct of business requires it to
qualify. The Company possesses all requisite corporate power and authority and
all material licenses, permits and authorizations necessary to own and operate
its properties, to carry on its businesses as now conducted and presently
proposed to be conducted and to carry out the transactions contemplated by this
Agreement and the other Transaction Documents to which the Company is a party.
4B. Capital Stock and Related Matters.
(i) The attached Capitalization Schedule accurately sets forth
the following information with respect to the Company's capitalization as
of the date hereof and immediately thereafter: (1) the authorized capital
stock of the Company, (2) the number of shares of each class of capital
stock issued and outstanding, (3) the number of shares of each class of
capital stock reserved for issuance upon exercise of options, warrants,
convertible securities or other rights to acquire the Company's capital
stock, (4) the name of each holder of capital stock and the amount of stock
owned by each such holder and (5) with respect to all outstanding options,
warrants and rights to acquire the Company's capital stock: the holder,
the number of shares covered, the exercise price or conversion price, the
vesting schedule and the expiration date, and all of the agreements or
understandings entered into by the Company in connection with the issuance
thereof or, if applicable, the conversion, exchange or exercise thereof.
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(ii) Neither the Company nor any of its Subsidiaries shall have
outstanding any stock or securities convertible or exchangeable for any
shares of its capital stock or containing any profit participation
features, nor shall it have outstanding any rights or options to subscribe
for or to purchase its capital stock or any stock or securities convertible
into or exchangeable for its capital stock or any stock appreciation rights
or phantom stock plans, except as set forth on the Capitalization Schedule.
Neither the Company nor any Subsidiary shall be subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any
shares of its capital stock or any warrants, options or other rights to
acquire its capital stock, except as set forth on the Capitalization
Schedule. All of the outstanding shares of the Company's capital stock
shall be validly issued, fully paid and nonassessable, and the Class A
Common Stock issuable upon conversion of the Series E Preferred Stock will,
when issued, be duly authorized and validly issued, fully paid and
nonassessable.
(iii) There are no statutory preemptive rights or rights of
refusal with respect to the issuance of the Series E Preferred Stock or
Class A Common Stock Preferred Stock hereunder or the issuance of Class A
Common Stock upon conversion of the Series E Preferred Stock or exercise of
any of the outstanding options to acquire the Company Stock and the Company
is not bound by any contractual pre-emptive rights or rights of first
refusal except as expressly contemplated herein nor, to the knowledge of
the Company, is any other Person. Except as set forth on the
Capitalization Schedule, the Company has not violated any applicable
federal or state securities laws in connection with the offer, sale or
issuance of any of its capital stock, and the offer, sale and issuance of
the Series E Preferred Stock or Class A Common Stock hereunder do not
require registration under the Securities Act or any applicable state
securities laws. To the best of the Company's knowledge after due inquiry,
except as expressly contemplated herein or as set forth on the
Capitalization Schedule, there are no agreements between the Company's
shareholders with respect to the voting or transfer of the Company's
capital stock or with respect to any other aspect of the Company's affairs.
(iv) Upon issuance in accordance with the terms hereof, the
Series E Preferred Stock and the Class A Common Stock to be purchased
hereunder will be duly and validly issued, fully paid, non-assessable and,
and the Purchaser will have good and marketable title to such shares, free
and clear of all liens, claims and encumbrances of any kind, other than (a)
transfer restrictions hereunder and under the Transaction Documents
(including Sections 6P and 6Q below), (b) transfer restrictions under
federal and state securities laws and (c) liens, claims or encumbrances
imposed due to the actions of the Purchaser.
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4C. Authorization; No Breach.
(i) The execution, delivery and performance of this Agreement
and each of the other Transaction Documents to which the Company is a
party, and the filing of the Certificate of Designation, will have been
duly authorized by the Company as of the Initial Closing. This Agreement,
each of the other Transaction Documents to which the Company is a party and
the Amended Certificate will each constitute a valid and binding obligation
of the Company, enforceable in accordance with its terms as of the Initial
Closing.
(ii) The execution and delivery by the Company of this Agreement
and each of the other Transaction Documents to which the Company is a
party, the offering, sale and issuance of the Series E Preferred Stock and
Class A Common Stock hereunder, the issuance of Class A Common Stock upon
conversion of the Series E Preferred Stock, the adoption of the Certificate
of Designation and the fulfillment of and compliance with the respective
terms hereof and thereof by the Company, do not and shall not as of the
Initial Closing (i) conflict with or result in a breach of the terms,
conditions or provisions of, (ii) constitute a default under, (iii) result
in the creation of any lien, security interest, charge or encumbrance upon
the Company's or any Subsidiary's capital stock or assets pursuant to, (iv)
give any third party the right to modify, terminate or accelerate any
obligation under, (v) result in a violation of, or (vi) require any
authorization, consent, approval, exemption or other action by or notice or
declaration to, or filing with, any court or administrative or governmental
body or agency pursuant to, the Amended Certificate or the Bylaws or the
charter or bylaws of any Subsidiary of the Company, or any law, statute,
rule or regulation to which the Company or any Subsidiary is subject, or
any agreement, instrument, order, judgment or decree to which the Company
or any Subsidiary is subject, other than filings required under the HSR
Act.
4D. Financial Statements. Attached hereto as the "Financial
Statements Schedule" is the unaudited balance sheet of the Company as of
September 30, 1999 (the "Latest Balance Sheet"), which Latest Balance Sheet is
accurate and complete in all material respects, is consistent with the books and
records of the Company (which, in turn, are accurate and complete in all
material respects) and has been prepared in accordance with GAAP (except for the
absence of footnotes and year-end accruals) and presents fairly the financial
condition of the Company as of the date set forth therein.
4E. Absence of Undisclosed Liabilities. The Company and its
Subsidiaries do not have any material obligation or liability (whether accrued,
absolute, contingent, unliquidated or otherwise, whether or not known to the
Company or any Subsidiary, whether due or to become due and regardless of when
asserted) arising out of transactions entered into at or prior to the Signing,
or any action or inaction at or prior to the Signing, or any state of facts
existing at or prior to the Signing other than: (i) liabilities set forth on the
Latest Balance Sheet (including any notes thereto), (ii) liabilities under
executory contracts and (iii) liabilities and obligations which have arisen
after the date of the Latest Balance Sheet in the ordinary course of business
(none of
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which is a liability resulting from breach of contract, breach of warranty,
tort, infringement, claim or lawsuit).
4F. No Material Adverse Change. Since September 30, 1999, there has
been no material adverse change in the financial condition, operating results,
assets, operations, business prospects, employee relations or customer or
supplier relations of the Company and its Subsidiaries taken as a whole.
4G. Litigation, etc. There are no actions, suits, proceedings or
orders pending or, to the best of the Company's knowledge, threatened against or
affecting the Company or any Subsidiary (or to the best of the Company's
knowledge, pending or threatened against or affecting any of the officers,
directors or employees of the Company and its Subsidiaries with respect to the
Company's or its Subsidiaries' businesses or proposed business activities), or
pending or threatened by the Company or any Subsidiary against any third party,
at law or in equity, or before or by any governmental department, commission,
board, bureau, agency or instrumentality (including, without limitation, any
actions, suit, proceedings or investigations with respect to the transactions
contemplated by this Agreement); and there is no basis for any of the foregoing.
Neither the Company nor any Subsidiary is subject to any judgment, order or
decree of any court or other governmental agency.
4H. Brokerage. There are no claims for brokerage commissions,
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement binding
upon the Company or any Subsidiary.
4I. Governmental Consent, etc. Except for any filings required under
the HSR Act, no permit, consent, approval or authorization of, or declaration to
or filing with, any governmental authority is required in connection with the
execution, delivery and performance by the Company of this Agreement or the
Transaction Documents to which the Company is a party, or the consummation by
the Company of any other transactions contemplated hereby or thereby. The
Company has not paid any filing fees for any Person (other than the Company)
required in connection with any filing under the HSR Act.
4J. Compliance with Laws.
(i) Neither the Company nor any Subsidiary has violated in the
past, or is currently in material violation of, any material law or any
material governmental rule, regulation or requirement, including, without
limitation, the 1940 Act, the Securities Act and the HSR Act, and neither
the Company nor any Subsidiary has received notice of any such violation.
(ii) The written statements, private placement memorandum,
documents, certificates or other items supplied by the Company to all other
purchasers of its capital stock or securities prior to the date hereof did
not contain any untrue statement of a
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material fact or omit to disclose a material fact necessary to make each
statement contained therein not misleading
4K. Investment Company. The Company is not an investment company
required to be registered as such under the 1940 Act.
4L. Disclosure. Neither this Agreement nor any of the exhibits,
schedules, attachments, written statements, documents, certificates or other
items supplied to the Purchaser by or on behalf of the Company (including,
without limitation, the private placement memorandum) with respect to the
transactions contemplated hereby contain any untrue statement of a material fact
or omit a material fact necessary to make each statement contained herein or
therein not misleading.
4M. Intellectual Property.
(i) Ownership or Right to Use. The Company or one of its
Subsidiaries has sole title to and owns, or is licensed or otherwise
possesses legally enforceable rights to use, or reasonably expects that it
will be able to obtain licenses or legally enforceable rights to use, all
material patents or patents or patent applications, software, know-how,
registered or unregistered trademarks and service marks and any
applications therefor, registered or unregistered copyrights and trade
names any applications therefor, trade secrets or other confidential or
proprietary information ("Intellectual Property") necessary to enable the
Company and its Subsidiaries to carry on their respective businesses as
currently conducted or as proposed to be conducted.
(ii) Licenses; Other Agreements. Except as set forth on the
"Licenses Schedule", there are not outstanding any material licenses or
agreements of any kind relating to the licensure by the Company of any
Intellectual Property owned by the Company or any of its Subsidiaries,
except for agreements with customers of the Company or any such Subsidiary
entered into in the ordinary course of business. Neither the Company nor
any of its Subsidiaries is obligated to pay any material royalties or other
payments to third parties with respect to the marketing, sale,
distribution, manufacture, license or use of any Intellectual Property
(other than off the shelf commercial applications), except as it may be so
obligated in the ordinary course of its business.
(iii) No Infringement. Neither the Company nor any of its
Subsidiaries is violating or infringing, and neither the Company nor any of
its Subsidiaries has received any communication alleging that either the
Company, any of its Subsidiaries or any of their respective employees or
consultants has violated or infringed, any Intellectual Property of any
other Person, except where such violation or infringement would not
reasonably be expected to have a material adverse effect on the Company and
its Subsidiaries, taken as a whole.
(iv) Materiality. Notwithstanding anything to the contrary
herein, for
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purposes of this Section 4M "materiality" shall be determined by reference
to the existence or absence of an item or matter that would reasonably be
expected to have a material adverse effect on the Company and is
Subsidiaries taken as a whole, and not with respect to any one Subsidiary.
4N. Investment Representations.
(i) Investment Purpose. The Company (i) is acquiring the CMGI
Shares for its own account for investment only and not with a view towards,
or for resale in connection with, the public sale or distribution thereof,
except pursuant to sales registered or exempted under the Securities Act.
(ii) Accredited Investor Status. The Company is an "accredited
investor" as that term is defined in Rule 501(a)(3) of Regulation D.
(iii) Reliance on Exemptions. The Company understands that the
CMGI Shares are being offered and sold to it in reliance on specific
exemptions from the registration requirements of United States federal and
state securities laws and that the Purchaser is relying in part upon the
truth and accuracy of, and the Company's compliance with, the
representations, warranties and agreements of the Company set forth herein
in order to determine the availability of such exemptions and the
eligibility of the Company to acquire such securities.
(iv) Information. The Company has been furnished with all
materials relating to the business, finances and operations of the
Purchaser and materials relating to the offer and sale of the CMGI Shares
which have been requested by Company. The Company has been afforded the
opportunity to ask questions of the Company. The Company understands that
its investment in the CMGI Shares involves a high degree of risk,
including, without limitation, matters discussed under the caption
"Management's Discussion and Analysis" in Purchasers Annual Report on Form
10-K for the fiscal year ended July 31, 1999. The Company understands that
Purchaser had made and is making no representation regarding the future
performance of Purchaser or the future market value of the CMGI Shares. The
Company has sought such accounting, legal and tax advice as it has
considered necessary to make an informed investment decision with respect
to its acquisition of the CMGI Shares. Without limiting the generality of
the foregoing, the Company has received and has had the opportunity to
review certain information relating to Purchaser and the CMGI shares,
including, without limitation, copies of the following:
(a) Purchaser's Annual Report on Form 10-K for the fiscal
year ended July 31, 1999, as filed with the Securities and Exchange
Commission (the "SEC") (excluding any exhibits thereto except for Exhibits
13.1, 13.2 and 13.3 thereto) on October 29, 1999;
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(b) The Purchaser's Quarterly Report on Form 10-Q for the period
ended October 31, 1999 as filed with the SEC on December 15, 1999
(excluding any exhibits thereto);
(c) The Purchaser's Proxy Statement for the 1999 Annual
Stockholders Meeting as filed with the SEC on November 17, 1999;
(d) The Purchaser's Current Report on Form 8-K as filed with the
SEC on August 12, 1999 (excluding any exhibits thereto);
(e) The Purchaser's Current Report on Form 8-K as filed with the
SEC on September 2, 1999 (excluding any exhibits thereto);
(f) The Purchaser's Current Report on Form 8-K as filed with the
SEC on September 3, 1999 (excluding any exhibits thereto);
(g) Purchaser's Current Report on Form 8-K as filed with the SEC
on September 27, 1999 (excluding any exhibits thereto);
(h) Purchaser's Current Report on Form 8-K as filed with the SEC
on October 1, 1999 (excluding any exhibits thereto);
(i) The Purchaser's Current Report on Form 8-K/A as filed with
the SEC on November 1, 1999 (excluding exhibits thereto);
(j) The Purchaser's Current Report on Form 8-K/A as filed with
the SEC on November 17, 1999 (excluding any exhibits thereto);
(k) The Purchaser's Current Reports on Forms 8-K each as filed
with the SEC on December 17, 1999 (excluding any exhibits thereto); and
(l) The Purchaser's Current Report on Form 8-K as filed with the
SEC on January 24, 2000 (excluding any exhibits thereto).
(v) No Governmental Review. The Company understands that no United
States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the CMGI
Shares or the fairness or suitability of the investment in the CMGI Shares
nor have such authorities passed upon or endorsed the merits of the
offering of the CMGI Shares.
(vi) Transfer or Resale. The Company understands that: (a) the CMGI
Shares have not been and are not being registered under the Securities Act
or any state securities laws, and may not be offered for sale, sold,
assigned or transferred unless (A) subsequently registered thereunder or
(B) sold in reliance on an exemption therefrom; and (b) neither the CMGI
nor any other person is under any obligation to register such CMGI
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Shares under the Securities Act or any state securities laws or to comply
with the terms and conditions of any exemption thereunder. The Company is
able to bear the economic risk of its investment in the CMGI Shares for an
indefinite period of time.
(vii) Sophistication. The Company has knowledge and experience in
financial and business matters, knows of the high degree of risk associated
with investments generally, is capable of evaluating the merits and risks
of an investment in the CMGI Shares and is able to bear the economic risk
of an investment in the CMGI Shares in the amount contemplated. The Company
has adequate means of providing for its current financial needs and
contingencies and will have no current or anticipated future needs for
liquidity which would be jeopardized by the investment in the CMGI Shares.
The Company can afford a complete loss of its investment in the CMGI
Shares.
Section 5 Definitions. For the purposes of this Agreement, the
following terms have the meanings set forth below:
"Affiliate" of any particular Person means any other Person
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
direct the management and policies of a Person whether through the ownership of
voting securities, contract or otherwise.
"CMGI Shares" means that number of shares of the common stock of the
Purchaser equal to (a) the aggregate purchase price for the Class A Common Stock
being sold to Purchaser pursuant to Section 1B(ii) hereof, divided by (b) the
average of the last reported sales price per share of the common stock of
Purchaser on the Nasdaq National Market over the five consecutive trading days
ending on the trading day that is three days prior to (but not including) the
Subsequent Closing Date.
"Equity Securities" means (i) any shares of common capital stock in
the Company, whether now authorized or not, (ii) any rights, options or warrants
to purchase any such common capital stock, or to purchase securities that may
become convertible into, exercisable for or exchangeable for such common capital
stock, and (iii) any securities convertible into, exercisable for or
exchangeable for common capital stock in the Company, and (iv) notes or debt
securities containing equity or profit participation features; provided,
however, Equity Securities shall not include (a) securities issued or issuable
to employees, consultants or members of the Board for the purpose of soliciting
or retaining their services to the extent approved by the Board or compensation
committee thereof, (b) securities offered by the Company pursuant to a Public
Offering, (c) securities issued as a dividend on, subdivision of or other
distribution in respect of all Common Stock, (d) securities issued upon
conversion, exercise or exchange of any previously issued Equity Securities so
long as such securities are issued pursuant to the terms of such previously
issued Equity Securities as in effect at the time of such prior issuance, (e)
securities issued to financial institutions in connection with senior or
subordinated indebtedness of the Company, (f) securities issued to strategic
partners (i.e. Persons not principally in the business of acting as a financial
investor providing capital through equity investments or Persons not otherwise
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principally acting in such a capacity with respect to their investment in the
Company) determined to be such by the Board, or (g) securities issued pursuant
to the acquisition of another Person by the Company by merger, purchase of
substantially all of the assets of such other entity, or by other transaction or
reorganization whereby the Company ends up owning, directly or indirectly,
greater than fifty percent (50%) of the equity and voting power of such entity
or otherwise controls such entity.
"Executive Committee" means the Executive Committee of the Board.
"GAAP" means generally accepted United States accounting principles,
consistently applied.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the Premerger Notification Rules promulgated thereunder.
"1940 Act" means the Investment Company Act of 1940, as amended.
"Officer's Certificate" means a certificate signed by the Company's or
Purchaser's president or its chief financial officer, stating that (i) the
officer signing such certificate has made or has caused to be made such
investigations as are necessary in order to permit him to verify the accuracy of
the information set forth in such certificate and (ii) to the best of such
officer's knowledge, such certificate does not misstate any material fact and
does not omit to state any fact necessary to make the certificate not
misleading.
"Partner Company" means any Person which is not a Subsidiary and of
which the Company owns any equity security (i) equal to or greater than 20% of
the common stock (on a fully-diluted basis) of such Person, or (ii) with a cost
to the Company in excess of $20,000,000.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Public Offering" means an underwritten public offering pursuant to an
effective registration statement filed by the Company (or any successor entity
to the Company) with the Securities and Exchange Commission under the Securities
Act with respect to common equity of the Company (or any successor entity to the
Company).
"Qualified IPO" shall have the meaning given such term in the
Certificate of Designation.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal law then in force.
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<PAGE>
"Securities and Exchange Commission" includes any governmental body or
agency succeeding to the functions thereof.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
as amended, or any similar federal law then in force.
"Subsidiary" means, with respect to any Person, any corporation,
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the partnership or other similar ownership interest thereof is at the time
owned or controlled, directly or indirectly, by any Person or one or more
Subsidiaries of that Person or a combination thereof. For purposes hereof, a
Person or Persons shall be deemed to have a majority ownership interest in a
limited liability company, partnership, association or other business entity if
such Person or Persons shall be allocated a majority of limited liability
company, partnership, association or other business entity gains or losses or
shall be or control any managing director or general partner of such limited
liability company, partnership, association or other business entity.
"Underlying Class A Common Stock" means (i) the Class A Common Stock
issued or issuable upon conversion of the Series E Preferred Stock issued at
Closing and (ii) any Class A Common Stock issued or issuable with respect to the
securities referred to in clause (i) above by way of stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization. For purposes of this Agreement, any
Person who holds any shares of Series E Preferred Stock shall be deemed to be
the holder of the Underlying Class A Common Stock obtainable upon conversion of
the Series E Preferred Stock in connection with the transfer thereof or
otherwise regardless of any restriction or limitation on the conversion of the
Series E Preferred Stock, such Underlying Class A Common Stock shall be deemed
to be in existence, and such Person shall be entitled to exercise the rights of
a holder of Underlying Class A Common Stock hereunder. As to any particular
shares of Underlying Class A Common Stock, such shares shall cease to be
Underlying Class A Common Stock when they have been (a) effectively registered
under the Securities Act and disposed of in accordance with the registration
statement covering them, (b) distributed to the public through a broker, dealer
or market maker pursuant to Rule 144 under the Securities Act (or any similar
provision then in force) or (c) repurchased by the Company or any Subsidiary.
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<PAGE>
Section 6 Miscellaneous.
6A. Expenses. The Company shall pay, and hold the Purchaser and all
holders of Series E Preferred Stock, Class A Common Stock and Underlying Class A
Common Stock harmless against liability for the payment of, (i) the fees and
expenses incurred with respect to the enforcement of the rights (in connection
with a breach or threatened breach by the Company) granted under this Agreement,
the other Transaction Documents to which the Company is a party, the Amended
Certificate or the Certificate of Designation and (ii) the fees and expenses
incurred by the holders of a majority of Underlying Class A Common Stock with
respect to defaults or breaches by the Company under this Agreement, the other
Transaction Documents to which the Company is a party, the Amended Certificate
and the Certificate of Designation. Purchaser shall pay, and hold the Company
and all holders of the CMGI Shares harmless against liability for the payment
of, (i) the fees and expenses incurred with respect to the enforcement of the
rights (in connection with a breach or threatened breach by Purchaser) granted
under this Agreement, or the other Transaction Documents to which Purchaser is a
party and (ii) the fees and expenses incurred by the holders of a majority of
the CMGI Shares with respect to defaults or breaches by Purchaser under this
Agreement, and the other Transaction Documents to which Purchaser is a party.
6B. Remedies. Each holder of the Series E Preferred Stock, Class A
Common Stock and Underlying Class A Common Stock shall have all rights and
remedies set forth in this Agreement and the Certificate of Designation (or as
may be amended) and all rights and remedies which such holders have been granted
at any time under any other agreement or contract and all of the rights which
such holders have under any law. Each holder of CMGI Shares shall have all
rights and remedies set forth in this Agreement and all rights and remedies
which such holders have been granted at any time under any other agreement or
contract and all of the rights which such holders have under any law. Any
Person having any rights under any provision of this Agreement shall be entitled
to enforce such rights specifically (without posting a bond or other security),
to recover damages by reason of any breach of any provision of this Agreement
and to exercise all other rights granted by law.
6C. Purchaser's Representations. The Purchaser hereby represents and
warrants to the Company that:
(i) Investment Purpose. Purchaser (i) is acquiring the Series
E Preferred Stock or Class A Common Stock and (ii) upon conversion of the
Series E Preferred Stock, will acquire the Underlying Class A Common Stock
then issuable (the Series E Preferred Stock, the Series A Common Stock and
the Underlying Class A Common Stock collectively are referred to herein as
the "Securities"), for its own account for investment only and not with a
view towards, or for resale in connection with, the public sale or
distribution thereof, except pursuant to sales registered or exempted under
the Securities Act.
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(ii) Accredited Investor Status. Purchaser is an "accredited
investor" as that term is defined in Rule 501(a)(3) of Regulation D.
(iii) Qualified Institutional Buyer. Purchaser is a "qualified
institutional buyer", as such term is defined in Rule 144A promulgated
under the Securities Act.
(iv) Reliance on Exemptions. Purchaser understands that the
Securities are being offered and sold to it in reliance on specific
exemptions from the registration requirements of United States federal and
state securities laws and that the Company is relying in part upon the
truth and accuracy of, and Purchaser's compliance with, the
representations, warranties and agreements of Purchaser set forth herein in
order to determine the availability of such exemptions and the eligibility
of Purchaser to acquire such securities.
(v) Information. Purchaser has been furnished with all
materials relating to the business, finances and operations of the Company
and materials relating to the offer and sale of the Securities which have
been requested by Purchaser. Purchaser has been afforded the opportunity
to ask questions of the Company. Purchaser understands that its investment
in the Securities involves a high degree of risk. Purchaser has sought
such accounting, legal and tax advice as it has considered necessary to
make an informed investment decision with respect to its acquisition of the
Securities.
(vi) No Governmental Review. Purchaser understands that no
United States federal or state agency or any other government or
governmental agency has passed on or made any recommendation or endorsement
of the Securities or the fairness or suitability of the investment in the
Securities nor have such authorities passed upon or endorsed the merits of
the offering of the Securities.
(vi) Transfer or Resale. Purchaser understands that except as
provided in the Registration Agreement: (a) the Securities have not been
and are not being registered under the Securities Act or any state
securities laws, and may not be offered for sale, sold, assigned or
transferred unless (A) subsequently registered thereunder or (B) sold in
reliance on an exemption therefrom; and (b) neither the Company nor any
other person is under any obligation to register such securities under the
Securities Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder. Purchaser is able to bear the
economic risk of its investment in the Securities for an indefinite period
of time.
(vii) Sophistication. Purchaser has knowledge and experience in
financial and business matters, knows of the high degree of risk associated
with investments generally, is capable of evaluating the merits and risks
of an investment in the Securities and is able to bear the economic risk of
an investment in the Securities in the amount contemplated. Purchaser has
adequate means of providing for its current financial needs and
contingencies and will have no current or anticipated future needs
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<PAGE>
for liquidity which would be jeopardized by the investment in the
Securities. Purchaser can afford a complete loss of its investment in the
Securities.
(viii) Authorization; No Breach.
(a) The execution, delivery and performance of this
Agreement and each of the other Transaction Documents to which Purchaser is
a party, will have been duly authorized by Purchaser as of the Initial
Closing. This Agreement and each of the other Transaction Documents to
which Purchaser is a party will each constitute a valid and binding
obligation of Purchaser, enforceable in accordance with its terms as of the
Initial Closing.
(b) The execution and delivery by Purchaser of this
Agreement and each of the other Transaction Documents to which Purchaser is
a party, the offering, sale and issuance of the CMGI Shares hereunder and
the fulfillment of and compliance with the respective terms hereof and
thereof by Purchaser, do not and shall not as of the Initial Closing (i)
conflict with or result in a breach of the terms, conditions or provisions
of, (ii) constitute a default under, (iii) result in the creation of any
lien, security interest, charge or encumbrance upon the Purchaser's or any
Subsidiary's capital stock or assets pursuant to, (iv) give any third party
the right to modify, terminate or accelerate any obligation under, (v)
result in a violation of, or (vi) require any authorization, consent,
approval, exemption or other action by or notice or declaration to, or
filing with, any court or administrative or governmental body or agency
pursuant to, the charter or bylaws of Purchaser or any Subsidiary, or any
law, statute, rule or regulation to which Purchaser or any Subsidiary is
subject, or any agreement, instrument, order, judgment or decree to which
Purchaser or any Subsidiary is subject, other than filings required under
the HSR Act.
(ix) Capitalization. Schedule 6C sets forth the entire
authorized capital stock and the total number of issued and outstanding
shares of the capital stock of Purchaser as of the Signing. All of the
outstanding shares of capital stock of Purchaser are validly issued, fully
paid and nonassessable, and no shares of capital stock are subject to, or
have been issued in violation of, preemptive rights. All issuances, sales
and repurchases by Purchaser of its shares of capital stock have been
effected in compliance with all applicable laws, including, without
limitation, applicable Federal and state securities laws. Except as set
forth on Schedule 6C, Purchaser has no outstanding securities convertible
into or exchangeable for shares of its capital stock or containing profit
participation features, and Purchaser has no outstanding options, warrants
or rights to subscribe for or to purchase shares of its capital stock or
securities convertible into or exchangeable for shares of its capital
stock. Purchaser is not subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any capital stock
or any warrants, options or other rights to acquire its capital stock. To
Purchaser's knowledge, there are no voting agreements, voting trusts or
other agreements (including, but not limited to, contractual or statutory
preemptive rights or cumulative voting rights), commitments or
understandings with respect to the voting or transfer of the capital stock
of Purchaser. The
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<PAGE>
CMGI Shares, when issued, sold and delivered in accordance with the terms
of this Agreement, will be duly and validly issued, fully paid, non-
assessable and the Company will have good and marketable title to such
shares, free and clear of all liens, claims and encumbrances of any kind,
other than (x) transfer restrictions under federal and state securities
laws, (y) liens, claims or encumbrances imposed due to the actions of the
Company, and (z) restrictions imposed pursuant to Sections 6P and 6Q below.
(x) SEC Filings; Purchaser Financial Statements. The Purchaser
has filed all forms, reports and documents required to be filed with the
Securities Exchange Commission in connection with and from the date of the
initial public offering of its common stock. All such required forms,
reports and documents are referred to herein as the "Purchaser SEC
Reports." As of their respective dates, the Purchaser SEC Reports (i)
complied in all material respects with the requirements of the Securities
Act or the Securities Exchange Act, as the case may be, and the rules and
regulations of the Securities Exchange Commission thereunder applicable to
such Purchaser SEC Reports and (ii) did not at the time they were filed (or
if amended or superseded by a filing prior to the date of this Agreement,
then on the date of such filing) contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The consolidated
financial statements (including, in each case, any related notes thereto)
contained in the Purchaser SEC Reports (the "Purchaser Financials") fairly
present the financial condition and the results of operations, changes in
stockholders' equity, and cash flow of Purchaser as of the respective dates
of and for the periods referred to in such financial statements, all in
accordance with GAAP, subject, in the case of interim financial statements,
to normal recurring year-end adjustments (the effect of which could not
reasonably be expected to, individually or in the aggregate, have a
material adverse effect) and the absence of notes (that, if presented,
would not differ materially from those included in the Purchaser
Financials). Since the date of filing of the most recent Purchaser SEC
Report, no event has occurred or circumstance exists with respect Purchaser
which could reasonably be expected to have a material adverse effect.
(xi) Conduct of Ordinary Course. Since the date of the last
Purchaser SEC Report, Purchaser has conducted its business only in the
ordinary course of business consistent with past custom and practice, has
incurred no liabilities other than in the ordinary course of business
consistent with past custom and practice and has had no material adverse
change in its assets, financial condition, operating results or business.
(xii) Brokerage. There are no claims for brokerage commissions,
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement
binding upon Purchaser or any Subsidiary.
(xiii) Governmental Consent, etc. Except for any filings
required under the HSR Act, no permit, consent, approval or authorization
of, or declaration to or filing
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<PAGE>
with, any governmental authority is required in connection with the
execution, delivery and performance by Purchaser of this Agreement or the
Transaction Documents to which Purchaser is a party, or the consummation by
Purchaser of any other transactions contemplated hereby or thereby.
6D. Consent to Amendments. Except as otherwise expressly provided
herein, the provisions of this Agreement may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
holders of a majority of the Underlying Class A Common Stock. No other course
of dealing between the Company and the holder of any Underlying Class A Common
Stock or any delay in exercising any rights hereunder or under the Amended
Certificate (as may be amended) shall operate as a waiver of any rights of any
such holders. For purposes of this Agreement, shares of the Series E Preferred
Stock held by the Company or any Subsidiary (and shares issued or issuable upon
conversion of such Series E Preferred Stock held by the Company or any
Subsidiary) shall not be deemed to be outstanding.
6E. Survival of Representations and Warranties. All of the
representations and warranties contained herein, other than those contained in
Sections 4B, 4C, 4H, 4K and 6C (viii), (ix) and (xii) (each of which shall
survive the Signing indefinitely), shall survive the Initial Closing for one
(1) year after the date of this Agreement.
6F. Successors and Assigns. Except as otherwise expressly provided
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto whether so expressed or
not. In addition, and whether or not any express assignment has been made, the
provisions of this Agreement (i) which are for Purchaser's benefit as a
purchaser or holder of shares of the Series E Preferred Stock, Class A Common
Stock or Underlying Class A Common Stock are also for the benefit of, and
enforceable by, any subsequent holder of such Series E Preferred Stock, Class A
Common Stock or such Underlying Class A Common Stock, except that the indemnity
obligations of the Company set forth in Section 6N may be enforced only by the
Purchaser, and (ii) which are for the Company's benefit as a purchaser or
holder of the CMGI Shares are also for the benefit of, and enforceable by, any
subsequent holder of such CMGI Shares, except that the indemnity obligations of
Purchaser set forth in Section 6O may be enforced only by the Company.
6G. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
6H. Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such counterparts taken together shall constitute
one and the same Agreement.
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6I. Descriptive Headings; Interpretation. The descriptive headings of
this Agreement are inserted for convenience only and do not constitute a
substantive part of this Agreement. The use of the word "including" in this
Agreement shall be by way of example rather than by limitation.
6J. Generally Accepted Accounting Principles. Where any accounting
determination or calculation is required to be made under this Agreement or the
exhibits hereto, such determination or calculation (unless otherwise provided)
shall be made in accordance with generally accepted accounting principles,
consistently applied, except that if because of a change in generally accepted
accounting principles the Company would have to alter a previously utilized
accounting method or policy in order to remain in compliance with generally
accepted accounting principles, such determination or calculation shall continue
to be made in accordance with the Company's previous accounting methods and
policies.
6K. Governing Law. The general corporation law of the State of
Delaware shall govern all issues and questions concerning the relative rights
and obligations of the Company and its stockholders. All other issues and
questions concerning the construction, validity, enforcement and interpretation
of this Agreement and the exhibits and schedules hereto shall be governed by,
and construed in accordance with, the laws of the State of Illinois, without
giving effect to any choice of law or conflict of law rules or provisions
(whether of the State of Illinois or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
Illinois. In furtherance of the foregoing, the internal law of the State of
Illinois shall control the interpretation and construction of this Agreement
(and all schedules and exhibits hereto), even though under that jurisdiction's
choice of law or conflict of law analysis, the substantive law of some other
jurisdiction would ordinarily apply.
6L. Notices. All notices, demands or other communications to be given
or delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, sent to the recipient by reputable overnight courier service (charges
prepaid) or mailed to the recipient by certified or registered mail, return
receipt requested and postage prepaid. Such notices, demands and other
communications shall be sent to Purchaser at the address indicated for Purchaser
at the address set forth below or as otherwise indicated on the stock records of
the Company, and to the Company at the address indicated below:
If to the Company:
divine interVentures, inc.
4225 Naperville Road, Suite 400
Lisle, Illinois 60532
Attention: General Counsel
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With a copy to: Katten Muchin Zavis
525 W. Monroe Street
Suite 1600
Chicago, Illinois 60661-3693
Attention: Matthew S. Brown, Esq.
If to the Purchaser: CMGI, Inc.
100 Brickstone Square, 5th Floor
Andove, MA 01810
Attention: General Counsel
With a copy to: Skadden, Arps, Slate, Meagher & Flom LLP
One Beacon Street
Boston, MA 02108
Attention: David T. Brewster, Esq.
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
6M. No Strict Construction. The parties hereto have participated
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties hereto, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement.
6N. Company Indemnification. In consideration of Purchaser's
execution and delivery of this Agreement and acquiring the Series E Preferred
Stock and Class A Common Stock hereunder and in addition to all of the Company's
other obligations under this Agreement, the Company shall defend, protect,
indemnify and hold harmless Purchaser and all of its officers, directors,
employees and agents (including, without limitation, those retained in
connection with the transactions contemplated by this Agreement) (collectively,
the "Indemnitees") from and against any and all actions, causes of action,
suits, claims, losses, costs, penalties, fees, liabilities and damages, and
expenses in connection therewith (irrespective of whether any such Indemnitee is
a party to the action for which indemnification hereunder is sought), and
including reasonable attorneys' fees and disbursements (the "Indemnified
Liabilities"), incurred by the Indemnitees or any of them as a result of, or
arising out of, or relating to any misrepresentation in or breach of any of the
representations and warranties or any nonfulfillment or breach of any covenant
or agreement on the part of the Company under this Agreement or the Registration
Agreement, provided that the Company shall not be liable to an Indemnitee under
this Section 6N for any liability if such liability is caused solely by such
Indemnitee's fraud, willful misconduct or gross negligence or default or breach
under this Agreement or the Registration Agreement. To the extent that the
foregoing undertaking by the Company may be unenforceable for any reason, the
Company shall make the maximum contribution to the payment and satisfaction of
each of the Indemnified Liabilities which is permissible under applicable law.
27
<PAGE>
6O. Purchaser Indemnification. In consideration of the Company's
execution and delivery of this Agreement and acquiring the CMGI Shares hereunder
and in addition to all of Purchaser's other obligations under this Agreement,
Purchaser shall defend, protect, indemnify and hold harmless the Company and all
of its officers, directors, employees and agents (including, without limitation,
those retained in connection with the transactions contemplated by this
Agreement) (collectively, the "Company Indemnitees") from and against any and
all actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Company Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys' fees
and disbursements (the "Company Indemnified Liabilities"), incurred by the
Company Indemnitees or any of them as a result of, or arising out of, or
relating to any misrepresentation in or breach of any of the representations and
warranties or any nonfulfillment or breach of any covenant or agreement on the
part of the Company under this Agreement, provided that the Company shall not be
liable to an Company Indemnitee under this Section 6O for any liability if such
liability is caused solely by such Company Indemnitee's fraud, willful
misconduct or gross negligence or default or breach under this Agreement. To
the extent that the foregoing undertaking by the Purchaser may be unenforceable
for any reason, the Purchaser shall make the maximum contribution to the payment
and satisfaction of each of the Company Indemnified Liabilities which is
permissible under applicable law.
6P. Legends.
(i) The certificates evidencing the Series E Preferred Stock, the
Class A Common Stock and the CMGI Shares will include the legend set forth
below, which each of the Company and Purchaser has read and understands:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW, AND
MAY NOT BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY
APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE. THESE SECURITIES ARE ALSO SUBJECT TO AN
INVESTMENT REPRESENTATION AND LOCKUP AGREEMENT WITH THE CORPORATION
WHICH RESTRICTS THE TRANSFER THEREOF UNTIL ___________, A COPY OF
WHICH CAN BE OBTAINED FROM THE CORPORATION AT ITS EXECUTIVE OFFICES.
(ii) By accepting the certificates bearing the aforesaid legend,
each of the Purchaser and the Company agrees, prior to any transfer of the
securities represented by the certificates and subject to the restrictions
in Section 6Q, to give written notice to the other expressing its desire to
effect such transfer and describing briefly the proposed transfer. Unless
such notice relates to securities which the proposed transferor acquired
(within the meaning of Rule 144 under the Securities Act ("Rule 144"))
hereunder more than a year prior to the date of such notice and is
expressing such proposed transferor's
28
<PAGE>
desire to effect such transfer pursuant to and in compliance with Rule 144,
upon receiving such notice, the recipient shall present copies thereof to
its counsel and the following provisions shall apply:
(a) if, in the reasonable opinion of counsel acceptable to
the recipient, the proposed transfer of such securities may be effected
without registration of such securities under the Securities Act and
applicable state securities acts, the recipient shall promptly thereafter
notify the proposed transferor desiring to transfer such securities,
whereupon the proposed transferor shall be entitled to transfer such
securities, all in accordance with the terms of the notice delivered by the
proposed transferor and upon such further terms and conditions as shall be
required to ensure compliance with the Securities Act and the applicable
state securities acts, and, upon surrender of the certificate evidencing
such securities, in exchange therefor, a new certificate not bearing a
legend of the character set forth above if such counsel reasonably believes
that such legend is no longer required under the Securities Act and the
applicable state securities acts; and
(b) if, in the reasonable opinion of such counsel, the
proposed transfer of such securities may not be effected without
registration of such securities under the Securities Act or the applicable
state securities acts, a copy of such opinion shall be promptly delivered
to the proposed transferor, and such proposed transfer shall not be made
unless such registration is then in effect.
(ii) Either Purchaser or the Company may, from time to time, make
stop transfer notations in its records and deliver stop transfer
instructions to its transfer agent to the extent their respective counsel
considers it necessary to ensure compliance with the Securities Act and the
applicable state securities acts.
6Q. Lock-up Agreements.
(i) In order to induce Purchaser to enter into this Agreement,
until the 12-month anniversary of the Subsequent Closing, the Company shall
not, directly or indirectly, without the prior written consent of
Purchaser, sell, offer to sell, contract to sell, assign, transfer or
otherwise dispose of, or engage in any other transaction (including,
without limitation, any pledge, collar, hedge or short sale) which reduces
the risk of ownership of, any of the CMGI Shares. The Company agrees and
consents to the entry of stop transfer instructions with Purchaser's
transfer agent against the transfer of the CMGI Shares held by the Company
except in compliance with the foregoing restrictions.
(ii) In order to induce the Company to enter into this Agreement,
until the 12-month anniversary of the Subsequent Closing, in the case of
the Class A Common Stock purchased hereunder, or the 6-month anniversary of
the Subsequent Closing, in the case of the Series E Preferred Stock and
Underlying Class A Common Stock purchased hereunder, Purchaser shall not,
directly or indirectly, without the prior written consent of the Company,
sell, offer to sell, contract to sell, assign, transfer or otherwise
dispose of,
29
<PAGE>
or engage in any other transaction (including, without limitation, any
pledge, collar, hedge or short sale) which reduces the risk of ownership
of, any of such securities. Purchaser agrees and consents to the entry of
stop transfer instructions with the Company's transfer agent against the
transfer of the Class A Common Stock, Series E Preferred Stock and
Underlying Class A Common Stock held by the Company except in compliance
with the foregoing restrictions.
[Remainder of page intentionally left blank.
Signature page follows.]
30
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Purchase
Agreement on the date first written above.
DIVINE INTERVENTURES, INC.
By: /s/ Michael P. Cullinane
-----------------------------------
Michael P. Cullinane
Executive Vice President
CMGI, INC.
By: /s/ William Williams II
------------------------------------
Its: Vice President and General Counsel
-----------------------------------
(SIGNATURE PAGE TO PURCHASE AGREEMENT)
<PAGE>
ALLIANCE AGREEMENT
This Alliance Agreement (the "Agreement") is entered into as of January 28,
2000 (the "Effective Date"), by and between Microsoft Corporation, a Washington
corporation, located at One Microsoft Way, Redmond, Washington 98052
("Microsoft"), divine interVentures, Inc., a Delaware corporation, with a
business address at 4225 Naperville Road, Lisle, Illinois 60532 ("divine
interVentures"), and Host Divine, Inc., a Delaware corporation, with a business
address at 4225 Naperville Road, Lisle, Illinois 60532 ("Host Divine"). divine
interVentures and Host Divine are collectively referred to herein as "Divine."
Microsoft and Divine are sometimes referred to individually as a "Party", and
collectively as the "Parties".
Recitals
Divine desires to establish a relationship with Microsoft pursuant to which
Divine will develop and incorporate Microsoft products into Divine's hosting,
messaging and collaboration services, and to develop its hosting competency on
the Microsoft platform into a scaleable business model. Divine and its partner
companies wish to differentiate themselves from their competition through, among
other things, recognition as preferred providers of outsourced Microsoft
software solutions.
Microsoft desires to establish a relationship with Divine pursuant to which
the Microsoft platform will become the preferred platform for Divine and its
affiliated companies, including a commitment by Divine to encourage its
affiliated companies to use the Microsoft platform and technologies for online
products and services, wherever commercially practicable. In addition, Microsoft
wishes to become the preferred platform upon which Divine will develop and
market a broad array of hosting, messaging and collaboration services.
The parties wish to enhance communications between their respective
organizations regarding the marketplace, application hosting services, Microsoft
software, new product development, customer satisfaction and other issues of
mutual interest through the creation of a Digital Feedback Loop as set forth
herein.
NOW, THEREFORE, in consideration of the mutual promises as stated herein
and for good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the Parties agree as follows.
Agreement
1. Definitions
-----------
1.1 "Digital Feedback Loop" is defined as the process pursuant to which
the Parties will exchange information as detailed in Section 2.1.
1.2 "Divine Affiliates" is defined as that set of third party partner
companies in whom Divine has invested and owns more than a two percent (2%)
equity share, as identified at
www.divineinterventures.com/default.asp?M=zaibatsu and as shall be
identified by Divine at each quarterly meeting of the Joint Board.
1.3 "Incubator Habitat" is defined as an office facility that is leased or
developed by Divine for Internet start-up companies, and where services
such as facilities management, technology infrastructure, and 24x7
operations are provided by Divine for such companies.
Microsoft Confidential Page 1
<PAGE>
1.4 "Joint Board" is defined as the group of designated Divine
representatives and Microsoft representatives responsible for the strategic
direction of the Relationship as set out in Section 2.2, facilitating the
Digital Feedback Loop, escalation of issues and opportunities, and other
mutually identified tasks.
1.5 "Microsoft platform" is defined is defined as Microsoft Windows
NT/2000 Server, Exchange Server, SQL Server, SMS Server and Internet
Information Server (as separate products and collectively as Microsoft
BackOffice); complementary BackOffice products: Microsoft SNA Server and
Microsoft Proxy Server; Microsoft Site Server, Microsoft Windows Media
Technologies; 32-bit Windows and Microsoft Office; Windows CE; Internet
Explorer; Microsoft Transaction Server; Microsoft Message Queue Server;
Microsoft clustering technology; Microsoft's visual development tools:
Visual Basic, Visual C++, Visual J++ and Visual Interdev (as separate
products and collectively as Microsoft Visual Studio); BizTalk; Windows
Distributed interNet Applications (DNA) and Component Object Model (COM,
DCOM and COM+) architectures; and, as mutually agreed, successor products
and technology.
1.6 "Relationship" means the combination of the various components
contemplated by this Agreement.
1.7 "Term" is defined as the four year period of time commencing on the
Effective Date and ending on the fourth anniversary of the Effective Date,
unless terminated earlier in accordance with Section 10.
2. Joint Obligations
-----------------
2.1 Digital Feedback Loop. Divine and Microsoft will cooperate to create a
Digital Feedback Loop between the companies to create joint intelligence
about the marketplace, Microsoft software, new product development, and
customer satisfaction. To facilitate feedback regarding product marketing,
sales and customer satisfaction, Divine and Microsoft will, subject to
applicable confidentiality restrictions, share metrics and qualitative
information about Microsoft-related customer wins and leads. Divine will
provide reports, as such are mutually agreed between the Parties, regarding
new sales data for the Microsoft platform for the purpose of helping
Microsoft improve its products, marketing, sales and support as they relate
to the hosted application environment. The Parties will meet quarterly,
through the Joint Board, to review the Digital Feedback Loop process and
suggest improvements or changes that may increase the effectiveness and
efficiency of the information exchange.
2.2 Joint Board. The Joint Board will be composed of an individual
representing each of the following roles and/or positions, as such may be
updated by the Parties from time to time: (a) from Microsoft: the Divine
account executive, the Divine managing consultant, the Divine NSG
representative; and (b) from Divine: the President of its host operation,
the business development manager, the President of its web development
group, and a public relations/marketing representative. The Joint Board
shall meet at least quarterly during the Term to evaluate the Parties'
progress against the obligations of this Agreement, and discuss appropriate
methods to increase the overall value and performance of the Relationship,
including cooperating in areas in addition to those identified in this
Agreement, as well as other mutually agreed upon topics.
3. Microsoft Obligations
---------------------
3.1 Divine Training Roadmap. Within 60 days of the Effective Date,
Microsoft will provide Divine with a training roadmap to assist Divine with
service readiness for upcoming Microsoft product releases and solutions,
including Windows 2000 and future versions of Microsoft BackOffice, as
appropriate at the time. The roadmap shall contain information on the
categories of Divine personnel that shall receive training on the Microsoft
platform, including the number of personnel in each category; the
curriculum targeted for each such category, during each of the respective 6
month periods to be identified therein. The roadmap will be reviewed every
6
Microsoft Confidential Page 2
<PAGE>
months by the Parties to ensure proper focus and to update it according to
latest product release schedules.
4. Divine Obligations
------------------
4.1 Product Development. Divine will engage in new and existing product
development efforts for web and application hosting products based on the
Microsoft platform, wherever practicable. The Microsoft platform will be
the preferred platform on which Divine will conduct such development
efforts. Microsoft recognizes that the adoption of Microsoft technology
need not be on an exclusive basis, and the Divine Affiliates will be free
to offer their products on other platforms.
4.2 Software for Customer-Oriented Activities. Divine agrees that it shall
develop and maintain its existing and future data center infrastructure
based on the Microsoft platform, wherever commercially reasonable.
4.3 Process to Review Potential Barriers: In the event Divine determines
that commercial or technical issues will prevent deployment of a product or
service on the Microsoft platform, prior to making a final decision, Divine
will provide Microsoft with an opportunity for consultation with Divine to
evaluate the potential barriers and how they may be resolved in a timely
and mutually satisfactory manner.
4.4 Internal Use. Divine agrees that it shall develop and maintain its
existing and future internal IT infrastructure based on the Microsoft
platform, wherever commercially reasonable. Divine will complete the
migration of its internal messaging service to Microsoft Exchange no later
than February 15, 2000, and will implement SAP's ERP system to operate on
the Microsoft Windows NT and SQL Server environment no later than March 31,
2000. Divine shall ensure that the Microsoft software it uses for its
internal IT infrastructure is never more than one version behind the then-
current version of each Microsoft software product, and that it shall
exercise commercially reasonable efforts to keep all computers (desktops,
servers, laptops, etc.) within its control in compliance with the foregoing
requirement. In addition, Divine will use commercially reasonable efforts
to encourage the Divine Affiliates to deploy the Microsoft platform in
their operations and as the technology platform on which their services
and/or products are based, and will encourage the Divine Affiliates to use
the most recent version of such Microsoft products. Divine agrees to
acquire at least $9,595,167 in desktop and server Microsoft software
products during the Term. Pursuant to and subject to compliance with the
terms of the applicable software license agreement, the Divine Affiliates
shall have the right to utilize such software products. In the event that
Divine fails, by the end of the Term, to acquire software valued at least
at $9,595,167, Divine agrees to pay to Microsoft, within 30 days of the end
of the Term, the difference between $9,595,167 and the amount of Microsoft
software products actually purchased by Divine during the Term.
4.5 Microsoft Consulting Services and Dedicated Technical Account Manager.
During the Term, Divine will purchase a minimum of $4,660,174 Microsoft
professional services in the form of Microsoft Consulting Services ("MCS")
resources and a minimum of $1,067,430 in Microsoft Product Support Services
in the form of a partial or Dedicated Technical Account Manager ("DTAM") to
support Divine's product development, testing, implementation, and client
support activities. The current breakdown of such amount is further
detailed in Exhibit A. Divine shall purchase such services pursuant to the
terms of the Microsoft Master Services Agreement with an effective date of
November 1, 1999, executed between the Parties (the "MSA"). Divine shall
execute a Microsoft Consulting Services Work Order, pursuant to which it
will purchase MCS services, and Premier Support Services Description
pursuant to which it will purchase support services. The initial MCS Work
Order and Premier Support Services Description that Divine will purchase
are attached hereto as Exhibit C and Exhibit D, respectively. Subsequent
Work Orders and Services Descriptions shall be executed between the Parties
to meet the purchase
Microsoft Confidential Page 3
<PAGE>
commitments of Divine as set forth in this Section and the attached Exhibit
A. In the event that Divine fails, by the end of the Term, to purchase MCS
services and PSS services valued at least at $4,660,174 and $1,067,430,
respectively, Divine agrees to pay to Microsoft, within 30 days of the end
of the Term, the difference between $4,660,174 and $1,067,430, and the
amount of Microsoft MCS services or PSS services, as applicable, actually
purchased by Divine during the Term. Divine shall have the right, as set
forth in the MSA, to provide access to MCS and/or PSS Services to the
Divine Affiliates, subject to Divine's compliance with all obligations and
requirements of the MSA, including any applicable Work Order. In the event
that Divine wishes to acquire MCS and/or PSS services in addition to those
provided for herein, such purchases shall be according to the terms and
conditions of the MSA and Exhibit A, as applicable.
4.6 Training and Certification. No later than September 30, 2000, Divine
agrees to have a minimum of 4 professional staff certified as Microsoft
Certified Systems Engineers ("MCSEs"), and will increase such number by an
additional 2 MCSEs for each Divine Incubator Habitat implemented by Divine
during the Term. In addition, Divine agrees to have a minimum of 2
professional staff certified as Microsoft Certified Solution Developers
("MCSDs") no later than September 30, 2000.
4.7 Incubators. Divine shall exercise commercially reasonable efforts to
develop a Seattle-based Incubator Habitat within 15 months immediately
following the Effective Date, consistent with Divine's current business
model.
5. No Trademark License.
--------------------
Nothing in this Agreement or its performance shall grant either party any right,
title, interest, or license in or to the other's names, logos, logotypes, trade
dress, designs, or other trademarks. Divine shall only use the Microsoft mark
depicted on Exhibit B hereto during the Term of this Agreement according to the
specifications set forth in Exhibit B.
6. Ownership; Proprietary Rights.
-----------------------------
Each Party shall own all products and services developed by that Party and
nothing herein is intended to, nor shall it be construed as, transferring any
ownership rights or granting any licenses under the other Party's intellectual
property except as may be specifically set forth in writing in any separate
documentation accompanying such intellectual property. In the event that any
development work is provided to Divine by MCS in connection with the
Relationship, the ownership terms of any work performed by MCS shall be as set
forth in the Work Order pursuant to which the services are procured.
7. Non-Disclosure Agreement.
------------------------
7.1 The Parties acknowledge and agree that the terms and conditions of the
Microsoft Corporation Reciprocal Non-Disclosure Agreement entered into by
and between the parties and dated November 3, 1999 (the "NDA"), attached
hereto as Exhibit E and incorporated into this Agreement. The terms of this
Agreement and all discussions and negotiations related thereto and all
information exchanged pursuant hereto are considered Confidential
Information as defined in the NDA.
7.2 The Parties acknowledge that this Agreement, or portions thereof, may
be required under applicable law to be disclosed, as part of or an exhibit
to a Party's required public disclosure documents. If any Party is advised
by its legal counsel that such disclosure is required, it will notify the
others in writing and the Parties will jointly seek confidential treatment
of this Agreement to the maximum extent reasonably possible, in documents
approved by all Parties and filed with the applicable governmental or
regulatory authorities.
8. Representations and Warranties.
------------------------------
Microsoft Confidential Page 4
<PAGE>
8.1 By Divine
(a) Divine warrants and represents that it has full and exclusive
right and power to enter into and perform according to the terms of
this Agreement.
(b) Divine warrants and represents that its performance of activities
pursuant to this Agreement will not violate any agreement or
obligation between it and a third party.
(c) Divine warrants and represents that it shall comply with all
applicable local, state and federal laws, statutes and regulations,
including specifically all laws prohibiting harassment of any kind in
the workplace and shall comply with Microsoft's rules for its own
employees while on Microsoft's premises. Divine assumes all
responsibility for providing to its employees and subcontractors any
training that may be required to ensure compliance with such laws and
rules.
(d) Divine shall have no right to make any other warranties or
promises with respect to any products or property owned or provided to
it by Microsoft pursuant to this Agreement which are not contained in
written statements or documents accompanying that item, or the written
warranty document accompanying the Microsoft products.
8.2 By Microsoft
(a) Microsoft warrants and represents that it has full and exclusive
right and power to enter into and perform according to the terms of
this Agreement.
(b) Microsoft warrants and represents that its performance of
activities pursuant to this Agreement will not violate any agreement
or obligation between it and a third party.
(c) Microsoft warrants and represents that it shall comply with all
applicable local, state and federal laws, statutes and regulations,
including specifically all laws prohibiting harassment of any kind in
the workplace and shall comply with Divine's rules for its own
employees while on Divine's premises. Microsoft assumes all
responsibility for providing to its employees and subcontractors any
training that may be required to ensure compliance with such laws and
rules.
8.3 Disclaimer of Warranty. The warranties set forth in this Section 8 are
the only warranties made by the Parties and are in lieu of all other
warranties, express, implied or statutory, including but not limited to
implied warranties of merchantability and/or fitness for a particular
purpose. There is no warranty of title or non-infringement with respect to
any Microsoft products.
9. Limitations of Liability.
------------------------
NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY INDIRECT, INCIDENTAL,
CONSEQUENTIAL, PUNITIVE OR SPECIAL DAMAGES, ARISING OUT OF OR RELATED TO THIS
AGREEMENT INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF BUSINESS PROFITS,
BUSINESS INTERRUPTION, LOSS OF BUSINESS INFORMATION, AND THE LIKE, EVEN IF SUCH
PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THIS SECTION SHALL
NOT APPLY TO EITHER PARTY'S (A) ABILITY TO OBTAIN INJUNCTIVE OR OTHER EQUITABLE
RELIEF, AND/OR (B) CONFIDENTIALITY OBLIGATIONS UNDER SECTION 7.
Microsoft Confidential Page 5
<PAGE>
10. Term and Termination.
--------------------
10.1 The Term of this Agreement shall begin on the Effective Date and
shall continue in full force and effect until January 27, 2004, unless
earlier terminated pursuant to Sections 10.2 or 10.3.
10.2 Either Party may terminate this Agreement immediately for cause upon
30 days' prior written notice in the event the other party is in material
breach of this Agreement and fails to cure the default within the 30 day
period following written notice except that no "cure" period shall apply to
breaches of the NDA or Section 7 of this Agreement. In the event of a
breach of Section 7 or the NDA, the non-breaching party shall have the
right to terminate this Agreement immediately upon notice to the other
Party.
10.3 This Agreement may be terminated immediately upon written notice by
either Party in the event the other Party becomes insolvent or admits in
writing its inability to pay its debts as they become due or makes an
assignment for the benefit of creditors or if a petition under any
bankruptcy act, receivership statute or the like, as they now exist or as
they may be amended, is filed by the other Party or by any third party or
an application for a receiver is made by anyone and such application is not
resolved favorably to the other Party within ninety (90) days.
10.4 Sections 4.4, 4.5, 6, 7, 8, 9, 10.4 and 11 shall survive termination
or expiration of this Agreement for any reason.
11. General
-------
11.1 Notices. All notices, authorizations, and requests required or
desired to be given or made in connection with this Agreement will be in
writing, given by certified or registered mail (return receipt requested),
express air courier (charges prepaid) or facsimile, and addressed as
follows (or to such other address as the party to receive the notice or
request so designates by notice to the other):
<TABLE>
<CAPTION>
To Divine: To Microsoft:
<S> <C>
divine interVentures, Inc. Microsoft Corporation
4225 Naperville Road One Microsoft Way
Suite #400
Lisle, IL 60532 Redmond, WA 98052-6399
Attn: Lynn Wilson Attn: Thomas Koll
Title: Vice President Title: Vice President, NSG
Phone: (630) 799-7500 Phone: (425) 936-8080
Fax: (630) 799-7501 Fax: (425) 936-7329
Copy to: Larry Freedman, General Counsel Copy to: Law & Corporate Affairs
Fax: (630) 799-7501 Fax: (425) 936-7329
</TABLE>
If a notice is given by either party by certified or registered mail, it
will be deemed received by the other party on the third business day
following the date on which it is deposited for mailing. If a notice is
given by either party by air express courier, it will be deemed received by
the other party on the next business day following the date on which it is
provided to the air express courier. If a notice is given by facsimile, it
will be deemed received by the other party upon confirmation of receipt.
11.2 Relationship of Parties. Nothing in this Agreement shall be construed
as creating an employer-employee relationship, a partnership, agency,
franchise or a joint venture between Microsoft and Divine and neither Party
shall have the right, power or authority to obligate or bind the other in
any manner whatsoever without its prior written consent. The non-employing
Party will not be responsible for any of the below-referenced payments,
obligations, taxes or benefits.
Microsoft Confidential Page 6
<PAGE>
Each Party shall be responsible with respect to its own employees and/or
subcontractors, including, without limitation, for (a) withholding and
payment of FICA, FUTA and all other payroll and employment related taxes
and amounts relating to services performed by staff under this Agreement;
(b) providing all insurance or other employment related benefits to staff;
(c) proper payment of wages to staff, including overtime when due, in
accordance with the Fair Labor Standards Act, the Contract Work Hours and
Safety Standards Act, where applicable, and corresponding state law and
regulations; (d) providing any accommodation required under the Americans
with Disabilities Act or corresponding state law and regulations; (e)
verifying that all staff possess valid work authorization in accordance
with the Immigration Reform and Control Act.
11.3 Governing Law; Attorneys' Fees. This Agreement shall be governed by
the laws of the State of Washington as though entered into between
Washington residents and to be performed entirely within the State of
Washington. Divine further consents to jurisdiction by the state and
federal courts sitting in the State of Washington. Process may be served on
either party by regular mail, postage prepaid, certified or registered,
return receipt requested. In any action or suit to enforce any right or
remedy under this Agreement or to interpret any provision of this
Agreement, the prevailing Party shall be entitled to recover its costs,
including reasonable attorneys' fees.
11.4 Assignment. This Agreement shall be binding upon and inure to the
benefit of each Party's respective successors and lawful permitted assigns.
Notwithstanding the foregoing, Divine may not assign this Agreement, or any
rights or obligations hereunder, whether by contract or by operation of
law, except with the express written consent of Microsoft, which consent
shall be granted or withheld in Microsoft's sole discretion. Any attempted
assignment in violation of this Section shall be void. For purposes of this
Agreement, an "assignment" under this Section shall be deemed to include,
without limitation, the following: (a) a merger of Divine where Divine is
not the surviving entity; (b) any transaction or series of transactions
whereby a third party acquires the power to control the management and
material policies of Divine, whether through the acquisition of voting
securities, by contract, or otherwise; or (c) the sale of more than 50% of
Divine's assets (whether in a single transaction or series of related
transactions). In the event of such assignment or attempted assignment,
Microsoft shall have the right to immediately terminate this Agreement upon
written notice.
11.5 Construction. In the event that any provision of this Agreement
conflicts with governing law or if any provision is held to be null, void
or otherwise ineffective or invalid by a court of competent jurisdiction,
(i) such provision shall be deemed to be restated to reflect as nearly as
possible the original intentions of the Parties in accordance with
applicable law, and (ii) the remaining terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect.
Failure by either Party to enforce any provision of this Agreement will not
be deemed a waiver of future enforcement of that or any other provision.
This Agreement has been negotiated by the Parties and their respective
counsel and will be interpreted fairly in accordance with its terms and
without any strict construction in favor of or against either Party. The
section headings used in this Agreement are intended for convenience only
and shall not be deemed to affect in any manner the meaning or intent of
this Agreement or any provision hereof.
11.6 Conflict. In the event of any conflict between the terms of this
Agreement and the Reciprocal Non-Disclosure Agreement, the Microsoft Master
Services Agreement, and the software license agreement, the terms of the
agreement in question shall govern, but only with respect to the services,
rights, and obligations set forth therein.
11.7 Entire Agreement. This Agreement does not constitute an offer by
either Party and it shall not be effective until signed by both Parties.
This Agreement and the attached Exhibits A - E constitute the entire
agreement between the Parties with respect to the subject matter hereof and
merges all prior and contemporaneous oral and written communications. It
shall not be modified except by a written agreement dated subsequent to the
date of this Agreement and signed on behalf of Microsoft and Divine by
their respective duly authorized representatives. Except as otherwise
Microsoft Confidential Page 7
<PAGE>
provided herein, the Reciprocal Non-Disclosure Agreement, the Microsoft
Master Services Agreement and the software license agreement are governed
by their own terms.
IN WITNESS WHEREOF, the Parties have entered into this Agreement as of the
Effective Date written above.
MICROSOFT CORPORATION DIVINE INTERVENTURES, INC.
By (sign): /s/ Thomas Koll By (sign): /s/ Lynn S. Wilson
---------------------------------- -------------------------------
Name (print) Thomas Koll Name (print) Lynn S. Wilson
-------------------------------- -----------------------------
Title Vice President Network Solutions Group Title E.V.P. & CIO
--------------------------------------- ----------------------------
Date January 28, 2000 Date January 28, 2000
---------------------------------------- -----------------------------
HOST DIVINE, INC.
By (sign): /s/ Lynn S. Wilson
--------------------------
Name (print) Lynn S. Wilson
------------------------
Title President
-------------------------------
Date January 28, 2000
--------------------------------
Microsoft Confidential Page 8
<PAGE>
EXHIBIT A
SERVICES PURCHASE REQUIREMENTS
Divine will purchase a minimum of $4,660,174 of consulting services over the
term of the agreement. The current minimum usage of those services is shown in
the following table:
<TABLE>
<CAPTION>
Consulting
2000 2001 2002 2003 Total
<S> <C> <C> <C> <C> <C>
$826,201 $1,158,300 $1,274,130 $1,401,543 $4,660,174
</TABLE>
A rate of $225 per hour will be used for all consulting services provided by MCS
in the first year of the Term. This rate will increase by 10% in each of the
subsequent three years of the Term (to $247.50 in 2001, $272.25 in 2002, and
$299.48 in 2003). To recognize our long-term Relationship, MCS will provide a
10% discount off of these rates.
Divine must engage at least two full-time MCS resources at any given time
throughout the Term.
Divine shall purchase a minimum of $1,067,430 of PSS services during the term of
the agreement, and a minimum of $80,000 of services during the first year of
such term.
Microsoft Confidential Page 9
<PAGE>
EXHIBIT B
The Mark:
[Microsoft/R/ LOGO]
Specifications:
1. Divine may only use the Mark in connection with services when promoting,
distributing, or selling Microsoft products. Divine may use the Mark solely
in white papers, advertising, collateral, and other marketing materials for
the Relationship, and may not use the Mark on any of Divine's products or
other services.
2. Divine's company name or logo must appear on any materials where the Mark
is used and must be at least as prominent as the Mark.
3. Divine may use the Mark only as provided by Microsoft electronically and in
hard copy form. Divine may not alter the Mark in any manner.
4. The Mark may not be used in any manner that expresses or might imply
Microsoft's affiliation, sponsorship, endorsement, certification, or
approval, other than as contemplated by the Agreement.
5. Divine may not combine the Mark with any other object, including, but not
limited to, other logos, words, graphics, photos, slogans, numbers, design
features, or symbols. The Mark must appear by itself, with a minimum
spacing (the height of the Mark) between each side of the Mark and other
graphic or textual elements.
6. Minimum size for the Mark is 3/4" or 2 cm in width.
7. Divine may not use the Mark, in whole or in part, as part of its company
name, domain name, product or service name, logo, trade dress, design,
slogan, or other trademarks.
8. The Mark may not be used as a design feature on any materials.
9. The Mark may not be imitated in any manner in any materials.
10. The Mark shall include the appropriate (R) symbol as shown in this Exhibit.
11. The Mark shall be attributed to Microsoft Corporation in all materials
where it is used, with the attribution clause: "Microsoft is a registered
trademark of Microsoft Corporation in the United States and other countries
and is used by Divine under license."
Microsoft Confidential Page 10
<PAGE>
EXHIBIT C
MCS WORK ORDERS
Microsoft Confidential Page 11
<PAGE>
EXHIBIT D
SERVICES DESCRIPTION
Microsoft Confidential Page 12
<PAGE>
EXHIBIT E
MICROSOFT RECIPROCAL NON-DISCLOSURE AGREEMENT
Microsoft Confidential Page 13
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
divine interVentures, inc.
We consent to the use of our report included herein and to the references to our
firm under the headings "Selected Financial Data" and "Experts" in the
Prospectus.
/s/ KPMG LLP
Chicago, Illinois
February 11, 2000
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Blueridge Technologies, Incorporated
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
McLean, Virginia
February 11, 2000
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
BeautyJungle.com, Inc.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/KPMG LLP
Chicago, Illinois
February 11, 2000
<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
bid4real.com, inc.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the Prospectus.
/s/ KPMG LLP
Chicago, Illinois
February 11, 2000
<PAGE>
Exhibit 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Bid4Real.com LLC
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/KPMG LLP
Chicago, Illinois
February 11, 2000
<PAGE>
Exhibit 23.6
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We have issued our report dated February 4, 2000, accompanying the financial
statements of BidBuyBuild, Inc. contained in the Registration Statement. We
consent to the use of the aforementioned report in the Registration Statement,
and to the use of our name as it appears under the caption "Experts."
/s/Grant Thornton LLP
Chicago, Illinois
February 11, 2000
<PAGE>
Exhibit 23.7
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
eFiltration.com, Inc.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/KPMG LLP
Chicago, Illinois
February 11, 2000
<PAGE>
Exhibit 23.8
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use
of our report of i-Fulfillment, Inc. included in or made a part of this
Registration Statement in divine interVentures, inc.'s Form S-1 and to all
references to our Firm included in this Registration Statement.
/s/ Arthur Andersen LLP
Chicago, Illinois
February 9, 2000
<PAGE>
Exhibit 23.9
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
iGive.com, inc.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/KPMG LLP
Chicago, Illinois
February 11, 2000
<PAGE>
Exhibit 23.10
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
i-Street, Inc.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the Prospectus.
/s/ KPMG LLP
Chicago, Illinois
February 11, 2000
<PAGE>
Exhibit 23.11
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the use in this
Registration Statement of our report dated April 18, 1999, included herein, and
to all references to our Firm included in this Registration Statement. It should
be noted that we have performed no audit procedures subsequent to April 18,
1999, and have no responsibility for events and circumstances occurring after
that date.
/s/ Arthur Andersen LLP
Boston, Massachusetts
February 11, 2000
<PAGE>
Exhibit 23.12
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Martin Partners, L.L.C.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the Prospectus.
/s/ KPMG LLP
Chicago, Illinois
February 11, 2000
<PAGE>
Exhibit 23.13
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Mercantec, Inc.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/KPMG LLP
Chicago, Illinois
February 11, 2000
<PAGE>
Exhibit 23.14
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
OpinionWare.com, Inc.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/KPMG LLP
Minneapolis, Minnesota
February 11, 2000
<PAGE>
Exhibit 23.15
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
OUTTASK.COM, Inc.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/KPMG LLP
McLean, Virginia
February 11, 2000
<PAGE>
Exhibit 23.16
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Perceptual Robotics, Inc.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/KPMG LLP
Chicago, Illinois
February 11, 2000
<PAGE>
Exhibit 23.17
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
PocketCard Inc.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/KPMG LLP
Chicago, Illinois
February 11, 2000
<PAGE>
Exhibit 23.18
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Whiplash, Inc.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/KPMG LLP
Chicago, Illinois
February 11, 2000
<PAGE>
Exhibit 24.2
POWER OF ATTORNEY
The person whose signature appears below hereby constitutes and appoints
Andrew J. Filipowski, Michael P. Cullinane, Larry S. Freedman and Mark D. Wood
and each of them his or her true and lawful attorney-in-fact and agent, with
full power of substitution, to sign on his behalf, individually and in each
capacity stated below, all amendments and post-effective amendments to the
Registration Statement No. 333-92851 on Form S-1 (the "Registration Statement")
of divine interVentures, inc. (including registration statements filed pursuant
to Rule 462(b) under the Securities Act of 1933, and all amendments thereto) and
to file the same, with all exhibits thereto and any other documents in
connection therewith, with the Securities and Exchange Commission under the
Securities Act of 1933, granting unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully and to all intents and
purposes as each might or could do in person, hereby ratifying and confirming
each act that said attorneys-in-fact and agents may lawfully do or cause to be
done by virtue thereof.
/s/ David D. Hiller
-------------------
David D. Hiller
<PAGE>
Exhibit 24.3
POWER OF ATTORNEY
The person whose signature appears below hereby constitutes and appoints
Andrew J. Filipowski, Michael P. Cullinane, Larry S. Freedman and Mark D. Wood
and each of them his or her true and lawful attorney-in-fact and agent, with
full power of substitution, to sign on his behalf, individually and in each
capacity stated below, all amendments and post-effective amendments to the
Registration Statement No. 333-92851 on Form S-1 (the "Registration Statement")
of divine interVentures, inc. (including registration statements filed pursuant
to Rule 462(b) under the Securities Act of 1933, and all amendments thereto) and
to file the same, with all exhibits thereto and any other documents in
connection therewith, with the Securities and Exchange Commission under the
Securities Act of 1933, granting unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully and to all intents and
purposes as each might or could do in person, hereby ratifying and confirming
each act that said attorneys-in-fact and agents may lawfully do or cause to be
done by virtue thereof.
/s/ Thomas J. Meredith
----------------------
Thomas J. Meredith
